A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
BMO economist Doug Porter notes that the loonie is the top performing currency among the Group of 10 so far in 2019,
“The loonie now stands as the strongest major currency in the world in 2019, rising 3.8% YTD … the Canadian dollar’s ascent is notable as it comes at a time of rising uncertainty ahead of Monday’s federal election … one key factor holding the currency aloft has been a sturdy underlying economic backdrop. The flashy employment results in recent months have grabbed the biggest headlines, with unemployment falling to just 5.5%, average hourly wages bouncing up by more than 4%, and jobs up by a cycle-high of 2.5% y/y. As well, the housing market has made a spirited comeback … the firm backdrop for jobs and housing has put the Bank of Canada back on ice.”
“@SBarlow_ROB BMO: Loonie is best performing currency” – (research excerpt) Twitter
“ Loonie posts 11-week high as investors weigh election uncertainty” – Report on Business
Bloomberg has helpfully provided an active trader’s guide to the federal election. The energy sector will likely show the greatest volatility when the result is called,
“The Conservative Party has portrayed itself as a champion of the sector and has promised to remove regulations Trudeau implemented. The Liberals, meanwhile, are trying to strike a balance between developing Alberta’s energy resources and making Canada a leader in combating climate change… Since 1935, Canadian stocks have returned on average 12% in the 12 months after the election of a minority government, compared with 8% in the year following a majority victory, according to [Brian Belski, chief investment strategist at BMO Capital Markets’] research."
The article also predicts that a Trudeau re-election will cause minor weakness in the loonie.
“The Minority Rule: A Trader’s Guide to Canada’s Tight Election” – Bloomberg
Yikes. The International Monetary Fund is warning that immediate action must be taken in global corporate debt markets.
Most investors don’t watch the sector closely but a widening of corporate credit spreads has been the most reliable indicator of an upcoming bear market in equities over the past number of cycles,
“Last week, however, the IMF issued a strong warning that action is “urgently” needed to head off the danger of a financial meltdown in the corporate sector … In the last six months, the condition of US corporate finances has become more worrying. As in other major economies, profit margins have come under increasing downward pressure, because producers’ wage costs have been rising more rapidly than selling prices to the consumer … The deterioration in profits growth (see box below) has been accompanied by more aggressive corporate financial behavior”
“US corporate debt triggers recession concerns” – Financial Times (paywall)
A recovery in global economic growth appears a way off.
Trade data for South Korea – used by strategists as a proxy for the regional expansion because of its central position in regional trade – were released Monday and were absolutely terrible. Signs of financial stress in china were also evident in financial media Monday (see Tweet of the Day),
“Exports during the first 20 days of October fell 20% from a year earlier, data from the Korea Customs Service showed Monday. Shipments to China, South Korea’s biggest trading partner, also dropped 20%. South Korea’s exports plunge extends the gloomy outlook for the world economy after Japan’s exports dropped for a 10th month in September.”
“Ugly South Korea trade data” – Bloomberg
Tweet of the Day:
According to SCMP, China this year has doubled infrastructure approvals relative to last year. This suggests to me that growth in economic activity may have been a lot worse than the reported data, and Beijing needs to get some of it back...https://t.co/rHYlK3n5no via @scmpnews— Michael Pettis (@michaelxpettis) October 21, 2019
Diversion: “ Harold Bloom’s Warning to the World” – The Atlantic