As we close out this holiday shortened first week of August, the “dog days of summer” are really showing themselves as trading volumes are on average about 25% below normal. The unfortunate side effect of low trading volumes tends to be higher volatility, but we see this as a short term anomaly to be ridden out without much trepidation.
Over the past few weeks we have commented on the Bank of Canada’s outlook for the Canadian economy being a bit more muted as of late, however we do continue to see signs of optimism. Last week we mentioned that support services for both the mining and energy sectors recently witnessed an increase in drilling and rig servicing activities. This week Statistics Canada noted that Canadian exports increased 6.3% during the month of June, prompting TD Bank economist Diana Petramala to comment in an interview that “Canada has likely skidded through the soft patch and is ready for a comeback over the next two quarters, with momentum in both consumer spending and exports underpinning our view of a rebound in economic growth. The non-energy sector is likely to continue to benefit from an improving U.S. economy and low Canadian dollar – which is currently at its lowest level since 2004.”
While we do believe that June’s rebound in exports is a good sign it does not signal to us that our economy is totally out of the woods yet. This would require a stretch of continued positive economic data points to make us more confident that a rebound is on more solid footing. But we will take the baby steps and be patient.
There is still some debate on whether or not the Federal Reserve will increase their key overnight interest rates in September. With employers adding 215,000 jobs in July and an unemployment rate holding steady at a seven-year low of 5.3% signaling that higher interest rates represent an appropriate policy, we tend to believe that Janet Yellen and the FOMC will raise rates for the first time since 2006.
Turning our eye towards the global markets, we have seen nearly 90 percent of the S&P 500 companies report earnings, with nearly three-quarters topping analyst estimates. However what has weighed on the markets recently has been the pace of growth in those earnings. Thus the combination of lower trading volumes, perceived slowing of earnings growth and an already fairly priced marketplace, has led to the modest negative index performance we have seen over the past few weeks. A period in time when holding slightly higher levels of cash or other short term fixed income while longer term growth opportunities can be evaluated and taken advantage of.
Greece, for the most part, has been on the back burner for the past two weeks since the crux of the debt payment deadlines came and went, however, this week we did see the Greek stock exchange re-open for the first time in 5 weeks. It certainly wasn’t a pretty day for Greek traders and money managers as their markets finally got to react to their debt debacle, resulting in a decline of nearly 20% on Tuesday. As one of our bond traders put it “with the IMF now saying that they won’t support another bailout, it would be foolish to pretend the Greece issue is even close to being out of the way.” So stay tuned and who knows, you might just be able to put that Greek Island on your Christmas wish list to Santa.
For the most part the world capital markets, while negative for the week, were pretty quiet, without a lot of news to make one concerned about their longer term asset holdings.
We fully expect to see fairly quiet markets over the remainder of August, with most markets returning to normal after Labour Day.
We, as will many of you, are taking family holiday’s this month. And as such our Weekly Market Watch will be taking a two week break.
We never forget that working for our clients is an expression of your trust, and we promise to always uphold that trust. Thank you.
As always, we welcome your feedback.
Have a great weekend.
The Dekker Hewett Group