To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 0.5%; the U.S. Dow Jones index up 2.0%; and the U.S. S&P 500 up 1.8%.
As expected, the overhang of the U.S. debt ceiling limit being breached generated lots of media headlines but, like every instance since 1917, the matter got resolved. While there is always a first time for everything, the obvious folly of allowing the debt ceiling limit to be breached reinforces my opinion that it would be equal folly to “defensively position” (i.e. sell good quality equities) portfolios on the prospect that maybe this time will be the first time.
Quick hits on three significant economic releases this week and as well as a comment from the nominated Vice-Chair of the U.S. Federal reserve:
The ISM Manufacturing Index remains in contraction territory. At a reading of 46.9, this is the seventh consecutive month the index has been below the 50.0 dividing line between expansion and contraction. That said, it’s interesting to note that the last 5 readings beginning with February really have not shown any continued deterioration with all hovering fractionally either side of a 47.0 reading.
The weekly jobless claims have also confirmed the recent reversion and stabilization from a spike in claims 3 weeks ago. Perhaps one more week of stabilized claims data will be enough for me to assert the spike three weeks ago was a blip.
Certainly this morning’s Employment Report continues to suggest the U.S Labour market remains strong. The headline number of 339,000 jobs created is, by historical standards, strong. There was some murkiness beneath the headline number that suggests not all was as rosy as the headline number proclaims, but that would be picking nits at this point. Overall it was a good report.
Philip Jefferson, Vice-Chair nominee of the U.S. Federal Reserve, said this week that perhaps the Fed might “skip” a rate increase at this month’s June meeting. Is a “skip” a “pause”? And might a “pause” lead to the end of this rate hike cycle? Clients will know that I think the Fed should have stopped raising rates some while ago, but this seems to be the first overt messaging by the Fed that the end might be here. That said, will today’s strong employment report change this thinking? We will find out in two week when the next Fed meeting is held.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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