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Frank Mueller

Weekly Update – August 11, 2017

“Genius is a short memory in a bull market” – J.K. Galbraith

TSX Drops on Financial & Telecom Selloff

The Toronto Stock Exchange’s S&P/TSX composite index ended Friday down 40.87 points, or 0.27% to finish the week at 15,033.38. For the week, the TSX was down 224.59 points, or 1.47%, from last week’s close of 15,257.97.

The decline was broad, with 6 of the TSX’s main 10 groups posting losses on the day. In particular, the Financials group dropped 0.4%, and the Telecoms group was pulled down by some lower-than-expected earnings from major telecom company Telus.

The Materials group lost 0.6% on Friday, but the Energy group was relatively flat.

Oil prices sagged this week, with a barrel of West Texas Intermediate crude oil falling 1.5% for the week, while Brent crude oil dropped by 0.6% this week. Although U.S. crude inventories fell by 6.5 million barrels, analysts were quick to point out the seasonality of the decline.

The Loonie rose by 47 basis points to finish the week at 78.91 cents against the Greenback, though on the week, the Loonie suffered a slight drop versus last week’s finish of 79.02 cents.
Gold rose to $1,296.60 USD per ounce on Friday, up 3.35% for the week.

Tensions with North Korea Weigh on Stock Markets

Increasingly aggressive posturing by the North Korean and U.S. leaders had an impact on the markets this week, with most U.S. indexes posting losses from Tuesday through Thursday, before a small rally on Friday.

Earlier in the week, President Trump threatened to “unleash fire and fury” upon North Korea. The North Korean dictatorship responded in kind by threatening to launch a missile at Guam, a U.S.-held territory in the Pacific Ocean. Today, Trump tweeted that “Military solutions are now fully in place, locked and loaded, should North Korea act unwisely”.

The U.S. markets were also affected by soft inflation figures, and analysts pointed out that the U.S. Federal Reserve may act more cautiously toward further rate increases in the near future, a positive piece of news for equity investors. Reuters has reduced the odds of a December rate hike to 28%, down from 46% as of last week.

The inflation numbers did have a downward pull on the Greenback, as it lost ground against many foreign currencies.

The S&P 500 Volatility Index (VIX) hit 9-month highs in the wake of the North Korean/U.S. tensions.

Sources: Thomson Reuters DataStream, Globe Advisor

Frank Mueller

Weekly Update – August 4, 2017

“The biggest problem is not to let people accept new ideas, but to let them forget the old ones” — John Maynard Keynes

TSX Rises, Jobs Growth Keeps Rate Hike Door Open

The Toronto Stock Exchange’s S&P/TSX composite index closed at 15,257.97, up 0.43%, or 66.01 points on Friday. The Friday closing number represents a 0.85% increase on last week’s finishing mark of 15,128.65.

Decreased energy shipments pulled Canadian exports down in June, further widening the trade gap; however, strong and sustained jobs growth is keeping the door open for further rate hikes in 2017. The export numbers, however, did weigh on the Loonie on the way to a close of 79.02 cents U.S., down .39 of a cent.

Gold futures dropped 1.1% to $1,254.5 per ounce, which weighed on Gold miners both north and south of the 49th.

Crude oil rose by 49 cents (USD) to close at $49.52 per barrel, although the data showed strong U.S. output and rising OPEC output which might usually lead to a drop in oil pricing.

Strong U.S. Jobs Report for July & Notes on Earnings Season

The non-farm payrolls number increased in July by 209,000 jobs, beating the street expectations of 183,000 jobs. In addition, the June jobs numbers were revised upward, from 222,000 jobs to 231,000 jobs.

U.S. unemployment dropped to 4.3%, although it should be noted that “unemployment” figures do not count employable people who are not actively looking, or who have been actively looking for over a year. Still, 4.3% is a respectable figure.

The potential knock-on effect of the strong jobs figures was felt as analysts increased the odds of a December rate hike from 46% to 50%. The Federal Reserve may also consider shrinking its $4.5 Trillion bond portfolio starting in September.

Although the S&P 500 is currently trading at 18 times expected earnings (the 10-year average is 14 times earnings), the strong earnings season has partially mitigated fears of over-valuation. The S&P 500 closed Friday at 2,476.83, a modest increase of 4.67 points, or 0.19%.

The Dow Jones Industrial Average (DJIA) rose above 22,000 for the first time ever on Wednesday, amidst hitting record highs for 8 straight days as of Friday. The DJIA closed Friday at 22,082.12.

Sources: Thomson Reuters DataStream, Globe Advisor

Frank Mueller

Weekly Update – July 28, 2017

“It’s easy to meet expenses – everywhere we go, there they are.” — Anonymous

TSX Flat (Again) as Rising Oil Offset by Financials, Energy and Consumer-Discretionary

The Toronto Stock Exchange’s S&P/TSX composite index closed at 15,128.65, a drop of 0.41% for the day. The Friday closing number is a small decrease compared to last week’s finish of 15,180.93. The Loonie was at 79.76 cents to the USD at time of market close. 9 of the 10 main index groups lost ground on Friday.

Fears of oil oversupply tend to wax and wane, and this week they waned. Consequently, Friday saw surge in oil prices, and U.S. crude finished at $49.71 (USD), its highest mark since May. The surge can be attributed not only to a recent demand run but also to potential signals that Saudi Arabia may reduce supply in August; finally, traders also felt some short-covering was at play as well.

S&P Earnings Season Continues

As earnings season continues, now just past the halfway mark, the S&P 500 was weighed down by negative investor reactions of some high-profile companies’ earnings reports. However, the Dow Jones Industrial Average (DJIA) was bolstered by some positive results.

So far, earnings season overall has been strong. In addition, data has shown the U.S. economy accelerated during Q2 on increased consumer spending and increasing business investment in equipment. The DJIA closed at 21,830.31, a modest increase of 33.76%, while the S&P 500 dropped 3.32 points to finish at 2,472.1. The NASDAQ dropped 7.51 points to 6,374.68.

Repeal of Affordable Care Act Fails, Investors Concerned About Tax Cut Agenda

In a stunning turn of events, the Republican-Majority Senate failed to win a simple majority vote to put into effect the so-called “Skinny Repeal” of the Affordable Care Act, dubbed “Obamacare”. It is unusual for a vote to be called without victory already assured, so this public defeat of the repeal was an embarrassing result for the Republicans.

The inability to follow through on what amounts to a 7-year long promise to repeal Obamacare has led investors to question President Trump’s ability to push through other major agendas, such as the Wall Street-friendly tax reform promise.

Naturally, this speculation acted as a counter to the promising Q2 economic data mentioned above.

OSFI Proposes a Conventional Mortgage “Stress-Test”

The Office of the Superintendent of Financial Institutions (OSFI), an independent agency of the Government of Canada, was established in 1987 with the task of ensuring a solvent Canadian financial system. They supervise and regulate federally regulated financial institutions as well as private pensions that are subject to federal oversight. “Federally regulated financial institutions” covers a broad base, including all banks in Canada, all federally incorporated or registered trust and loan companies, insurance companies, cooperative credit associations, fraternal benefit societies and private pension plans.

In the face of increasing Canadian household indebtedness, inflated housing markets in Vancouver and Toronto (among others), increasing numbers of new uninsured mortgages (20% down payment or greater) and a higher number of uninsured mortgages coming in at or near the minimum of 20% down, and of course the current low-rate environment, the OFSI has proposed the introduction of a second “stress-test” qualifying rate. The first such stress-test was introduced last year and applied only to high-ratio (less than 20% down payment, thus requiring CMHC default creditor insurance) mortgages.

This month, the OFSI released a set of proposals to tighten the conventional mortgage market. With the new proposals, buyers with greater than 20% down will now have to qualify using a stress-test rate of 200 basis points (2%) higher than the going street rate offered by the lender. For example, a lender offering a 5-year fixed rate of 3.00% would mean that a prospective borrower would need to meet GDS and TDS servicing ratios using a stress-test rate of 5.00%.

We’ll have a more concrete break-down on the new regulations if they come to pass, but in the meantime, an educated guess could see a hypothetical timeline of something like this:

• Federal Government announces new stress-test for uninsured mortgages per above, to take effect on January 1, 2018 (again, purely hypothetical date here)
• Would-be buyers who know they cannot qualify under the new stress-test, but can qualify currently, will most likely flood the market to try to make a purchase prior to the new regulations taking effect
• As a result, a short-term spike in housing prices prior to the new regulations is highly possible
• After the regulations take effect, there would be a natural reduction in demand (due to the stress-test rate introduction). This could lead to a pullback in real estate pricing
• There is the potential of an influx of sellers prior to the new regulation, in anticipation of the demand-side changes outlined above

In reality, it’s anyone’s guess if the OFSI will follow through on their proposal to the Federal Government, and if they do, that doesn’t mean the above hypothetical scenario will play out exactly as we’ve outlined it, but there is certainly a non-zero chance that our hypothetical scenario plays out as-is.

Sources: Thomson Reuters, Globe Advisor

Frank Mueller

CI Investments NEW Preferred Pricing Program – How Does It Work?

Many of our clients hold at least some CI funds, as CI has a stable of strong fund managers who have proven track records of sound fund management and good returns. Indeed, many of the CI funds that we recommend are top performers in their respective sectors.

We are happy to announce that CI is introducing a revamped Preferred Pricing program. Previously, in order to get set up with Preferred Pricing, eligible clients had to sign some documents to authorize the move their fund(s) into the reduced fee fund version(s). Eligible clients will receive a letter in the mail from FundEX about this.

Now, however, eligible clients will automatically have the reduced fee option triggered. Clients don’t need to do anything to receive this lower fee. Your statement will simply show the switch transaction on it.
For clients eligible for reduced pricing within their Non-Registered accounts, rest assured that this automatic switch will not trigger any taxable event and will not receive any other paperwork, such as fund fact documents, as the funds themselves won’t change.

CI is also rolling out an extended family account linking option which can be very beneficial and result in significant savings. Eligible family members who reside in the same address – and now even at different addresses! – can combine family assets for additional savings.

Should you have any questions about these changes, don’t hesitate to contact us at You First. We’re happy to let you know if you qualify for the automatic reduced pricing, as well as if your family qualifies for the family account linking.

Anthony Sabti

Weekly Update – July 7, 2017

Look on every exit as being an entrance somewhere else.” – Tom Stoppard

The Next Chapter of You First Financial & Benefits Consultants

Today marks the end of my first week as owner of You First. Odette & Terry’s presence will be missed, but their values and principles will continue to guide the company’s future. We will continue to provide timely service and professional, sensible advice. We are here to help you meet your financial planning objectives. Most importantly, know that we ALWAYS have your best interests in mind when we consider any question or situation you may have.

I look forward to meeting with you in the weeks and months to come. In the meantime, enjoy your long-awaited summer!

Anticipation of Rate Hike, Oil Price Declines pull Toronto Stock Exchange to 7 ½ Month Low

The Toronto Stock Exchange’s S&P/TSX composite index dropped 50.84 points to finish the week at 15,027.16. However, during the Friday trading session, the TSX dropped for a time as low as 14,916.94, its lowest point since November.

Expectations of Bank of Canada rate hike, as well as encouraging June jobs numbers, pushed the Loonie up to 77.6 cents (U.S.). Rate hike anticipation has also led a few of the larger banks – Royal Bank of Canada among them – to increase their mortgage rate offering.

Oil prices dropped by 2.5% drop in oil prices today alone, on news of OPEC exports reaching their highest levels in 2017. The constant “will they or won’t they” questions surrounding potential OPEC production cuts again veered to the “they won’t” camp, as analysts raised doubts about OPEC’s efforts on the matter. Brent futures dropped by $1.36 (U.S.) to close the week at $46.28 per barrel, while West Texas Intermediate dropped by $1.28 (U.S.) per barrel to finish at $43.78.

In the United States, Wall Street reacted positively to strong U.S. jobs data, as the S&P 500, the Dow Jones Industrial Average (DJIA) and the NASDAQ all posted strong increases. Analysts project a 51.5% chance of a December rate hike by the U.S. Federal Reserve; however, policymakers have differing opinions on inflation, which dropped further below the Fed’s 2% target. This differing opinion has cast doubts on future rate hikes.

Sources: Globe Advisor

Frank Mueller

Weekly Update – June 9, 2017

“An ounce of performance is worth pounds of promises” – Mae West

Toronto Stock Exchange Rises to End a Busy Week

The Toronto Stock Exchange’s S&P/TSX composite index, bolstered by strong Canadian jobs data and gains in the financial sector, rose by 50.12 points to close at 15,473.21 to close out a news-filled week. However, only 3 of the 10 main sectors posted gains for the day.

Statistics Canada reported a substantial rise in employment levels for May. The Canadian workplace added 77,000 new full-time jobs in May. Somewhat ironically, the unemployment rate actually rose to 6.6%, due to an increase in people entering the jobs market. Still, the May jobs numbers offer no sign of a market slowdown, so we can expect the economy to continue its trajectory in the short-term. Job gains for the month were highest in BC, Ontario and Quebec.

On Friday, the Dow Jones Industrial Average closed the week at 21,271.97 on a rise of 89.44 points, the S&P 500 lost 2.02 points to close at 2,431.77 and the NASDAQ slipped by 113.85 to close at 6,207.92.

“Triple Threat Thursday”, Part I

The much-anticipated open-session testimony of former F.B.I. Director James Comey took place on Thursday morning. Mr. Comey testified that he took detailed notes of his meetings with President Trump because he felt Mr. Trump would lie about those meetings. He further asserted that in his opinion, he was directed by Mr. Trump to end the F.B.I. investigation of former National Security Advisor Mike Flynn. Mr. Comey also said he believed he was fired because of the investigation into Russia’s meddling in the 2016 Presidential Election.

Initial reaction to the testimony in the markets appears to have been muted, with some analysts feeling that Mr. Comey’s testimony wasn’t damaging enough to the President to seriously threaten his position; however, it should be noted that Mr. Comey was later questioned by the Senate committee in a classified (closed-session) hearing that could be far more damaging to the Mr. Trump and his administration.

“Triple Threat Thursday”, Part II

European Central Bank chief Mario Draghi signaled that he had no plans to cut back the bank’s stimulus, even though reports of the Euro zone growing rapidly on Thursday morning. Mr. Draghi stated that he expects the ECB will “be in the market for a long time”. His commentary led to a jump in European bonds and a short-lived drop in the Euro and bank shares, as signs of a Euro zone bank rescue in Italy led to a rebound in bank and energy stocks.

“Triple Threat Thursday”, Part III

In what could gently be called a “political gamble gone awry”, British Prime Minister Theresa May’s calling for a snap election – designed to strengthen her majority – did not end the way she’d have liked. She called for an election a month ago, emboldened by a double-digit lead in the polls, and with the goal of silencing those who wanted to stop or reverse the Brexit process.

Her goal gaining on her majority backfired, as the Conservative Party lost 13 seats, dropping from a Majority Government holding 331 seats in the 2015 Election down to a 318-seat Minority Government.

The resulting uncertainty around the Minority Government led to the largest drop in the Pound Sterling in 8 months, before it rebounded slightly on Friday.

Sources: Globe Advisor, Huffington Post, The Guardian