By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: August 2, 2019

Aug 3, 2019 | 11:43 AM

Big Picture

Fed Cuts Rates in Expected Move; Trump Tariff Threat Jars Global Markets

As expected, the Federal Reserve cut interest rates by 25 basis points—the first reduction since 2008—in an effort to soften the blow from a global downturn and ongoing trade tensions. Markets sold off and the dollar strengthened Wednesday afternoon after Fed Chair Jerome Powell underwhelmed investors in his post-decision news conference when he foreshadowed that further rate cuts weren’t necessarily a given. Fed officials also announced they would finish up the runoff of their $3.8 trillion portfolio on Thursday, two months earlier than previously planned. In the seemingly never-ending trade war between the U.S. and China, President Trump rattled markets by moving to extend tariffs to almost all Chinese imports. The new round of tariffs would go into effect at the start of September and cover $300 billion in Chinese goods—in addition to already existing tariffs on $250 billion in imports from China. The news sent U.S. indexes into the red, and 10-year Treasury yields fell to the lowest level since the 2016 presidential election on Thursday. The news also shook markets in Japan, Hong Kong and mainland China, and sent the yuan to its lowest level of the year. Turning to Canada, the nation’s economy grew by a greater-than-expected 0.2% in May, the third straight monthly increase, thanks to a recovery in manufacturing. In total, 13 of the 20 industrial sectors expanded in May; the news also lifted the loonie to 76.1 cents (US). Finally, the British pound on Tuesday fell closer to its lowest sustained level against the dollar in more than three decades on rising investor fears over the very real likelihood of a no-deal Brexit. In related news, eurozone business confidence fell in July. The European Commission’s Economic Sentiment Indicator fell to its lowest level since March 2016, suggesting economic growth is unlikely to rebound significantly in coming months.

Markets

Tariffs Threat Rattles Markets

Ending hunger

Canadian Foodgrains Bank highlights work at event in Red Deer

9h ago

input from all is welcome

Central Alberta business owners sought for growth initiative

9h ago

Picketing begins

Canada Post workers in Red Deer join national job action

11h ago

For the four days covered in this report, the Dow tumbled 609 points to close at 26,583, the S&P 500 fell 73 points to settle at 2,953, while the tech-heavy Nasdaq dropped 219 points to close at 8,239. In Canada, the TSX surrendered 154 points to end at 16,377.

Equities/Strategy

Equities

Corporate earnings have generally surpassed analyst expectations. Roughly three-quarters of the way through the S&P 500 earnings season, headline results have been mostly positive. On average, Q2/2019 sales and earnings have beaten consensus estimates by 1.2% and 5.3%, respectively. 60% of companies have beaten top-line targets so far this quarter, compared to the 10-year average of 49%, with the beat ratio highest in the health care sector. More than 75% of the companies that have reported thus far have beaten EPS consensus estimates. However, implied YOY growth is hovering around zero, though we admit this is better than the 2% decline anticipated prior to the start of earnings season.

(Bill Curry)

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