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Monday, January 16th, 2017


With the US observing MLK Jr day, it is likely to be a quiet session for Canada as it is for the rest of the world’s markets overnight and into this morning.  Volumes are way off while most stock indexes are sliding save Australia.  Iron Ore prices drove Australia’s number 2 and 4 companies (by market cap – BHP Billiton and Rio Tinto) to big gains in the Monday session, while most sectors went along for the ride.

Canadian yields are slightly lower, and we would note that 5 year Canada’s remain about 10 bps off their 2016 high achieved just before Christmas.  Having hit a low of 0.49% in Feb 2016, we wouldn’t be surprised to see further consolidation here.  Canada’s CPI, both core and headline, don’t appear to be breaking higher.
Overnight, the GBP has fallen to its lowest level since the day after Brexit. Traders are pounding it as the consensus believes that Theresa May will have to go down the ‘hard Brexit’ route. She is planning on outlining plans tomorrow. The renewed currency market volatility isn’t making Carney’s job any easier.

Capex, or corporate spending, growth has been missing in the past couples years.  However a number of factors may be aligning to trigger a rebound.  This is good for some industries, but is also good for the overall market as S&P 500 earnings are sensitive to the whims of Capex.  In our most recently published Market Insights piece we take a closer look at this important part of the economy, why we think it is coming back and those who benefit.
New to us in the personal finance blogosphere, Peter Lazaroff scored a point with this posting: 4 Reasons to Buy Bonds in 2017.  None of the points, of course, simply suggest that bonds are oversold and will move higher.  Portfolio diversification and relatively low volatility will still make bonds something most people want to own.  We will keep an eye on Mr. Lazaroff’s work.
With a Canadian twist both at the beginning and the end, the birth, life and death of American Apparel is an interesting story.  Both highlighted in the recent season of the Startup podcast, and here by the Atlantic.
Howard Marks of Oak Tree Capital has a new investor letter. Along with Buffett’s annual letters these are up there in terms of recommended reading. This one observes some of the major market surprises last year, and focuses on opinions. Expert opinions carry great weight, but we should remember that they are still just opinions. They are prone to being wrong, just like everyone else but the media would rather you believe they are infallible. If you want some more insightful reading, I recommend browsing the archived memo’s to the left hand side.
While on the topic, we’ll also link to this article from Friday on Bloomberg. Pundits, Facts and the Future.

5 Ominous signs for the securities industry from Bloomberg. Sign one is an interesting take on the increasing flow towards the ETF behemoths, and how in essence the flow heading that way “is basically leaving the financial system.” Millennials are leading the way in terms of ETF adoption with the highest percentage of portfolio’s in ETFs. Maybe that’s why BlackRock recently hired Buzzfeed’s Chief Marketing Officer. Shhh, don’t let the Donald know.
Diversion: Forget the bunny ears here are some unusual ways to tie your shoes.
Don’t let people tell you otherwise – the fastest racquet sport is badminton.


There is more consolidation happening in the already concentrated sunglasses industry as Essilor is buying Ray-Ban manufacture Luxottica for $24bb. Both stocks were up over 15% on the news. Porter Aviation Holdings restarted operations Saturday after grounding all flights for 2 hours because of a network interruption. Five flights were totally canceled, affecting 400 passengers. Canada Goose, the parka maker, announced they are planning an IPO for as early as February. They would expect to be valued at $2bb. Empire Co, the parent of Sobeys grocery stores jumped over 7% on Friday after announcing the appointment of a new CEO. Goldcorp is discussing a strategic pivot to partner with smaller Canadian mining companies on the development of new mines, opposed to going in alone on new projects.


Oil is down 0.21% to $52.26. “OPEC and non-OPEC producers are unlikely to extend their agreement to cut oil output beyond six months”, according to Reuters. The level of compliance has been relatively high and demand is likely to rise into the summer. As such, producers want to make sure the market will be adequately supplied.

In other energy news…

Oil Prices will be much more volatile in 2017: IEA” – RTS

COLUMN-Volatility and cyclicality in oil prices - will this time be different? Kemp” - RTS

h/t @JKempEnergy

Gold is up 0.61% to $1203.45. The precious metal is trading higher despite strength in the USD index, which is up 0.41% to 101.58, largely on the back on GBP weakness.


An extremely light trading session is upon us in Canada today with the U.S. closed. That said, it gives our government bond benchmarks a chance to move out of the shadow of our American counterparts for once, and that’s a good thing with the entire curve bid higher at time of writing. Ten year Canada’s are up a quarter to 1.70% while the long end trades nearly a half point stronger to 2.30%. This narrows the yield curve a touch to +150.0 bps from 2’s to 30’s and the flattest seen in 2017. No data is on the docket today so expect us to stay within a rather tight range intra-session. New issue markets were busy on Friday with CIBC coming to market with $300MM of FRN’s that priced at +32.0 bps over 3 month CDOR and the Newfoundland & Labrador Hydro Corp. reopening their 3.60% 12/1/2045 bullet bonds. The latter notes are unsecured, priced with a +155.0 bps yield spread, and marks their first offering in over two years. The bonds are rated A(low) by DBRS.
The USD/CAD cross is slightly stronger this morning at 1.3150 at time of writing. We have been watching our loonie’s ascent in earnest as it’s rallied by 3.5 pennies since the year started on really no other reason than broad big dollar weakness (the price of front month WTI contracts, the CAD’s other significant direction driver, is actually lower versus three weeks ago). A pullback in the DXY (currently at 101.56 ticks) was bound to happen of course given the 8.5% rally since the U.S. elections but it is worth noting that the loonie has remained extremely resilient since. The CAD is actually worth more now compared to November 6 while virtually every other G10 currency continues to count their losses. That said, the technician in me has been paying extra attention to the past several days where the USD/CAD traded meaningfully below its upward channel support (see chart below). Right now the cross hovers just above the 200 day MA (yellow line below) but if we can trade through this important technical barrier, further significant gains could be in store for the loonie, especially if broad greenback weakness



The moral arc of the universe bends at the elbow of justice.

- Martin Luther King, Jr.

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Charts are sourced to Bloomberg unless otherwise noted.

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