To my clients:
This update comes unexpectedly a day early as I have fatherly duties to attend tomorrow. I thought I could juggle the various commitments, but it’s probably just easier to work remotely for the day.
To date, it has been a mixed week for North American stock markets with the Canadian TSX so far down 1.2%; the U.S. Dow Jones Index down 0.9%; and the S&P 500 up 0.4%.
Weekly jobless claims were released this morning and, like last week, they came in at 230,000. This is still an exceptionally low figure by historical standards, but it nonetheless confirms the prior week’s increase from 50 year lows. It is still far too early into this data series to conclude that any sustainable uptrend in jobless claims is developing, but it does indeed have my attention. Recall that the trend in weekly jobless claims is one of the main recessionary indicators that RBC tracks. I/we will continue to monitor.
Yesterday, the monthly ISM Manufacturing Index was released and it continued to slow. At 52.8, the index remains in expansionary territory, but hereto, the trend in this index should be monitored for any continued deterioration. It’s worth noting that the ISM Manufacturing Index has dropped down to the low 50’s several times during this 10-year economic expansion and has, on occasion, gone negative for very brief periods. The point being that this metric also requires further monitoring but, at present, is not yet something to react to. Tomorrow sees the release of the ISM Services Index and the monthly Employment Report.
Also of note this week, during yesterday’s Federal Reserve press conference, Chairman Jerome Powell downplayed the need for an interest rate cut anytime soon (if at all). This disappointed the markets which, until that point had been enjoying a modest “up” day. Markets turned negative in the wake of Mr. Powell’s comments. It’s noteworthy that Mr. Powell also observed that the economy “is in a good place”.
Lastly, there are growing rumours that a China/US trade deal is very near. Time will tell, but good news on that front would certainly remove an overhang that the market has been grappling with for the past year. It’s likely the case that the markets have already priced in most, if not all, of the benefits of any such agreement, so I wouldn’t necessarily expect the markets to surge on any positive announcement. But I’d expect a deal would certainly help establish a supportive base from which markets can incrementally build over the coming months and years.
That’s it for this week. All the best,
Nick Scholte, CIM, FCSI
Vice-President & Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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