For all those that have subscribed, stay tuned as I will forward new contact info and updates on our efforts to launch new content.

Morning Commentary

Yesterday after the markets closed the US Federal Reserve raised the discount rate from 0.50 to 0.75.  The discount rate is the rate charged banks to borrow at the Fed’s discount window and is not the same as the Fed Funds Rate. This move has the US dollar strengthening and commodities a bit softer. 

While futures were weaker, very benign US Consumer Price data has equity markets recoverying.

Chart of the Day is the Fed Funds and the Discount Rate over the past 7-years or so.  Please note that until the recent financial crisis, the spread between the two rates was a steady 1%.  Currentlly at 0.50% spread, don’t be too surprised to see the discount rate rise again.

Morning Commentary

Overseas markets managed to post some gains until the North American economic data. Europe had a sled of bad news. The UK posted an unexpected deficit for January, Daimler is down signficantly after unexpected Q4 loss and Societe Generale is down 5.4% after writedowns tied to risky assets.

North American eco data is not going to help the futures this morning with a little bit of inflation and no job creation (not the drop at 8:30).  The producer price index came in at 1.4% for January, significantly higher than the 0.8% expected.  Meanwhile, initial jobless claims jumped higher from 440k to 473k.

Chart of the Day is both the initial jobless claims and the continuing jobless claims. The trend for both remains to be improving (aka down), but the progress has slowed of late.

Morning Commentary

Markets are up nicely today just about everywhere.  In Europe the Greek finance minister said there would be no need for an EU bailout, plus BNP Paribas handidly exceeded earning estimates.  Result is financials are leading Europe higher today.

In the US, Housing starts rose to 591k in January (on an annualized basis) and December’s reading of 557k was revised to 575k. This is good for the housing industry and good for US employment. Commodity prices are moving higher again today.

Chart of the Day is the daily percentage change in the 10 sectors in Europe this morning. Note the best performers are once again the most economically cyclical.

To be fair, very little has changed. The biggest concern the markets continue to toil with is the situation in Greece. Running a deficit of approximately 12% of GDP, high unemployment and declining tax revenues has the financial markets on edge if the country can successfully manage itself out of this predicament.  Adding fuel to the fire, the populace is not agreeable to most measures to help reduce the deficit. In an era of bailouts, that is what is on everybody’s mind. But the problem here is other members of the EU are not overly enthusiastic and for good reason.  If one EU member needs a bailout, who is next.  And even worse, do the German and French taxpayers want to fund what is viewed as the more cushy social programs in Greece.  Probably not. Adding to the pain was a lower than expected GDP growth for the European Union in the 4th quarter of only 0.1%.

The good news is despite their differences, it is in every countries best interest to maintain the union. And if push comes to shove, there is likely a joint solution. The question to keep in mind is if this spreads materially to other nations in the union.

Back in North America, the economic picture has shown some new signs of improvement.  Initial jobless claims in the US, which can be volatile, appears to have resumed its trend lower with only 440k in the latest reading down from 483k. Retail sales for January were stronger than expected and while investor confidence missed a little, it still is showing relatively healthy signs. The big driver today was Empire Manufacturing, which measure manufacturing in New York State was surprisingly strong with the 2nd best reading since the recovery began.

Earnings have also continued to flow in for Q4 nicely above expectations.  Roughly 75% of earnings have been above consensus and 70% of revenue has beaten as well for the S&P 500. But the underlying importance is earnings growth has returned to the markets which is needed to lift markets higher. In Canada things are a little less rosy with only 63% positive earnings surprise but there are still lots of companies left to report as 150 of the 208 index constituents have yet to share their Q4 results.

Reports you may have missed

Companies Down the Most

The market has declined by 8% since the peak in January. In this post we include a list of the companies that have fallen the furthest since the peak.

Investment Trend Watcher 

Updated charts from our investment trend watcher publication. These include equity sector performance and most traded commodities. Of particular interest is some recovery in commodity prices after the steep declines

Model ETF Portfolio Update

An updated look at our model ETF portfolio. No changes this week.

Earnings Calendars

Asset Allocation

Market Cycle Model still points to early recovery phase, Market Trender Model is still bullish on equities and Valuation Model is still bearish on equities.  So no change to our asset allocation this week.

Prologue – Upcoming Market Events

US Empire Manufacturing (Tue 16 Feb 8:30am) – a survey measure of manufacturing in NY State came in at 24.9, well above the 18 expected.

US Housing Starts (Wed 17 Feb 8:30am) – Housing starts for January are forecast to be 580k, up from 557k in December.

US Industrial Production (Wed 17 Feb 9:15am) – US industrial activity is expected to be 0.7% higher in January which should push capacity utilization up from 72.0% to 72.6%.

US Monthly Budget Statement (Wed 17 Feb 2pm) – While not usually a big deal, given the large US deficit and other deficits globally, this is garnering more attention. Forecast is for a $46B deficit for January.

Canadian Consumer Price Index (Thu 18 Feb 7am) – Expectations are for a 0.3% rise compared to a 0.3% drop last month.

US Initial Jobless Claims (Thu 18 Feb 8:30am) – For the week of February 13th, forecasts are for 435k down slightly from 440k the previous week.

US Leading Indicators (Thu 18 Feb 10am) – Leading indicators for the worlds largest economy are expected to be 0.5% higher for January.

US Consumer Price Index (Fri 19 Feb 8:30am) – CPI is forecast at 0.3% for January up from 0.1%. Excluding food and energy, we are looking for a 0.1% rise.

Canadian Leading Indicators (Fri 19 Feb 8:30am) – Leading indicators in Canada are forecast to be up 1.1%, lower than 1.5% in December.

Canadian Retail Sales (Fri 19 Feb 8:30am) – Month over month sales are expected to rise 0.5% vs a 0.3% decline in December. Excluding autos a 0.3% rise compared to flat last month.

Canadian Earnings This Week

For US Earnings, please see our full earnings calendar as more than 50 are reporting.

Morning Commentary

Markets are higher this morning but losing their gains. Barclay’s posted a strong quarter helped by the sale of its fund management business to Blackrock and strong investment banking. Importantly, the balance sheet is beginning to improve.

Meetings continue in Brussels regarding the situation in Greece and if the public opintion polls are any indication, most Europeans are not fans of guaranteeing or bailing out the country. Yields in Greece are moving higher. Spain is planning a 15-year bond offering, the first offering since troubles in Greece boiled over to encompass other southern European countries. It will be very interesting to see how the auction proceeds.

Chart of the day is the Russell 1000 vs Russell 2000 indices. When the line is rising, large caps are outperforming and when falling, like last week, small caps are performing better. The trend is present in Canada too as the Venture exchange has come on strong of late.

TSX Composite Earnings Calendar sorted by date

TSX Composite Earnings Calendar sorted by company name

S&P 500 Earnings Calendar sorted by date

S&P 500 Earnings Calendar sorted by company name

Our model ETF portfolio lost a little ground during the past week as equity markets have slid a little. The exposure to resource ETFs, including gold, energy and materials, have been the bigger drag on performance. But we do see the current negative sentiment in these sectors as temporary fueled by China’s attempts to slow their economic growth and slower growth in the euro zone.

Short term technicals are still negative on equity positions but longer term are still bullish.

Morning Commentary

Well, there isn’t anything new regarding Greece and this ends the good news for today. On the other side of the ledger we have China raising reserve requirements for their banks for a 2nd time this month. Loan growth in China for January ate up 19% of the yearly targeted amount and property values have been jumping higher.

Euro region GDP rose a paltry 0.1% in Q4 compared to a 0.4% rise the previous quarter. That just isn’t very strong growth and this is impacting the euro lower again today. Add this to China’s announcement and it is not surprise commodity prices are lower this morning.

Chart of the Day is year-to-date performance of the TSX Composite and the S&P 500 plus the underlying 10 sectors. Tough start with even many defensive sectors feeling the pain.

We have updated our investment trend watcher charts to yesterday’s close. Of interest is the weakness in energy shares in the TSX. Defensive sectors such as telcos and financials have held in best during the recent market weakness.

On the commodity front, oil continues to be rangebound between $70 and $85. Gold has been under pressure again due to overall weakness in commodities and a strong US dollar. But some commodities have started to show signs of strength, notably wheat, rice, cattle, cotton and copper.