By ScotiaWealth - The Zukiwsky Group (Sponsored)

Market Watch – July 6, 2018

Jul 6, 2018 | 11:25 AM

Big Picture

By Bill Curry

Global Trade Slowing; Yuan Recovers After Drop

On Friday the Trump administration is scheduled to impose tariffs on $34 billion of Chinese imports. China has vowed to counter with corresponding tariffs on U.S. imports immediately after the U.S. tariffs take effect. On a positive note, shares of European carmakers climbed Thursday following a German press report that the U.S. proposed to stop threatening to impose tariffs on cars imported from the European Union if the EU lifts duties on U.S. car imports. German Chancellor Angela Merkel said Thursday Berlin was willing to cut import tariffs on cars as a way to end the Europe-U.S. trade standoff.

Meanwhile, there are signs that tariffs are impacting global trade. Global export growth for 2018 has slowed considerably – helping to drive sharp market declines in South Korea and Japan, which are heavily dependent on exports. Bank of England Governor Mark Carney warned Thursday about the risks to the global economy from a full-blown trade war, saying higher tariffs between the U.S. and its major trading partners could weigh on growth for years to come.

charges pending

Red Deer RCMP arrest two individuals following ramming of police vehicle

1h ago

Riverside Drive & southbound 67 Street

Red Deer temporary road closure of street ramp on Saturday

2h ago

breach

Town of Ponoka gives cybersecurity update: investigation ongoing

2h ago

On Tuesday, China’s yuan fell to its weakest value against the U.S. dollar in nearly a year; however, the currency surged Wednesday after China’s central bank chief vowed to keep the exchange rate stable. A cheaper yuan effectively makes U.S. goods more expensive in China, and Chinese goods cheaper in the U.S., counteracting some of the impact of tariffs imposed by the U.S. administration.

Finally, the U.S. economic expansion entered its ninth year this week, with Q2 activity looking especially strong, driven by robust consumer spending. While Q2 numbers are solid, many analysts are looking ahead, trying to gauge the likelihood of recession, which could arrive in 2020. While a downturn is expected by most, it’s not a foregone conclusion, as Australia hasn’t had a recession since 1991, a stellar 27-year span.

Markets

U.S. Markets Edge Higher; TSX Off Slightly

Canadian markets were closed Monday for Canada Day, while U.S. markets were shuttered on Wednesday. For the four days covered in this report, the Dow gained 86 points to close at 24,357, the S&P 500 rose 19 points to end at 2,737 and the Nasdaq added 76 points to settle at 7,586. In Canada, the TSX declined 10 points over the period to close at 16,267.

Equities

Despite the maturity of the current economic cycle, we continue to recommend an overweight allocation to equities relative to fixed income. In our view, global earnings growth likely has peaked but is expected to remain strong over the coming quarters, buoyed by favourable economic conditions. Tempering our outlook is relatively high equity market volatility, partly a consequence, in our view, of escalating global trade tensions. On balance, we believe investors should take advantage of broad equity market pullbacks to add exposure to the asset class (where warranted), particularly given reasonable valuations. In the near term, we believe the U.S. equity market will continue to benefit from U.S. dollar strength and “flight-to-safety” tailwinds, given many international equity markets are relatively more sensitive to disruption in global trade activity.

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