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Mark J. Moskowitz, CFA
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Volume 22, Issue 25
Aug 20, 2018.
Aug 17
Aug 10
Net Weekly
Change %
DJIA 25,669.32 25,313.14 +356.18 +1.39%
Nasdaq 7,818.58 7,839.11 -20.53 -0.26%
S&P 500 2,850.13 2,833.28 +16.85 +0.59%
S&P/TSX Index 16,323.71 16,326.51 -2.80 -0.02%

Source: Globe & Mail

Turkey, Trade... What, Me Worry?
Sal Guatieri
BMO Senior Economist

Like the President, U.S. financial markets seem immune to stormy weather, be it another tell-all book about the behind-the-scenes drama at the White House; or, for markets, another emerging nation paying the piper for past sins. In fact, markets appear to be stick-handling Turkey’s turmoil and the ongoing trade trauma fairly well. The S&P 500 is now within spitting distance of January’s record high, up 6% on the year. It helps when: 1) your currency is the one safe harbour that investors steer towards when global seas get rocky; 2) your economy is the envy of the Western world; and, 3) your biggest companies are hitting it out of the earnings park. Walmart soared 10% on news that quarterly revenue rose the fastest in over a decade, while sturdy July retail sales suggest cash registers will keep ringing for most stores. It also helps when longer-term rates refuse to follow the Fed’s tightening playbook. The 10-year Treasury yield has dipped to 2.85% from May’s 7-year high of 3.11%, despite the June rate hike and the FOMC’s expectation of two more moves this year. Market sentiment was also lifted by news that U.S. and Chinese officials are set to resume trade talks next week, just before another tariff tranche is set to kick in. Souring the mood is the U.S. threat of new sanctions on China if it doesn’t stop buying Iran’s oil this autumn.

The Turkish lira found a toehold mid-week, though big dives at the start and end have sliced more than a third of its value this year. The Brazilian real and South African rand also sank, stretching their losses to double digits for the year, as investors hit the sell button on countries with similar economic and financial problems as Turkey, notably large trade and budget deficits and lofty inflation (or all three, as per Venezuela and Argentina). The lira found some support after Qatar pledged to inject $15 bln of funds into Turkey. As well, Turkey’s finance minister said everything one would expect to calm market nerves: ruled out capital controls, praised bank stability, pledged to corral inflation and deficits, and dismissed the need to go cap in hand to the IMF. However, a big sword hanging over the lira’s head is Trump’s threat to impose new tariffs on the country if it doesn’t release a U.S. pastor.

The U.S. dollar index is pushing 15-month highs, stretching its gains for the year to 4%, and even drawing a tweet of praise from the President. Rare is a currency to stand up to the mighty greenback this year, but the Japanese yen and Mexican peso are putting on a brave face. The peso’s strength reflected optimism (again) on the NAFTA front, at least with respect to a bilateral deal, after top U.S. trade official Lighthizer said he was hopeful of an imminent “breakthrough” in talks with Mexico (while again warning Canada to make concessions if it doesn’t want to remain a bridesmaid).

Fear that Canada might be left at the NAFTA altar continues to clip the loonie, which is down 5% against the greenback this year and can’t seem to hold its head above 77 cents US (or below US$1.30). The currency shrugged off reports that the housing market is steadying, not crashing, in the face of tougher mortgage rules and higher interest rates, and that manufacturing is motoring, with exports finally kicking into gear. News that CPI inflation has a 3-handle for the first time in nearly seven years raised chatter of a September rate hike; but, with the three core rates still averaging bang on the 2.0% target, the market (and us) still sees the Bank holding its fire until October.

The TSX sagged this week and is treading water on the year, undercut by the latest rout in resources. The CRB futures index dipped further and is down 9% from May’s high. China’s “slowing” economy (if you can call 6.7% y/y growth slow) isn’t helping, it’s the world’s largest metals consumer. Dr. Copper, in particular, could use a shot of adrenaline as it mines bear market terrain, down 21% from June’s peak. The yellow metal isn’t doing much better than the red one, with gold prices cratering 13% in the past four months to 1½-year depths. Despite foreboding from end-of-world types, the greenback, not gold, is the perennial safe-haven asset. Oil prices also pulled back for a seventh straight week (WTI $66) on a surprising build in U.S. storage tanks.

Whether U.S. markets can continue to weather the storms is unknown, but the domestic
coast could remain clear this year given the economy’s fiscal tailwind.

Have a great week.

Frank & Mark

Source: Globe & Mail, BMO Capital Markets, Bank of Canada

Toronto’s S&P/TSX Composite Index finished the week virtually unchanged. But the materials and energy sectors, which together comprise almost one third of the index by weight, were hit hard by the fall in commodity prices. While prices are, in part, a direct reflection of the strong U.S. dollar, both the commodity prices and the dollar strength also reflect concerns about the growth outlook in China and the demand for raw materials. Copper and zinc prices dropped to their lowest level in more than a year, with copper now down more than 20 percent since June. Gold dropped to an 18-month low. Oil prices were further pressured by an unexpected build in U.S. crude inventories. West Texas Intermediate (WTI) oil traded down to a 10-week low. Defensive sectors, including staples, telecom, and real estate helped buoy the index.  Year-to-date, the TSX is up 0.7% and the benchmark 10-year yield was slightly lower ending the week to yield 2.27%.

Sector performance was similar in the S&P 500 with energy and materials posting losses, and defensive ‘bond proxy’ sectors – telecom, staples, real estate and utilities – gaining enough ground to lift the index overall. Strong economic and corporate profit data helped the U.S. benchmark to weather the global selloff. With second quarter reporting season almost over, earnings have come in about 27 percent higher than last year. Year-to-date, the S&P 500 is up 6.6%, the Dow Jones Industrials are up 3.8%, and the Nasdaq is up 13.2%. The yield on the 10 year Treasury closed at 2.87%.

Source: BMO Capital Markets 

The Good: Manufacturing Sales Volumes +0.7% (June); Existing Home Sales +1.9% (July); Average Home Prices +1.0% y/y (July); ADP Employment +11,600 (July) and prior month revised much higher; Global Investors bought a net $11.5 bln of Canadian securities (June).

The Bad: Consumer Prices +3.0% y/y (July)—fastest pace since Sep. ’11; but core measures more stable; 
Manufacturing New Orders -1.8% (June); New Motor Vehicle Sales -1.3% y/y (June).

The Good: Retail Sales +0.5% (July); Productivity +2.9% a.r. (Q2 P)—and Unit Labor Costs -0.9% a.r.; Capacity Utilization steady at 78.1% (July); Building Permits +1.5% to 1.311 mln a.r. (July); Empire State Manufacturing Survey +1.4 pts to
an ISM-adjusted 56.6 (Aug.); NFIB Small Business Optimism Index +0.7 pts to 107.9 (July); Leading Indicator +0.6% (July).


The Bad: Industrial Production +0.1% (July)—below expected but manufacturing production +0.3%; Housing Starts +0.9% to 1.168 mln a.r. (July)—well below expected; NAHB Housing Market Index -1 pt to 67 (Aug.); Philly Fed Index -3.0 pts to an ISM-adjusted 55.6 (Aug.)—but still high; U of M Consumer Sentiment Index -2.6 pts to 95.3 (Aug. P); Global Investors sold a net $48.6 bln of U.S. securities (June).

Weird News

Baby boom hits Arizona hospital with 16 pregnant ICU nurses



MESA, Ariz. — A baby boom is brewing at a suburban Arizona hospital where 16 intensive care nurses recently discovered they are all pregnant.

The nurses at Banner Desert Medical Center in Mesa outside Phoenix joked Friday they thought there was something in the water when it became clear they were all expecting babies between October and January.

Nurse Rochelle Sherman, nearly eight months along, said: “I don’t think we realized just how many of us were pregnant until we started a Facebook group.”

Nurse Jolene Garrow joked, “We all formulated this plan to have the holidays off!”

Garrow said that as their pregnancies have progressed, the patients have begun noticing that most of the nurses around them are expecting. One patient insisted on touching her belly the night before, she said.

Garrow added that their non-pregnant colleagues have been great at helping with patients they should not be exposed to because of conditions or treatments that are potentially dangerous for expectant women, such as tuberculosis or shingles or chemotherapy because of the radiation.

But Ashley Adkins worried that the other nurses are getting tired of their pregnancy-focused conversations.

“They just roll their eyes!” she laughed. “More baby talk!”

Hospital officials noted that the Banner medical centre chain has a pool of floating nurses that should ensure shifts are covered when their ICU nursing specialists begin taking their 12-week maternity leaves starting in the fall.

The nurses said their colleagues are throwing a group baby shower next week.

The hospital on Friday gave the women one-piece rompers reading, “Relax! My mom is a Banner nurse!”