Over the past few weeks, global economic surprises have leaned on the positive side. The impact of lower oil prices and interest rates have been filtering through the economy and improving business and consumer sentiment. Also, the weakness in commodity prices has pushed global inflation lower; the net result is increasing disposable income and spending.
Regarding the economic statistics we have seen over the past week, we saw US retail sales increase by 0.3%, and the Michigan Consumer Confidence Index has increased to 89.4, a level not seen since 2007. This trend continued today as we saw CPI (Consumer Price index), existing home sales and the leading Indicators index all higher. Now this is not to say that every economic indicator was positive, as it was not, we did see initial Job Claims a little higher than expectation as well as a lower Purchasing Manager’s Index data point today as well.
Given the continued positive economic data south of the border, we have been increasingly talking to investors about increasing their ownership of the US Consumer related assets. For some of you that means adding the Vanguard Consumer Staples ETF, while others it may mean adding to already existing positions such as the Fidelity US Monthly Income or Small Cap America Funds (depending on risk profiles and needs).
Within Canada this week was saw inflation pick up more than forecast, as the broad and core consumer price indices accelerated at 2.3% and 2.4% respectively, led by clothing and gasoline. Our Canadian Dollar is also gaining this morning on this data and is currently at its highest point in over a month. The Bank of Canada next meets to discuss interest rates and set its monetary policy December 3rd. While we do not expect to see any increases to interest rates, their commentary will be closely monitored for any changes to their current dovish tone.
One very important corollary for the Loonie is China, where we did see a surprise interest rate cut by the PBOC (People’s Bank of China) this morning. China cuts its benchmark interest rates for the first time since July 2012 as leaders stepped up their support of the world’s second largest economy. This move sent the prices of the input commodities they consume noticeably higher, and thus the corresponding currencies of those producer countries. This morning we have seen Oil, Gold and Copper all move higher, sending the Canadian, New Zealand and Australian Dollars higher as well. In a note this morning to clients, Bipan Rai, director of foreign-exchange strategy at CIBC World markets, said “If it works out the way the Chinese Government intends, it could put further domestic demand in the Chinese economy, which should translate into stronger growth for a lot of these commodity currencies.”
Given all the central bank activity around the world and the positive economic data out of the United States, it looks to us that the world economy has performed the soft-landing scenario, as opposed to a more dramatic hard-landing that many were predicting at the beginning of the year. Unfortunately for Canada, as the soft vs hard landing scenarios played out we saw declining commodity prices negatively impact our markets and currency.
To end of this week’s commentary we came across a couple of interesting anecdotes that we thought you would enjoy.
Capital Markets related, if you owned Apple as a private company, you could sell it today for nearly $675 Billion Dollars and purchase then “entire” Russian Capital Market. Or to put another way, Apple is worth more than all of the public companies in Russia combined.
Another capital market related, but more Holiday related item is that apparently American pigs are too fat for the Holiday ham this year, according to a report on Bloomberg yesterday. American hogs are weighing the most ever at auction, coming in with an average weight of 97 kilograms per hog. The result is that the popular “spiral-cut ham” prices are up nearly 30% since Labour Day, since nearly half of all annual ham consumption takes place between US Thanksgiving and Christmas. Therefore, Americans can expect to pay a little bit more for the approximately 90 million dinner hams they will purchase this month and next.
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As always, we welcome your feedback. Have a great weekend.
The Dekker Hewett Group