ADVANCED TRADING CLUB Market Report Publication Date: March 3, 2018 Authors: Shahzeb Afroze, Aman Regmi, & Stefan Vockic Editor: Paul Strycharczyk
Copyright Â© 2018 ATC, All Rights Reserved
CANADIAN MARKETS The S&P/TSX Composite Index dropped by 0.4% from around 15,452 to 15,384 over the past 3 weeks. One of the biggest catalysts for the fall of the index was due to talk of tariffs on steel and aluminum by U.S. President Donald Trump. Around 45 % of US steel and aluminum is serviced by Canada and would be a huge blow to the economy if imposed. The S&P/TSX Venture Composite Index dropped by 0.5% from around 830.17 to 826.06 over the past 3 weeks. It is affected widely by changes in mineral prices which in turn affect the prices of companies. The four main minerals - gold, silver, palladium and platinum fell sharply over the last couple of weeks, which explains the drop in the index. RBC has reclaimed the nation’s largest lender title, ousting TD bank to recapture the top spot that it has owned for most of the past 100 years. The energy and material sector are in trouble; oil producers and other fossil fuel companies are confronting policy challenges from Canada’s efforts to reduce greenhouse gas emissions by 30% from 2005 levels by 2030. The government may take additional action against oil producers in particular to meet the goal.
U.S. MARKETS With losses in February, the Dow Jones Industrial Average and S&P 500 snapped a monthly winning streak that stretched back to 1959. Furthermore, it was Dow’s first losing February since 2009 and NASDAQ’s decline in February of 1.9% was its biggest decline since Oct 2016. Specifically, The S&P 500 dropped by 1.5% from around 2,732.22 to 2,691.25, Dow Jones Industrial Average dropped by 3.4% from around 25,219.38 to 24,358.06 and NASDAQ dropped by 0.3% from around 7,239.46 to 7,257.87 over the past 3 weeks. In terms of economic climate, the Trump steel ban is highly plausible and trading partners are planning on retaliating if imposed. The resulting trade war would result in bottom lines suffering and a fall in asset values. Much of the pullback, however, came from the hinted rate hikes. One of the biggest catalysts for increased turbulence is continued pain in the US bond market. Positioning in longer dated paper (10-year bonds) shows extreme bearishness which is explained by the over speculation of rate hikes. The highly anticipated IPO of Dropbox is finally here. Additionally, Spotify is going for a direct listing, which is an unconventional way to pursue an IPO.
CURRENCIES Overall, the US Dollar gained 2.375% relative to the Canadian dollar given the recent market volatility that included mixed signals form the Fed. Nevertheless, despite rising interest rate expectations and increasing yields on U.S Government Bonds, the U.S. dollar is failing to rally accordingly. This crack in correlation could have significant implications, namely indicating a period of secular downturn. The Canadian dollar dropped in response to stagnant oil prices over the past week. The Euro reversed its gains, up only 0.5% after ECB President Mario Draghi downplayed a decision to drop a pledge to expand its quantitative easing program The Yen has been steadily rising, gaining 3% against a backdrop of a rising stock market and global growth. The British Pound slightly weakened following poor year over year GDP growth figures.
COMMODITIES Gold reached $1322.064; experiencing substantial volatility over the past several weeks, yet widespread bullish sentiment remains intact. Gold gave up most of its gains in response to the Fedâ€™s January meeting minutes. However, it continues to test a significant resistance level at $1360. Crude Oil managed to recover from its recent lows of $58.4 and hit $61.537, a 4% increase. However, it has seen a drop over the past week due to increasing reserves as U.S. production climbs. Corn futures rallied up 5% to $3.748 as severe dry conditions in Argentina continue to threaten crops.
BONDS 2 year Canadian Bond yields decreased by a single basis point to 1.771%. Both Canada and the U.S. have continued the flattening of their respective yield curves, as the spread between short and longer dated treasury yields continue to shrink. 10 year Canadian Bond yields decreased by 15 basis points to 2.202%, a staggering 6.41733%. 2 year U.S. Treasury Note yields increased 17 basis points to 2.254%, an 8.521% rise. This is in response to inflation fears initiated by Trumpâ€™s tariffs that could spark a trade war. Moreover, Federal Reserve Chairman Jerome Powell signaled in a recent press conference increased inflation expectations in line with the most recent CPI report. 10 year U.S. Treasury Note yields increased only a single basis point to 2.863%.
ECONOMIC UPDATES Date 11-Feb-18 15-Feb-18 22-Feb-18 22-Feb-18 26-Feb-18 02-Mar-18
Country United States Canada Great Britain Canada United States Canada
Event Core Retail Sales (Jan) ADP Nonfarm Payroll GDP (YoY) Retail Sales (Dec) New Home Sales (Jan) GDP (YoY)
Actual Forecast Previous 0% 0.50% 0.10% 10,700 -13,500 1.40% 1.50% 1.50% -0.80% 0 0 593,000 655,000 643,000 1.70% 2.00% 1.50%
Overall, total consumer spending in the US economy was disappointing in January with no growth since the past one month. On the other hand, Canadian nonfarm payroll change for January beat estimates of negative growth, with 10,700 new jobs added to the Canadian economy in the month of January. The British economy disappointed with lower than estimated year over year GDP growth hence a lower British Pound. The Canadian retail sector also experienced turbulence with retail sales during December falling below November levels. New home sales in the US also reflected a bearish outlook with actual numbers falling far short of estimates. Finally Canadian GDP growth for 2018 was 30 basis points weaker than forecasts. In summary, key economies like Canada, the US and Britain have experienced turbulence with retail sales, new home sales and GDP growth all falling short of expectations.
ECONOMIC CALENDAR Date 06-Mar-18 07-Mar-18 07-Mar-18
Country United States Eurozone/EU United States
07-Mar-18 United States 07-Mar-18 Canada 08-Mar-18 Eurozone/EU
Event FOMC Member Dudley Speaks Eurozone Releases 4Q 2017 GDP Fixed 30 Year Mortgage Rate ADP National Non-Farm Employment Bank Of Canada Interest Rate Decision Eurozone Interest Rate Decision
Forecast Previous 1.50% 1.50% 2.70% 2.70% 4.64% 4.64% 186,000
EARNINGS CALENDAR Date 06-Mar-18 07-Mar-18 16-Mar-18 20-Mar-18 21-Mar-18
Company Name Target Corporation Costco Tiffany & Co. FedEx General Mills Inc.
Symbol TGT COST TIF FDX GIS
Earnings Release Time Before Market Open After Market Close Before Market Open After Market Close Before Market Open
EPS Estimate $1.39 $1.45 $1.62 $3.04 $0.78
Published on Mar 3, 2018
Published on Mar 3, 2018
This is a trading observation report created by the investment associates of Advanced Trading Club at York University, ON Canada. This issue...