Market Brief - May 11th, 2018

Erica Szczech - May 15, 2018
It was a very different week than we had last, with markets mostly moving higher. The Dow Jones was up 1.80% for the week, and the S&P 500 and S&P/TSX both had a strong week on the back of softening US inflation data which has capped the ascension in

It was a very different week than we had last, with markets mostly moving higher. The Dow Jones was up 1.80% for the week, and the S&P 500 and S&P/TSX both had a strong week on the back of softening US inflation data which has capped the ascension in bond yields and the US dollar appreciation. The latter, along with the decision by President Trump to pull out from the Iran deal, boosted commodities where the rally is now broadening outside of oil prices.

 

Regarding economic statistics this week, employment declined 1,100 in Canada in April, in sharp contrast with the 32,300 jobs created in March and much below consensus (17,400). Job losses were concentrated within the construction, retail and wholesale trade sectors, while the Province of BC and Vancouver saw the biggest jobs growth at net 2,700. That said, employment remains 1.5% above year-ago levels and wages have increased 3.6% over the same period. In all, one month doesn’t make a trend and today’s number is unlikely to refrain the Bank of Canada from hiking its target rate this summer.

 

The big news this week of course was Trump’s announcement that the US is pulling out of the Iran deal despite warnings and pleading from European members. After careful consideration of how his decision will affect Canada, we feel that it’s impact will be minimal. First, because Canada already has its own set of sanctions against Iran in place – although many of the sanctions had been lifted in recent years.

 

Second, Statistics Canada reports Iran as a trading partner, but they are way down on list at #71, with $132 million of merchandise exported. This works out to 0.02% of Canada’s total exports, and it seems not much will probably change this. Canadian companies have been trying to take advantage of the market for several years now, but progress is slow to be made.

 

Reports indicate that one Canadian company could be impacted – Bombardier (BBD), as they recently announced an opportunity to supply Iran with up to a dozen business airplanes as their fleet is decades behind the rest of the world. Bombardier has seen a resurgence in their share price over the last 24 months as they trim business lines and acquire contracts. Ironically, shares have hit a more than 3-year high this week and climbed over 5% on
Monday after their latest earnings were released.

 

Speaking of airlines, WestJet pilots (WJA) have announced a 91% in favor support vote to strike for their first formal union contract. It seems the company has lost its way in recent years – with the gradual recreation of Air Canada and their Rouge line, and with so many changes in the industry, WestJet has not been able to keep up.

 

Their new line called Swoop which is set to start flying in June, will be an ultralow-cost carrier, started the problem as WestJet is sourcing lower paid pilots from outside of Canada.

 

Analysts feel the airline may have tried to take on more than realistically was possible and have gotten away from what they started out as, a regional carrier servicing smaller communities. They didn’t start out flying international flights or routes to China, but rather kept to inter-provincial and Canada wide. The pilots have said they will wait until after the May long weekend to carry out the strike, but ticket sales are already slowing as customers are getting anxious. We wish the pilots best of luck and hope for a speedy, successful
outcome.

 

As we start to enjoy some warmer weather, get outside and make sure to wish all the women in your life a Happy Mother’s Day!