February 22, 2019
Making Cents of the Markets
Be in the Know
Markets were positive again this week and the big story has been the progress on trade talks, with the Chinese delegation coming to Washington to further negotiations. Just as President Xi met with top negotiators last week in China, President Trump will meet with top negotiators in the US today to try to get closer to striking a deal. It also broke mid-morning on Friday that Trump and Xi are discussing late March as a meeting between the two presidents, although nothing confirmed as of yet. That would be a crucial step to finishing a deal between the two nations.
While this is important and significant progress, nothing is finished as of writing and we will continue to monitor any movement over the weekend. Trump has alluded to the fact that March 1 is not a hard deadline for the deal to be done, and it is likely he will provide an extension. However, the first of next month is still currently the date where tariffs on $200 billion of trade goods will increase from 10% to 25%. We do think that if or when the deadline gets pushed, it will be moderately positive for markets, but if it stays in place and tariffs increase that could be a very tricky road to navigate. A hike in the tariff rate would not be taken well by Chinese negotiators, may break down negotiations, and is likely not priced into the market at this time. Not likely, but outsized risk to the downside in that scenario.
We maintain our cash balances at the same general levels, continuing to monitor conditions. When we see opportunity, we will add small positions. Odds are for a pullback and retest in the market at some point, but that doesn’t mean we are going to go back to the December lows – we think that is not probable at this point and that the lows are in. After a strong move like we’ve seen this year, though, a 4% to 6% correction would be normal. We may also get a longer period of flat returns if the trade negotiation period is extended for 60 days (as rumoured), but we have seen positive progress in the last two weeks which we regard as bullish.
Next week will be telling, as the March 1 deadline is on Friday night at midnight. The US and China have come a long way, and it is in both nations interests to get a deal done. How far will the deal go in reforming some structural Chinese practices? The intellectual property rights and forced co-ventures seem to be on the table at least, but no assurances that they will bend. How much will the US compromise to get a deal done? Tariffs certainly seem to be pushing the global economy into contraction, which would likely spill into the US economy if it gets worse. The 25% level of tariffs would likely turn that push into a shove, and a recession is not something President Trump wants before or during an election year.
Chart of the Week
We showed weakness in the housing sector in Canada last week, so how is the Canadian consumer doing? Retail sales, while they beat expectations with a 0.1% decline vs 0.3% expected, paints a concerning picture. The Bank of Canada will likely remain on hold until we see more inflation pressure:
Quote of the Day
“If you would be wealthy, think of saving as well as getting.” – Ben Franklin
Beyond the Markets
One of the oldest and biggest wine events in the world comes back to Vancouver on Saturday, February 23. With upwards of 50 events over 8 days, the Vancouver International Wine Festival offers a unique wine experience to hobbyists and sommeliers alike. Test your wine-tasting skills with a stop at the Vancouver Convention Centre for the Festival’s Tasting Room which features over 725 wines from all around the globe!
Click here to buy your tickets. Happy tasting!
Listen here to this week’s Making Cents of the Markets on CKNW for part 1 of our Retirement Series. We discussed how best to leave a legacy while overcoming obstacles when managing family dynamics. Listen to part 2 of our Retirement Series on Tuesday, February 26th at 8:40am to learn how to retire happy and what you need to do to prepare for your next stage in life.
Check out our latest North Shore News article here that provides you with helpful tips on how to discuss money with your family.