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March 29th, 2019

Economic Slowdown

By PRATTE

Economie EN

Economic Slowdown

The global economic slowdown has disrupted markets throughout the week. The release of several economic data has raised some concerns among investors. Lululemon unveiled quarterly results above expectations as shares soared following the report. Here is what happened in the markets this week.

Market Brief

It was a difficult start for US markets on Monday as the global economic downturn continued to worry investors. Apple also declined at the open, trading at -1.33% a few hours before the unveiling of its first streaming site who will be competing with Netflix (+ 0.40%) and Amazon (+ 0.39%). On Tuesday, the three leading indexes started and closed the day up helped by gains in the energy sector and banks.

Wall Street opened slightly higher on Wednesday as investors were closely watching the interest rates in the US bond market. The three-month interest rates in the US bond market remained close to its highest level in 12 years, at 2,448%, while the ten-year bond fell to 2, 351%, its lowest since the end of 2017.

The resumption of negotiations between China and the United States raised the markets on Thursday throughout the day. In addition, after reaching Wednesday a new low since December 2017, the interest rate on US debt ten years rebounded Thursday and stood at 2,377% later in the day. The Dow ended up 0.36%, the NASDAQ took 0.34% while the S&P 500 advanced 0.36%. Wall Street opened higher on Friday, allowing the three major indexes to close the quarter higher. The Dow has gained 10.3% gains for this quarter, Nasdaq is on pace for its biggest quarterly gain since the first quarter of 2012. While the S&P 500 is up 12.3%, its best quarterly gain since the third quarter of 2009.

In Canada, the TSX opened higher on Monday, despite a sharp decline of 0.9% in the energy sector due to lower oil prices. Gains in the mining sector offset the heavy losses in the energy sector as the sector benefited from investor interest in safe havens. Despite investors’ worries about a decline in global growth, the Toronto Stock Exchange ended Tuesday up after two sessions down. Bad day for the TSX Wednesday, who ended the day down 22 points as investors remain cautious regarding the economic slowdown. The TSX ended Thursday up, thanks to the revival of stocks in the financial sector offsetting for the losses from the mining sector. Canada Goose was one of the top performers of the day, up 3.5% at market close. The TSX opened up on Friday, helped by gains in the technology sector.

Economic Slowdown

More than 55 US economists, gathered by the National Association for Business Economics (NABE), have announced that they have lowered their growth forecasts for the United States for 2019 and 2020. According to them, this is due to the global economic slowdown as well as the many ongoing trade tensions. “Although the risks of a recession by 2020 remains low, they are increasing,” says NABE’s quarterly survey. They also predict that growth, as measured by gross domestic product, will reach a modest 2.4% this year and only 2% by 2020.

In addition, their estimate is well below the Trump administration’s new forecast that GDP growth will remain above 3% this year and over the next six years. However, it is in line with the Fed’s latest forecasts. Global economic forecasts are down, and this global economic slowdown is worrying many analysts.

Lululemon

The yoga clothes company posted this week’s quarterly results above analysts’ expectations. The Vancouver-based business reported better than expected sales during the holiday season. Lululemon’s net revenues increased 18% to $928.8 million for the fourth quarter while adjusted earnings per share were $1.33 compared with $1.00 for the same period last year.

Wednesday’s results show the company is actively engaged in men’s fashion, improving its online sales and potentially challenging its biggest rival, Nike Inc. Several analysts have revised their target price upward after the unveiling of the results. The stock jumped 15% Thursday midday.

Canada Reduces Its Trade Deficit

According to a report by Statistics Canada, the gap between what Canada sells to the rest of the world and what it buys narrowed in January. This is a significant decrease from the unprecedented deficit it reached at the end of 2018. Thus, in January, Canada recorded a decline in its trade deficit to $4.2 billion thanks, among other things, to the rise in the price of a barrel of oil. In addition, exports of energy products rose 14% in January “after posting five consecutive monthly declines”, Statistics Canada said. “This is a reminder that the short-term energy challenges that weighed on growth late last year should fade,” said Josh Nye, Senior Economist at the Royal Bank. He also said in his report that “Prices have rebounded this year and production should follow suit”.

Exports to other countries were up 7.9% to $13.6 billion in January. Similarly, “imports from countries other than the United States rose 1.1% to $19.4 billion in January, exceeding the record high in December”, said Statistics Canada.

 

 

 

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.
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