We have no control over what happens south of the border

Market Report

All the news this past week was dominated by one word (impeachment). Of course, we have no control over what happens south of the border despite the fact these headlines are market movers.

You know the saying you cannot see the forest for the tree blocking your view. So the big picture that will come into focus over the next few weeks is reporting season. I will explain.

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Four times a year publicly traded companies which make up the financial markets (stock markets) report their earnings per share. It is like going to the doctor for a physical. A report better than expected means a clean bill of health. If they report poor results the economy is said to be sick and is followed up with companies laying off employees and the end result is usually a recession. The other thing that happens during the third quarter (October) reporting period is that companies will state how they think their sales and profits will be going forward. So this next week should give us a good indication on the health of not only the North American Economies but also the Global Economy as the big Multi Nationals depend on Global sales not just the US, Canada and Mexico. We just came through what is called the danger month, Sept. It historically has the worst returns (-.62 %). We are now entering the period from October to April and that is historically the best time period for growth.

In other news

The BDYI Global shipping index dropped to 1,875 which is a good number but suggests shipping peaked recently as companies geared up for the holiday season coming up. The Vix fear index is sitting at 17.22 which is up and that is because of the fear caused by a possible impeachment of president Trump and the markets are split on whether that is a good thing or a bad thing for markets.

The cheapest gas price in Saskatchewan is 98.3 at Gas Plus in Rosthern and the most expensive is a possible typo as it shows 159.0 at the Co-op in Porcupine Plain. The cheapest gas in Manitoba is 103.9 at the two Costcos in Winnipeg and the highest is 124.9 once again at the Petro-Canada in Flin Flon.

The WTI oil price is sitting at 56.18 and nothing seems to be able to move the oil market out of a range from $50 to $60.

This week’s quote:

The Genius of Impeachment lay in the fact that it could punish the man without punishing the office - Arthur M Schlesinger Jr.

Impeachment drama pushes trade optimism aside and sinks stocks

News that Democrats in the U.S. House of Representatives will launch a formal impeachment inquiry pushed equity markets lower this week. History suggests any potential impeachment proceedings probably won’t change existing market trends, but investors worried that the political turmoil could get in the way of other pressing business, such as the congressional ratification of the United States-Mexico-Canada Agreement (USMCA), and the completion of a trade deal with China. Although stocks staged a partial recovery, sentiment turned cautious again after more details of a whistle-blower complaint were revealed.

Seemingly pushed to the back burner amid the impeachment talk, was increased optimism about U.S.-China trade negotiations. After China granted tariff waivers to several companies to buy U.S. soybeans, U.S. Treasury Secretary Steven Mnuchin confirmed Chinese Vice Premier Liu He would come to Washington in early October for high-level talks. In addition, U.S. President Donald Trump expressed optimism a deal could be reached. Hopes deflated though on Friday after reports that Trump administration officials were discussing ways to limit U.S. investors’ portfolio flows into China.

Health care posted the biggest drop among S&P/TSX sectors, once again due to pressure on cannabis stocks. Already struggling this year with supply issues, a slow retail rollout, and regulatory difficulties, the group is now under scrutiny for the possible role of cannabis-related products in the escalating incidence of severe vaping-related illnesses. The energy sector fell as oil prices continued to give back the gains seen after drone attacks on Saudi Arabian production facilities two weeks ago. An unexpected increase in U.S. crude stockpiles, a partial ceasefire in Yemen, and reports of a faster-than-expected recovery Saudi production pushed prices back to near their pre-attack level. The materials sector was also weak as gold prices retreated. The defensive utilities and real estate sectors were the only TSX sectors to make gains.

The energy, health care, and communication services sectors led decliners in the S&P 500. Like in Canada, defensive sectors – utilities, staples, real estate – posted gains. Economic data, on balance, looked to be clearly improving. Better than expected readings came in for new home sales, unemployment claims, third quarter GDP, durable goods orders, and purchasing managers indices (PMIs). Marring the string of good news, the Conference Board’s Consumer Confidence Index took a hit this month.

In contrast to the U.S., European data pointed toward a deepening slowdown. Economic confidence measures dropped, and PMIs were disappointing, especially in Germany. Britain was the only European equity market to gain meaningful ground, after the U.K. Supreme Court ruled unanimously that Prime Minister Boris Johnson acted unlawfully in proroguing (i.e., suspending) parliament. Brexit uncertainty continues, but the decision lowers the probability of a no-deal exit. Major Asian markets were all down. Japanese equities climbed after Bank of Japan Governor Haruhiko Kuroda suggested the possibility of stimulative short-term interest rate cuts, and the first phase of a new trade deal with the U.S. was signed, but dropped at the week’s end as many stocks began trading “ex-dividend”.

What’s ahead next week

Canada

• Industrial Products and Raw Materials Price Indices (August)
• Gross Domestic Product (July)
• Markit Manufacturing Purchasing Managers Index (September)
• Int’l Merchandise Trade (August)

U.S.

• Markit, ISM Purchasing Managers Indices (September)
• Construction spending (August)
• Factory, Durable Goods Orders (August)
• Employment reports (September)
• Trade balance (August) 

© Melita New Era

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