Download SPECIAL REPORT: The First Eleven Days. Less than two weeks into

For the month ended January 31st, 2017
SPECIAL REPORT: The First Eleven Days.
Less than two weeks into his presidency, Donald J. Trump has begun delivering on his
campaign promises at a rapid pace. Shortly after assuming control of the world’s
largest economy, Trump signed a series of executive orders with far-reaching impacts.
Here is a summary of the key events:
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Jan 20: Trump signs his first executive order, repealing the Affordable Care
Act, or Obamacare.
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Jan 23: Trump formally withdraws the U.S. from the Trans-Pacific Partnership
(TPP), a proposal seven years in the making;
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Jan 24: The Keystone XL project is restarted after having been halted by the
Obama Administration, allowing the possibility of Albertan crude to be shipped
to oil hubs in the U.S. and refineries in the Gulf of Mexico;
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Jan 25: Trump signs an executive order to begin construction of a wall along
the U.S.’s southern border. Trump reiterates that he intends for costs to be
paid by Mexico, likely through a tax on Mexican imports. A second order is
signed reinstating the Secure Communities Program, allowing increased
scrutiny of illegal immigrants.
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Jan 26: In protest to the proposed wall, Mexican President Peña Nieto abruptly
cancels a scheduled January 31 meeting with Trump.
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Jan 27: British Prime Minister Theresa May is the first foreign leader to meet
with Trump, discussing stronger ties and Russian sanctions. An executive order
is signed on this day banning refugees and people from entering the U.S. from
seven designated countries, all of predominantly Muslim faith.
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Jan 30: As protests to the travel ban continue across the U.S. and around the
globe, Trump fires acting Attorney General Sally Yates, who defied the order by
instructing Justice Department lawyers to not defend the ban.
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Jan 31: Trump nominates Neil Gorsuch to the U.S. Supreme Court.
With every signed order, press conference, and tweet, markets have reacted positively
to pro-business news, but retreated when headlines threatened economic growth and
job creation. So far, markets have embraced the new changes with the benchmark
S&P 500 and Dow Jones Industrial Average up 6.5% and 8.3%, respectively, from
Election Day to the end of January, while the S&P/TSX Composite has rose 5% for the
same period.
Index/Commodity/Currency
Close
Month Change
YTD Change
S&P/TSX Composite
15,385.96
98.4
98.4
0.6%
0.6%
BMO Nesbitt Burns Small Cap
897.90
17.6
17.6
2.0%
2.0%
Dow Jones Industrial Average
19,864.09
101.5
101.5
0.5%
0.5%
S&P 500
2,278.87
40.0
40.0
1.8%
1.8%
NASDAQ Composite
5,614.79
231.7
231.7
4.3%
4.3%
MSCI-EAFE Index
1,732.38
48.4
48.4
2.9%
2.9%
WTI Crude Oil (per barrel, in $US)
52.82
-1.0
-1.0
-1.88%
-1.9%
Gold (per ounce, in US$)
1,210.56
61.5
61.5
5.3%
5.3%
Canadian Dollar (¢ per US$)
As the new Administration continues to settle in, uncertainty in the geopolitical
76.85
2.3
2.3
landscape is expected to continue, and with it, market volatility. Trade agreements
3.1%
3.1%
such as the TPP and the looming NAFTA renegotiation will have direct impacts on
Canada’s economy and the manufacturing sector, which continues to struggle. The Sources: Bloomberg, PC Bond
Keystone XL project is expected to have a positive impact on the Canadian economy,
since oil is one of our main exports. The changing health of the economy and the on-going market volatility will translate to
fluctuations in the Loonie. The Bank of Canada prefers a dollar weaker than its current levels, as it should stimulate global demand for
our products and jumpstart Canada’s factories.
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S&P/TSX gains. Canada’s main equity index rose on positive economic data reported during the month, aided by the rise in
resource prices. In the first month of the new year, the Composite gained 0.6% to close at 15,386. The Trump rally in the U.S.
also helped the Composite as the investors saw the policies of the new administration helping to extend one of the longest bull
markets on record.
Loonie surges. The Loonie, unlike the previous month, shot upward in January to a four-month high as the U.S. greenback
retreated from its recent run-up. Positive signals of the health of the economy helped in buoying our currency higher. At month’s
end, one Canadian dollar was worth US76.85 cents, a monthly gain of 3.1%.
Gold shines. Despite a rate hike by the U.S. Federal Reserve and a stronger economy, the yellow metal had a monthly gain in
January as investors bought in ahead of the Lunar New Year and bullishness for the resources as the U.S. dollar weakens. The
uncertainty surrounding some of Trump’s executive orders also resulted in increased demand for gold. For the month of
December, gold was up 5.3% to end the year at US$1,210.56 per ounce.
Oil falls. After ending 2016 on a high note, West Texas Intermediate (WTI) crude fell lower in January as U.S. rig and output
data threatened to upset the recent efforts to curb global production cuts and the excess supply inventory that’s burdened the
commodity. On the close, oil ended lower to US$52.82 a barrel, a loss of 1.9%.
S&P/TSX Composite Index
Sector Snapshot
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GDP up. The Canadian economy expanded by 0.4% in November on the backs of
Month
YTD
Weight
Sector
increased construction, manufacturing, and oil & gas production, which was a
Return
Return
(%)
turnaround from October’s decline of 0.3%. The energy sector had the largest
monthly jump rising 3.7% as the price of crude held range-bound during the
-5.61
-5.61
20.10
Energy
month.
No changes in rates. At the first meeting this year, the Bank of Canada held its
2.67
2.67
4.90
Telecoms
benchmark interest rate at 0.5% as many had expected. The central bank also
provided an updated economic outlook, forecasting a 2.1% growth in GDP in 2017
0.51
0.51
8.90
Industrials
and in 2018. However, the Bank cautioned that U.S. President Trump’s policy
Consumer
changes may have negative effects on the economy, requiring continued
-1.45
-1.45
3.80
Staples
accommodative measures.
Inflation lower. Declines in food prices for the third consecutive month sent
1.20
1.20
2.80
Utilities
December CPI lower by 0.2%, as compared to November. Gasoline and electrify
costs rose but were not enough to keep inflation out of the red for the month. The
1.89
1.89
35.40
Financials
weak number was likely a key factor in the Bank of Canada’s decision to leave its
key rate unchanged. On an annual basis, inflation was 1.5%, slower than the 1.7%
Consumer
-0.65
-0.65
4.90
Discretionary
expected by economists.
Unemployment rate edges up. A surge in full-time employment helped the
-3.50
-3.50
0.60
Health Care
economy add 54,000 jobs in December. However, this was not enough to offset
the increased number of individuals looking for work as the national
9.27
9.27
12.80
unemployment rate rose 0.1% to 6.9%. The participation rate also rose to 65.8%
Materials
of people eligible to work. For 2016, the 214,000 jobs added represent an annual
Information
0.26
0.26
2.70
growth rate of 1.2%.
Technology
PPI higher. The producer price index for December matched the previous month’s
gains, largely due to a rise in energy and petroleum prices. For the month, PPI
-0.48
-0.48
3.00
Real Estate
rose by 0.4%, with increases seen in seven of the 21 sectors tracked, while six
were unchanged. The reading was slower than the 0.6% forecasted by analysts.
S&P/TSX Composite - 1Y Return
Wholesale sales higher. For the second month in a row, wholesale sales in
November increased but were just shy of economist expectations. As reported by
18,000
StatsCan, wholesale sales rose 0.2% to $56.9B, shy of the 0.5% anticipated and
17,000
notably slower than the 1.3% in the previous month. Of the seven sectors tracked,
16,000
four declined - with the miscellaneous sectors posting the largest gain. In volume
15,000
14,000
terms, sales declined 0.1%.
13,000
Manufacturing sales higher. Canada’s manufacturing sector saw a bounce in
12,000
November as sales rose 1.5%, beating expectations of a 1% gain, to $51.8B. Of
11,000
the 21 industries tracked, 14 gained, led primary by metals, petroleum and coal,
and chemical sectors. The transportation sector lagged, falling 2.3% on lower
demand for aviation parts and products.
Manufacturing activity higher. The manufacturing sector remained busy in
December on new orders, hitting a two-year high on increased demand in cars and
energy. For the month, RBC’s Manufacturing PMI index rose to 51.8, indicating
continued expansion from the previous month’s 51.5 reading.
Trade surplus for economy. After posting monthly trade deficits for over two years, the economy had a trade surplus of $526M in
November, surprising analyst forecasts of another deficit. Exports rose 4.3%, contributing to the month’s data on rising metal and
mineral product demand and increased shipments to non-U.S. countries.
Retail sales gain. Consumer spending fell short of predictions as November retail sales gained 0.2% to a seasonally adjusted
$45.2B, though in volume, sales were higher by 0.7%. Statistics Canada forecasted a 0.5% gain in receipts as only five of the 11
sectors tracked rose, led by auto sales’ 1.9% rise. Annually, sales are higher by 3%, as compared to 4% in October.
Canada Housing News:
o
Housing starts increase. The pace of home ground-breakings rose in December with annual increases seen across Canada
except for B.C. and the Maritimes. For the month, the annual rate of urban starts rose 11.8% to 207,041 units. Multiple unit
dwellings led the way by increasing 13.9%, while single detached homes rose 8.1%
o
Building permits drop. The number of applications to build dipped in December as activity in Alberta fell the month after a
change in provincial building codes. With a forecast of a 5% decline, actual data reported a 0.1% drop. An increase in residential
permits helped, but was not enough to offset a decline in non-residential structures.
o
New homes prices rise. Continued strength in Ontario bumped up new home prices by 0.2% in November, as measured by
Statistics Canada’s New Housing Price Index. Expectations called for a 0.3% gain as ten of the 21 markets tracked for the Index
were higher. The once-hot Vancouver market saw prices fall 0.3%, its first decline since January 2015.
o
Existing home prices higher. Teranet-National Bank’s Composite House Price index rose higher in December by 0.3% driven by
Toronto and Victoria, which both had a monthly gain of 1.2%. Annualized, existing home prices have risen 12.3%, the largest
increase over a one year period since 2010. Vancouver was one of the four markets that fell with prices falling 0.8%, its third
consecutive retreat.
S&P 500 - 1Y Return (CAD)
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Nasdaq shines. U.S. stock markets remained positive in the new year. Nasdaq was
the biggest gainer among the three major indices. The broad-based S&P 500 index
3,300
gained 1.8% for the month of January, closing at 2,279. The Dow Jones Industrial
Average made history this month by breaking through the 20,000-level for the first
2,800
time, but retreated slightly near the end of the month. At the end, Dow Jones
posted a 0.5% return, closing the first month of 2017 at 19,864. Nasdaq gained the
2,300
most among the three, up 4.3%, wrapping up the month at 5,615.
U.S. GDP growth declines. U.S. economic growth slowed down in the fourth
1,800
quarter. The Commerce Department reported that GDP growth decelerated to an
annualized pace of 1.9% in the final quarter of 2016. Economists were expecting an
annualized pace of 2.2%. For the year, GDP grew 1.6%, the slowest growth since
2011 and down from 2015's 2.6% growth. A strong dollar and the uncertainties
around the election in 2016 were believed to drag on economic growth.
Yellen speaks. Federal Reserve Chair Janet Yellen spoke at a public event,
MSCI EAFE – 1Y Return (CAD)
indicating that the outlook on interest rates movement remained steady despite the
new Trump administration’s focus on spurring domestic growth. Yellen said,
“Economic growth more broadly seems unlikely to pick up markedly in the near
2,500
term given the ongoing restraint from weak foreign demand.” However, she also
2,400
mentioned that the Fed does not want to wait too long to raise rates and let
2,300
inflation get out of control. In its last meeting, the FOMC projected three rate hikes
2,200
in 2017.
2,100
U.S. CPI rises. Consumer prices continued to increase in the U.S. The Labor
2,000
Department reported that its consumer price index (CPI) moved up 0.3% in
1,900
December after rising 0.2% in November. In the twelve months through December,
the CPI advanced 2.1%, the largest year-over-year gain since June 2014. Both
increases were in line with economists’ expectations. The core CPI, which strips out
food and energy prices, increased by 0.2% in December; year-over-year, it was up
2.2%.
U.S. economy creates 156,000 jobs. Despite missing expectations, the U.S. Labor market continued to be robust. The Labor
Department reported that the U .S. economy pumped out 156,000 new jobs in December, lower than economists’ forecast for
an increase of 175,000. The unemployment rate moved up slightly from 4.6% to 4.7%.
U.S. PPI rises. Producer prices rose in December thanks to a surge in gas prices. The Labor Department reported that the
producer price index (PPI) rose 0.3% in December, matching economists’ expectations. Wholesale gas prices rose 7.8% in
December. In 2016, PPI rose 1.6%, the largest 12-month gain since September 2014.
U.S. ISM service index unchanged. The U.S. service sector continued to grow at a solid pace, according to the Institute of
Supply Management (ISM) service sector index. The ISM reported that its service sector index remained unchanged at 57.2 in
December, higher than economists’ estimated decline to 56.5.
U.S. wholesale inventories rise. The Commerce Department reported that wholesale inventories increased by 1% in
November after slipping 0.1% in October. Economists were expecting an increase of 0.9%. It was the biggest jump since
November 2014.
U.S. ‘flash’ PMI jumps. Research group Markit reported that its ‘flash’ service purchasing managers’ index (PMI) rose to 55.1
in January, up from December’s reading of 53.9. It was the highest reading since November 2015. It was also better than
economists’ forecast of 54.4. The manufacturing PMI rose more than expected in January as statistic firm Markit reported that
its ‘flash’ manufacturing purchasing managers’ index (PMI) moved up to 55.1 in January from December’s final reading of 54.3.
U.S. factory activity accelerates. Factory activity rose to a two-year high in the U.S. according to the ISM manufacturing
index. The ISM reported that the manufacturing index climbed to 54.7 in December, the highest reading since December 2014.
Economists’ consensus was for a rise to 53.6. It is believed that a rebound in oil prices contributed to the increase as oil
companies resumed their spending on equipment.
U.S. retail sales rise. The Commerce Department reported that retail sales moved up 0.6% in December, after a 0.2%
increase reported in November. Economists were expecting an increase of 0.7%. Auto sales led the way with a jump of 2.4% in
December.
U.S. consumer sentiment falls. After reaching its highest level since 2004 in December, consumer sentiment pulled back
slightly in January according to University of Michigan. The university’s consumer sentiment index edged down to 98.1 in its
January’s preliminary reading, falling slightly from December’s reading of 98.2. Economists were expecting the reading to rise to
98.5.
U.S. Housing News:
o
U.S. housing starts rebound. The Commerce Department reported that housing starts increased by 11.3% to a
seasonally adjusted annual rate of 1.23M units after sliding in November. Economists were expecting starts to increase to a
1.20M-unit pace. Monthly changes in housing starts had been volatile in recent months. On a separate report, building
permits were reported to fall slightly to 1.210M from November’s 1.212M, below economists’ expectation of 1.225M.
o
U.S. new home sales drop. New home sales tumbled in December. The Commerce Department reported that new home
sales decreased 10.4% from November to a seasonally adjusted annual pace of 536,000 units. It was the slowest sales pace
since February 2016. Economists were only expecting sales to decline by 1.5%. For the year, 563,000 new homes were
sold, an increase of 12.2% from a year earlier.
o
U.S. existing home sales drop. Existing home sales fell more than expected in December as inventory dropped to its
lowest level since 1999. The National Association of Realtors reported that December’s sales declined 2.8% to a seasonally
adjusted annual pace of 5.49M units. Economists were expecting a drop to 5.52M unit pace. Despite the drop in December,
home resales increased to 5.45M units for 2016, up from the 5.25M reported for 2015.
o
U.S. pending home sales rise. Pending home sales increased despite a jump in mortgage rates. The National Association
of Realtors reported that pending home sales in December rose 1.6% from the previous month, higher than economists’
consensus for an increase of 1%. Borrowing costs soared after Donald Trump was elected President as the market expected
inflation to grow under his pro-growth economic strategies.
S&P 500 Composite
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Euro-zone GDP improves in Q4. GDP growth within the Euro-zone rose slightly in the 4th quarter, according to a preliminary
estimate by Eurostat. Eurostat reported that the preliminary ‘flash’ GDP grew 0.5% in Q4, slightly higher than the 0.4% growth rate
reported in Q3. Year-over-year, GDP grew 1.8% in Q4, slightly higher than the forecast of a 1.7% growth.
Euro-zone inflation rises. Headline inflation within the 19-member bloc jumped in January. The consumer price index (CPI)
increased from December’s 1.1% to 1.8% year-over-year in January, higher than economists’ expectation of 1.6%, and the highest
rate since February 2013. Core CPI, which excludes energy and unprocessed food prices, remained unchanged at 0.9%, in line with
forecast.
Euro-zone unemployment falls. Eurostat reported that the unemployment rate within the 19-member bloc dropped in December, a
sign of improvement in the labor market. The number of unemployed dropped by 121,000 compared with November’s fall of 74,000.
The unemployment rate declined to 9.6%, the lowest level since May 2009. Divergences remained wide within the zone though as
core countries such as Germany had an unemployment rate of 3.9%, while periphery like Greece recorded an jobless rate of 23%.
May speaks about Brexit. Britain’s Prime Minster Theresa May delivered a speech around Brexit. After tumbling to a 31-year low,
the British Pound rebounded right after the speech as it provided a certain degree of clarity around the upcoming event. The PM
stressed that Brexit will be a clean break from the European Union (EU), and there will be no partial or associate membership.
However, she failed to address the key question of how trading relationships with other countries in EU will function moving forward.
Euro-zone ‘flash’ composite PMI drops. Eurozone’s ‘flash’ composite PMI fell in January. The gain in manufacturing was offset by
a decline in service activity. Markit’s ‘flash’ composite purchasing managers’ index (PMI) of the Euro-zone dropped slightly to 54.3 in
January, down 0.1 from December’s final reading of 54.4. The manufacturing PMI rose from December’s reading of 54.9 to 55.1 while
the service PMI dropped from 53.7 to 53.6.
Euro-zone consumer confidence rises. Despite some key elections coming up this year, Euro-zone consumers felt more confident
about the economy. The European Commission reported that its consumer confidence indicator rose to -4.9 in January from
December’s -5.1, the highest level since April 2015.
China’s growth on track. The National Bureau of Statistics released China’s GDP data. During the fourth quarter of 2016, the
world’s second largest economy grew at 6.8%, up from the 6.7% reported for the last three quarters. For the entire year of 2016, the
GDP expanded 6.7%, the slowest growth in 26 years, but within the target range of 6.5 to 7.0%.
China exports decline. China’s exports posted its worst fall in seven years. Official data showed that exports fell 7.7% in 2016,
leaving China with a trade surplus of $509.96 billion. The drop was the biggest annual decline since the global financial crisis in 2009.
China’s export sectors are likely to face some headwinds going forward as the Trump administration’s tendency toward trade
protectionism may dampen exports further.
China’s producer prices surge. Producer prices in China continued to rise. The National Bureau of Statistics reported that the
producer price index (PPI) jumped by 5.5% year-over-year in December, higher than economists’ expected rise of 4.6%. In 2016, PPI
fell by 1.4%, the fifth straight year of annual decline. On the other hand, the consumer price index (CPI) rose 2.1% in December,
slightly below an expected rise of 2.2%. In all of 2016, CPI rose 2%.
China manufacturing PMI drops. China’s official manufacturing purchasing managers’ index (PMI) fell slightly in January but
remained in expansion mode. This gauge focusing on state-owned large enterprises fell to 51.3 in January from December’s 51.4. It’s
better than economists’ estimated reading of 51.2.
BOJ stays the course. Bank of Japan (BOJ) kept its monetary policy unchanged, a decision that was widely expected. Still, the
central bank raised its economic outlook, as recent data had shown improvement in exports and manufacturing in the third largest
economy. BOJ raised its GDP forecast of 2017 to 1.5% growth from its previous estimate of 1.3%.
Japan exports rise. Japan’s exports rose for the first time in 15 months. The Ministry of Finance reported that exports increased by
5.4% in December year-over-year, beating economists’ estimated 1.2% rise by a wide margin. That was also a stark contrast to a
reported decline of 0.4% reported in November. A fall in the Yen at the end of last year was believed to boost exports.
Japan manufacturing PMI climbs. Japan’s manufacturing activity expanded at the fastest pace in almost three years. The final
Markit/Nikkei manufacturing purchasing managers’ index (PMI) of January advanced to 52.7 from December’s reading of 52.4, slightly
below economists’ estimated reading of 52.8. It was the fifth straight month the reading remained above the 50-mark and was the
highest reading since March 2014.
Housing in Canada. Over the last few years, concerns over the growth and sustainability of Canada’s housing market have been rising;
in particular, whether any correction would be a hard or soft landing. The latest data provide mixed signals as the number of home starts
across the country rose, while the request for permits for future home buildings declined in December. But the greater focus on
homebuyers’ minds are prices, which continue to rise for both existing and new homes on a national basis. Regionally, however, deviations
can be seen between markets, as Toronto tops all gainers and Vancouver is in the midst of a slow-down. With the possibility of tightening
mortgage rules, government regulations, and rising borrowing rates, the housing market may see some weakness in 2017, with markets
in Eastern Canada leading the way.
Trump takes residency at 1600 Pennsylvania Avenue. With the keys to his new home,
President Trump took control of the world’s largest economy, and presumably set in motion the
promises he made during his campaign. Of the many actions slated for his first 100 days, trade is
a top priority. Trump has withdrawn from the Trans-Pacific Partnership and pledges to
renegotiate the North American Free Trade Agreement. Both are likely to affect Canada. Trump is
also set to change or eliminate the Affordable Care Act, or Obamacare, having made it the
subject of his first executive order, signed just hours after his installment as the 45th U.S.
President. Finally, he is expected to focus heavily on job creation though infrastructure spending
and tax reform. Though only a few weeks into his term, Trump (along with his domestic and
foreign policies) is shaping up to be game-changer for the U.S. and for the world.
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