Big Picture By Bill Curry
Investors Look to G7 Summit
All eyes will be on this weekend’s G7 Summit in Canada as investors look for signals as to whether the Trump Administration’s decision to impose steel and aluminum tariffs on its allies will develop into a bona fide trade war. While the Dow surged nearly 300 points Wednesday, worries over U.S. protectionism have weighed on investor sentiment and the outlook for global growth. Despite trade fears, the World Bank on Tuesday issued its forecast for the global economy estimating 3.1% growth this year, unchanged from its forecast in January. In the U.S., the labour market continued its strong showing as data released Thursday indicated initial jobless claims dropped by 1,000 to a seasonally adjusted 222,000 last week. In fact, the U.S. had more job openings than unemployed Americans this spring. The Fed will be watching closely as worker shortages and stronger inflation could indicate an overheating economy, raising the need to hike interest rates more aggressively. In Canada, forecasters are expecting Q2 growth of 2.5%–3%, largely in line with the most recent numbers from the BoC, which looks on track to raise interest rates again next month. However, the emerging trade conflict and the fate of NAFTA negotiations could alter those plans. Canada’s retaliatory tariffs against the U.S. are set to take effect July 1. Turning to Europe, the ECB’s chief economist on Wednesday indicated that the bank could soon begin winding down its €30 billion-a-month bond-buying program, despite concerns over tepid growth, an escalating trade conflict and Italy’s new populist government.
North American Markets Edge Higher
U.S. and Canadian markets drifted higher through the Thursday close. For the four days covered in this report, the Dow added 606 points to close at 25,241, the S&P 500 climbed 36 points to end at 2,770 and the Nasdaq gained 81 points to settle at 7,635. The TSX rose 149 points over the period to close at 16,192.
Equities: We recommend a cautious overweight to equities relative to fixed income, preferring companies with identifiable competitive advantages and that are likely to benefit from long-term growth themes. With the global quarterly earnings season nearly complete, the three major equity regions (Canada, the U.S., and international) we follow continue to deliver robust results. Although the breadth of earnings and revenue beats in North America is wider than it is internationally, international stocks are showing the strongest YoY growth due to base effects. In our view, international strength is not atypical late in the business cycle. We are mindful of the risk that rising commodity prices and wages pose to corporate profit margins and remain on the lookout for early signs of a business cycle downturn. In the interim, however, we retain our cautious preference for equities relative to fixed income.
This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc. (SCI). This publication is intended as a general source of information and should not be considered as personal investment or tax advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. Opinions, estimates, and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither SCI nor its affiliates accepts liability whatsoever for any loss arising from any use of this publication or its contents. This publication is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. SCI, its affiliates and/or their respective officers, directors, or employees may from time to time acquire, hold, or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. SCI and/or its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may receive remuneration for same. All insurance products are sold through Scotia Wealth Insurance Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Insurance Advisors (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. This publication and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI.
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