October 11, 2019
Making Cents of the Markets
Be in the Know
It was a wild ride for investors this week as trade dominated the headlines. It all began with pessimism early in the week after the U.S. blacklisted some Chinese technology firms and restricted visas for Chinese officials. Optimism returned after China offered to purchase more U.S. soybeans and then the news we have all been waiting for…both sides announced a substantial phase one trade deal after the U.S. president and Chinese vice-premier met Friday.
Trump stated that the first portion of the trade deal will be written over the next three weeks. It will address financial services and intellectual property concerns. Farmers won with the promise that the Chinese would increase their purchases of U.S. farm products from $8 billion to $40-$50 billion. Phase two will be starting as soon as possible and we see that being positive for the markets. We have been saying for some time that we felt some sort of deal would be reached in the near term and finally we have some good news!
The president also said he believes that the Fed should cut rates despite positive trade progress, but minutes from the Fed’s September policy meeting were released Wednesday showing there was likely more opposition to its rate cut. The minutes showed debate had grown about when the Fed should stop cutting rates, however there is still a 69% chance that the Fed will cut rates later this month.
In economic data, U.S. consumer price index (CPI) came in slightly weaker than expected at 1.7% vs. 1.8%. U.S. jobless claims came in at 210k vs expectations for a level of 220k. In Canada, the slowdown in manufacturing has been less pronounced. Canada’s manufacturing PMI has held up better than the U.S. ISM, with the former remaining above 50 (signaling expansion). The U.S. job market remains strong, with more job openings than unemployed people seeking a job, but companies are starting to put some hiring plans on hold. The U.S. had just over seven million job openings at the end of August, the Labor Department reported on Wednesday.
The Dow ended the week up 300 points for a nice start to the Thanksgiving long weekend. Canadian markets are closed on Monday, due to the holiday, but we would expect to see U.S. markets continue to rally as trade optimism continues!
As we were confident that positive news would come out of the trade discussions this week between the U.S. and China, we held steady in our equity positions. Our portfolios are positioned to take advantage of any positive news on trade along with protection as we also hold many defensive names that do well in volatile times. This bodes well in a climate where uncertainty is high and when the term “recession” is thrown around on a daily basis. The cash position in our portfolios has remained unchanged at 10% as we wait to hear further concrete news about the trade discussions and phase one. We tend to be more cautious as things develop as we know they can also change in an instant! We believe the mix of slowing global economic data and geopolitical risks is likely to result in higher volatility, but fundamentals appear strong enough to remain constructive. The positive development in trade talks today could be the beginning of the end on the “trade situation”. Both sides need to work out the rest but as long as they appear to moving forward….so will the markets. What a relief!
Chart of the week
The first chart shows the global manufacturing PMI averages over the past 1 year, 6 month and 3 month. The second chart shows the U.S. consumer balance sheet is still positive and growing based on consumers incomes, consumers and savings.
Beyond the Markets
Gobble gobble! It is that time of the year where we get together with loved ones and fill our stomachs with delicious food. If you are looking for an event to mark the season, look no further than the Fort Langley Cranberry Festival. Head down early Saturday morning for pancake breakfast and stay for loads of live entertainment, food trucks, and vendors. Make sure to also pick up a carton of cranberries for your Thanksgiving dinner!
From all of us at Pinkowski Wealth Management, we wish you a happy Thanksgiving!
Listen to this week’s Making Cents of the Markets on CKNW. We discussed the Canadian federal election, the possibility of impeachment, and volatile markets. Listen here.
Take a look here at our latest North Shore News article where we explore different types of retirees! We get insight from our very own clients to give you a better idea of the possibilities you have when entering retirement.