By Scotia Wealth Management - The Zukiwsky Group (Sponsored)

Market Watch – March 1, 2019

Mar 1, 2019 | 1:08 PM

Big Picture

N.A. Markets Struggle for Direction; No-Deal Brexit Looking Less Likely

U.S. stocks slumped for a third straight session Thursday as investors considered slowing U.S. GDP growth for Q4 and an early, somewhat abrupt, end to the U.S.-North Korea summit. GDP rose at a 2.6% annual rate in the last three months of 2018; while that beat many analysts’ estimates, it fell short of the 3.4% growth rate in Q3 and 4.2% in Q2. On the diplomacy front, Trump on Thursday cut short his summit with North Korea’s Kim Jong Un after failing to make any progress on limiting North Korea’s nuclear-weapons program. Although Trump on Monday delayed raising tariffs on Chinese imports, optimism over U.S.-China trade talks is fading a bit as it’s becoming clearer that Beijing is still unwilling to make the large structural changes to its economy that Washington is seeking. Adding to the negative sentiment was news that Chinese factory activity shrunk to a three-year low and that China’s export orders declined at their fastest pace since the global financial crisis.

British Prime Minister Theresa May agreed Tuesday to allow Parliament to delay the U.K.’s exit from the EU if lawmakers again reject her divorce agreement with the bloc, making a no-deal Brexit extremely unlikely. The news sent the British pound up to its highest level against the greenback since October. Additionally, the opposition Labour Party on Wednesday night confirmed it would file a parliamentary motion calling for a new referendum by March 12, the date by which Ms. May has promised to hold a second vote on her withdrawal agreement.

Meanwhile, the Stoxx Europe 600 has gained 10% in 2019, putting it on course for its best combined January and February in four years. The index is now closing in on the S&P 500, which is up 11.4%. In Canada, after three straight positive sessions, the TSX surrendered ground on Thursday, weighed down by disappointing earnings from two major Canadian banks.

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Markets

N.A. Markets Flat As Growth Concerns Linger

For the four days covered in this report, the Dow lost 116 points to close at 25,916, the S&P 500 shed 9 points to settle at 2,784, while the tech-heavy Nasdaq inched up 5 points to close at 7,533. In Canada, the TSX surrendered the week’s early gains and was down 14 points to end at 15,999.

Equities/Strategy

Strategy

The U.S. Federal Reserve’s (Fed’s) patience and data dependence are consistent with a flexible approach to future monetary policy adjustments. In their speaking engagements to begin 2019, members of the Federal Open Market Committee (FOMC) have emphasized the conditional nature of the committee’s monetary policy decision making process and explained what is meant by the terms patient and data-dependent. The challenge the FOMC currently faces, as policy rates reach the estimated neutral range, is how to most effectively communicate what actions the central bank is contemplating and how incoming data affects its evaluation of the broader economy. To address this challenge, the Fed has revamped its communications strategy of late.

Over the course of Fed Chairman Jerome Powell’s tenure, policy statements have been shortened and simplified to state more plainly the state and trend of the U.S. economy. The FOMC has also endeavoured to discuss a consistent set of factors that informs its outlook, outline risks and track progress toward monetary policy goals. Most importantly, the Fed has indicated that data-dependence refers to the future path of monetary policy depending on changes in economic and financial conditions. Under this approach, individual data points are considered in the context of the broader economy, and short-term data carry less weight than their medium or long-term counterparts. Admittedly, the bar for any additional policy interest rate hike is high. Even so, Scotia Wealth’s Global Portfolio Advisory Group continue to believe the FOMC will twice raise interest rates by 25bps in 2019.

(Bill Curry)

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