THE BI-WEEKLY DIGEST The Economics Research Team Crescent School Investment Team
Jake Erdman, Chief Economist Josh Limpert, Deputy Chief Economist Ronald Chow, Chief Strategy Officer
Sunday, January 3rd, 2016
ECONOMIC STATISTICS
WELCOME BACK!
2015 YEAR IN REVIEW – GLOBAL ECONOMIES
Welcome back from the Winter Holiday!
2015 will likely be written down as a disappointing year for global growth. And this performance amidst central banks pumping in liquidity – good try! There’s always next year…
Term 2 has many things in store, from Ivey Case Competition, to DECA Provincials, to pitches on the Investment Team. The BWD will continue through Term 2, with the first one starting today! The Economics Research Team will produce the successive issues – this one is brought to you by me; I won’t write my name on article, that’s a little redundant. - Ronald Chow, Chief Strategy Officer
It was also a year of mixed performance. Tumbling commodity prices took a toll off big emerging markets of Russia and Brazil, while emerging economics like India and Vietnam marched in the opposite direction. Our neighbours to the south had robust jobs growth, prompting the Federal Reserve to tighten monetary policy for the first time since 2006. Canada… didn’t fair too well; I mean, we slipped into and then out of a technical recession. Smaller European nations were among the best performers among the advanced economies – Ireland grew by 7% in the third quarter; faster than China and well ahead of the euro area’s 1.6% average growth. China’s overall gross domestic product growth dipped to a 25 year low but still remains relatively robust compared to its peers of the emerging market world. India’s economy also expanded faster than expected – 7.4% in the third quarter and 7% in the prior quarter. The weakest performers were Russia – injured by the oil prices – and Brazil – dogged by commodities slump, political turmoil, a corruption scandal and widening budget gap.
WHAT ARE OUR BENCHMARKS FOR THE INVESTMENT PORTFOLIO? The goal of the Investment Team, from a numerical perspective, is to build a portfolio that will outperform our benchmarks. But, what are our benchmarks? At the moment, we have two benchmarks – the Crescent School TSX 60 Benchmark (BM) and Alternative Benchmark (XIU). The BM takes into account the stock performance of all TSX 60 stocks – the 60 largest publicly-traded companies on the Toronto Stock Exchange. Each company’s stock performance was weighted to come up with the performance of the benchmark as a whole; the weightings of a stock’s performance on the BM were derived from the market capitalization of the company in proportion with the market cap of all companies in the index. To evaluate investment choices, the XIU has been developed. Essentially, it is a simulation of a situation in which, every time the Investment Team purchased or sold a stock in the portfolio, we would similarly purchase and sell the same value of XIU - an iShares S&P/TSX 60 Index Fund to seek to provide long-term capital growth by replicating the performance of the S&P/TSX 60. This benchmark allows for analysis of the performance of equities alone in the portfolio, discounting the influence of cash balance on the overall portfolio. These two benchmarks are evaluation tools for performance of the portfolio overall (by the BM), and the performance of equities, alone, within the portfolio (XIU).
THE BI-WEEKLY DIGEST
Sunday, January 3rd, 2016 at 8:00am
CANADIAN RETAIL SALES LIMP ON! Canadian Retail Sales – October Retail sales in October were up only 0.1%, as a big 1.2% drop in food sales served as a heavy anchor. Auto sales were up a modest 0.4%; underlying sales (excluding auto & gas) were flat. There were good gains in sporting goods/hobby stores (+4.9%) and clothing (+1.9%). Retail volumes in the month were down 0.3% in the month, and up just 1.1% year-over-year (y/y). Regionally, retail sales were down in 6 of 10 provinces. Nova Scotia and Alberta took home the crown of the biggest losers (-1.3% and -0.8%, respectively). From a year ago, sales are down 5.8% y/y in Alberta, and 3% in Saskatchewan. B.C. leads the pack despite a drop in October activity: textexteup 6.3% y/y while Ontario is up a solid 3.9% y/y. Despite a soft underlying economy, New Brunswick and PEI are up 5.5% y/y and they’re 4.2% y/y respectively. It’s probably time to settle in and get accustomed to the lackluster gains in consumer spending, as households become hard-pressed to spend amid high debt burdens and weak job growth.
U.S. NEW HOME SALES: TO INFINITY AND BEYOND! U.S. New Home Sales – November New home sales rose for the second straight month, and by a significant 4.3%. However, the upturn took sales to a less-than-expected 490,000 annualized. Still, that’s only a tick below the average (495k) for the year, and up 11% from 2014! The recent change in federal regulations that lengthened the closing process of home sales did not take a knock on new home sales. New home sales are counted when contracts are signed rather than closed, and hence this change in regulation only whacked existing home sales – yeah, existing home sales was spanked last month. The months’ supply remained in balanced territory at 5.7 after a thin supply earlier this year (4.9 months in May). Consequently, median price growth has simmered down to 4.6% y/y in the fist eleven months of the year compared with an 8% sprinting-rate in the spring. We can expect total home sales (new and existing) to top 6 million next year, the best since 2006, due to solid job growth, healthy affordability in most regions, easier loan standards and pent-up millennials’ demand.
THE UPCOMING NEWS RELEASES Canadian Merchandise Trade Balance – November Wednesday, January 6, 2016 at 8:30am
U.S. Employment Report – December Friday, January 8, 2016 at 8:30am
Canadian Employment Report – December Friday, January 8, 2016 at 8:30am
Canadian Housing Starts – December Monday, January 11, 2016 at 8:15am
Canadian New Motor Vehicle Sales – December Friday, January 15, 2016 at 8:30am
U.S. Retail Sales - December Friday, January 15, 2016 at 8:30am
U.S. Producer Price Index – December Friday, January 15, 2016 at 8:30am
Canadian Existing Home Sales – December Friday, January 15, 2016 at 9:00am
UPCOMING EVENTS – CRESCENT SCHOOL INVESTMENT TEAM Team Meeting Thursday, January 7, 2016 from 3:30pm – 5:00pm in Room 303
Team Meeting Thursday, January 14, 2016 from 3:30pm – 5:00pm in Room 303
DISCLAIMER This report was prepared by the Economics Research Team, Crescent School Investment Team. It is for informational and educational purposes as of the date of writing. The views and opinions expressed may change at any time based on the market or other conditions. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. The Crescent School Investment Team, the Economics Research Team and its affiliates and related entities are not liable for any sources of error or omissions contained in this report, or for any loss or damage suffered.
THE BI-WEEKLY DIGEST
Sunday, January 3rd, 2016 at 8:00am