Little progress in cliff talks, more positive news out of China, Canada draws a line in the sand
After stringing together a number of winning sessions, North American markets stumbled Thursday on fiscal cliff negotiations.
Differences continue to exist between President Obama and House Speaker John Boehner over cuts to entitlement programs versus tax increases on the wealthiest Americans. The two met face-to-face for the third time Thursday with Boehner criticizing the White House for its inflexibility on the expenditures side of the ledger. If no agreement is reached, automatic spending cuts and US$600 billion of tax increases for every American will kick in January 1.
In Europe, news of a deal to create a single supervisor to oversee the region’s 200 or so banks was viewed as a major step toward a full-fledged banking union. Starting in March, the ECB will police the banks and have the power to force them to recapitalize or shut them if required. At the same meeting, finance officials also gave the go ahead to release US$64 billion to keep Greece afloat. Meantime in China, stronger-than-expected growth in both industrial output and electricity production got the week off to a good start. Both measures are proxies for growth and both provide further evidence the country is recovering from its mid-year slump. The Fed was also making headlines, as it announced it would leave interest rates near zero as long as unemployment remains above 6.5% (the current rate is 7.7%). Finally, Canada’s unveiling of new investment rules that raise new hurdles for foreign, government-controlled energy companies generated both praise and condemnation in global markets. The clarification comes on the heels of $20 billion worth of deals recently green-lighted by Ottawa.
TSX outpaces New York markets
The TSX outdid its New York-based rivals over the four-day period but it was a positive week nonetheless for all major North American stock markets. In Canada, the TSX closed up 130 pts. over the period to end at 12,289, the Dow rose 15 pts. to finish at 13,170 and the S&P 500 moved higher by a point to end at 1,419.
Look through the fiscal cliff debate and buy equity market weakness
- Equities. Steve Uzielli, Portfolio Manager, Portfolio Advisory Group wrote: “our preference is for equities over bonds, and cyclicals over defensive stocks. Given our constructive view toward the U.S. economy, we recommend increased exposure to U.S. equities. Investors should be deploying excess cash balances, particularly during instances of weakness caused by fiscal cliff uncertainties.”
- Fixed income. Andrew Mystic, Associate Director, PAG, suggests “given the Bank of Canada’s recent tone, investors should begin to re-evaluate the duration of their portfolios - particularly given the relatively low rate environment and its potential impact on value if rates reverse course. Term Call – we no longer see value in the mid-to-long end of the curve and recommend investors stay short at this time. Sector Call – underweight Canada, overweight Municipals, Provincials and Corporates. Currency Call – we recommend Canadian investors remain in Canadian dollars for their fixed income holdings. Alternative Strategies – marketweight high yield, marketweight Emerging Markets Debt, underweight inflation protected debt.”
- Portfolio strategy. Scotiabank GBM Portfolio Strategist Vincent Delisle says: “The global economy is heading into 2013 with positive momentum, mainly in the United States and China, but Europe continues to weigh on global activity.”
This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. (“SCI”), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice. All performance data represents past performance and is not indicative of future performance.
Read more Navigating Your Wealth articles
- Market Watch Mar 12
- Snow on the highway: silver in the lining Mar 5
- Reconcilable differences Feb 26
- Volatility up, equity markets down Feb 12
- Do you have a social network? Feb 5
- Surviving your health Jan 29
- Selling the family home Jan 22
- I can see for miles Jan 15
- The secret of change Jan 8
- Protect the inheritance you leave behind Dec 18
- Markets take a breather Dec 11
- Year-end tax planning for individuals Dec 4
(Click for RSS instructions.)