Month in Review: AUGUST 2014

Transcription

1 Month in Review: AUGUST 2014 What Moved the Markets The tone to financial markets was mixed in August due to a wide range of economic data, important developments on the monetary policy front, and renewed geopolitical tensions. While economic data in the U.S. was solid, European data was mostly disappointing and suggested that deflationary risks were rising. On the monetary policy front, the annual Jackson Hole symposium revealed monetary stimulus will remain in place but divergences were starting to emerge. The Federal Reserve reiterated its support for monetary stimulus but the central bank remained on track for interest rate hikes in In contrast, the Bank of Canada indicated it had the resolve not to follow the Federal Reserve in lockstep. On the other end of the spectrum, the European Central Bank (ECB) seemed poised to pursue even more unconventional accommodation. Finally, geopolitical concerns in the Middle East and Ukraine remained a concern although they have yet to have a visible impact on investor mindsets. This month, the S&P/TSX generated a positive return of 2.1%, while the S&P 500 increased 4.0%. All S&P/TSX sectors were positive in August. The Consumer Discretionary sector generated the largest increase, gaining 6.5%. The Industrials Sector (4.2%) and Energy (3.4%) also posted strong monthly performance. In the U.S., sectors were mostly positive as well. The Health Care sector posted the largest increase, gaining 4.9%, while Consumer Discretionary (4.5%), Financials (4.2%), and Information Technology (4.0%) also gained substantially. Telecom Services (-1.0%) was the lone sector that posted a monthly loss. Overseas, indices were mainly positive in August. Brazil s Bovespa led the way, surging 9.8%. India s Sensex and the FTSE in the U.K. were also positive, posting gains of 3.0% and 2.1%, respectively. The remaining indices were mostly flat, with the S&P/ ASX 200, Shanghai Index, Germany s DAX, and the Hang Seng generating gains of less than 1%. The Nikkei (Japan) was the only major index that declined, posting a decrease of 1.2%. Overall, the MSCI World Index increased 2.3% and has now been positive in five of eight months for the year. S&P/TSX gold stocks gained 3.1%, and continue to be the strongest sub-group for the year, collectively returning 29%. The S&P/TSX Capped Energy Subsector gained 3%, while the S&P/TSX Capped Financials Subsector was flat. All indices and figures priced in local currency as at August 31, 2014 (unless otherwise stated). For Important Disclosures, see page 9.

2 What Moved the Markets continued from page 1 Fixed Income-Specific Developments While U.S. economic data was generally positive in August, the yield on the U.S. 10-year Treasury ended the month at 2.34%, which was 22 basis points lower than the end of July (to 2.56%). Job growth of 209,000 in August was slightly below expectations, but represented the sixth consecutive month of +200,000 job gains. US non-manufacturing data came in above expectations at 58.7 (consensus: 56.5), while the purchasing level jumped to 58, above the consensus estimate of nd quarter U.S. GDP rose to 4.2% (above the expectation of 3.9%) also helping to strengthen investor confidence. Looking to the Federal Reserve for policy signals, markets focused on the slightly hawkish tone set in July s Federal Open Market Committee minutes. With the Fed emphasizing faster than expected improvements in the labour market, there was a slight upward adjustment in the markets; however, this was quickly offset by escalating tensions in the Ukraine and Chair Yellen s more balanced tone at Jackson Hole. In Canada, the yield on the benchmark 10-year bond fell 16 basis points to 2.00% - the lowest it has been since mid However, 2 nd quarter real GDP rose to 3.1%, beating market expectations of 2.7%. The gain was broadly based with domestic demand rebounding 3.0% following the -0.2% reported in the first quarter. Net exports also provided a solid boost to the growth rate in the second quarter. That said, in an interview at Jackson Hole, Bank of Canada Governor Poloz downplayed the stronger economic data observed over the last few months. While exports have grown an average of 1% each month so far in 2014 three times the pace of growth in 2013 Poloz said that trade data was okay, but Number Crunching Equity Indices* Month YTD* S&P/TSX Composite Index TR 2.1% 16.9% Dow Jones Industrial Average TR 3.6% 4.8% S&P 500 Index TR 4.0% 9.9% NASDAQ Composite Index TR 5.0% 10.6% MSCI EAFE TR (USD) -0.1% 2.9% MSCI World TR (USD) 2.2% 7.2% S&P/TSX Sector Performance* Month YTD* S&P/TSX Financials TR 0.7% 14.3% S&P/TSX Energy TR 3.4% 22.4% S&P/TSX Materials TR 0.4% 18.3% S&P/TSX Industrials TR 4.2% 20.8% S&P/TSX Consumer Discretionary TR 6.5% 18.0% S&P/TSX Telecom Services TR 1.5% 6.6% S&P/TSX Information Technology TR 1.0% 16.3% S&P/TSX Consumer Staples TR 2.2% 19.9% S&P/TSX Utilities TR 2.4% 11.1% S&P/TSX Healthcare TR 0.6% 2.4% * All returns are on a Total Return basis. All indices are in local currency unless otherwise noted. Source: Bloomberg Currencies (in Canadian Dollars) Commodities (US$) Spot Price Month YTD* Crude Oil (WTI per barrel) $ % -2.5% Natural Gas (per million btu) Exchange Month YTD* US Dollar % 2.4% Euro % -2.2% British Pound % 2.7% Japanese Yen (100) % 3.6% $ % -3.9% Gold (per ounce) $1, % 6.8% Silver (per ounce) $ % 0.0% Copper (per pound) $ % -5.0% Nickel (per pound) $ % 35.3% Aluminum (per pound) $ % 18.9% Zinc (per pound) $ % 14.8% 2 MONTH IN REVIEW

3 What Moved the Markets continued from page 2 emphasized that they still have question marks around the recovery, which means his view has not changed materially since his July press conference in which he cautioned that there have been false dawns before, only to be serially disappointed by the recovery. This reinforces the theme that Bank of Canada will likely keep the focus squarely on low inflation while some activity data has improved. 1.4 % 1.2 % 1.0 % 0.8 % S&P/TSX Index - Target Overnight Rate, LTM 16,000 15,000 14,000 13,000 12,000 Global Developments In the Eurozone, growth remains weak and short-term inflation expectations are at record lows. Second quarter GDP was only +0.05% quarter to quarter, with Italy sliding back into recession and German industrial production stalling. These factors combined to increase the risk of stagnation in the Eurozone throughout the second half of % 0.4 % Source: Bloomberg S&P/TSX Index Target Overnight Rate ,000 10,000 European Central Bank President Mario Draghi s speech at Jackson Hole focused on the second quarter stalling of the euro area and the potential need for further support through fiscal policy. As expected, the European Central Bank, Bank of England and Bank of Japan all kept rates on hold. In the Emerging Markets space, the Central Bank of Russia reiterated its intention to complete the transition to a fully-flexible ruble by yearend, while continuing to operate under threat of escalating sanctions. In China, July export data came in above expectation, while imports softened, driving the country s monthly trade surplus to an all-time high. 3 MONTH IN REVIEW

4 North American Equity Highlights August ,750 August 5: Coach (COH) shares rose 4.8% after the company posted fourth-quarter profit that topped analysts' estimates. Men's goods and rising demand in China helped counter slumping sales in North America. 3 August 6: Walgreens (WAG) announced a $15.3 billion plan to complete its acquisition of Europe-based Alliance Boots. Its decision not to pursue potential tax savings by shifting its headquarters overseas resulted in shares decreasing 14.34%. 5 August 15: Monster Beverage (MNST) surged 30.4% on news that Coca-Cola (KO) had agreed to acquire a 16.7% stake in MNST for USD$2.15 billion. 1 August 27: Apple Inc (AAPL) stock gained 1.23% as investors looked ahead to new products, including a bigger-screen iphone and a wristwatch-like device. 5 2,010 1,980 1,950 S&P/TSX 15,500 15,250 August 1: Eldorado Gold Corporation (ELD) climbed nearly 6% after reporting adjusted second quarter net earnings of $35.9 million, compared to $48.2 million in the same quarter a year prior. 1 August 18: Air Canada (AC.B) shares soared 5.9% as the price of crude fell almost USD$2 a barrel, its lowest level in more than a year. 2 1,920 1,890 August 27: Talisman Energy Inc (TLM) From Subject Received Size fell 5.1% after news that the oil Mackay, RyCan I get m 11:05 AM 2 KB company had run into difficulties trying 1,860 to sell itself to Spanish energy company, Repsol SA. 4 S&P 500 August 21: Sears Canada Inc (SSC) shares fell 7.5% after its parent Sears Holdings Corp (SHLD) posted a USD$573 million quarterly loss amid declining revenue and margins, and indicated that more cost cuts and changes would be on the way. 5 1,830 15,000 1, /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/ /08/29 S&P/TSX S&P Nasdaq 2 The Financial Post 3 Bloomberg 4 Reuters 5 The Wall Street Journal Pricing Data Source: Bloomberg 4 MONTH IN REVIEW

5 World Markets August 2014 Global indices were up smartly in August. Brazil s Bovespa surged 8.0%, while the S&P 500 gained 4.0%. India s Sensex, the S&P/TSX, and the FTSE were also positive, posting gains of 3.0%, 2.1%, and 2.1%, respectively. The remaining indices were mostly flat, with the S&P/ASX 200, Shanghai Index, DAX, and Hang Seng reporting changes of 0.9%, 0.8%, 0.7%, 0.2%, respectively. Japan s Nikkei was a notable laggard, posting a decrease of 1.2%. Overall, the MSCI World Index increased 2.3%. Canada: S&P/TSX M/M: 2.1% YTD: 16.9% U.S.: S&P 500 M/M: 4.0% YTD: 9.9% Brazil: Bovespa** M/M: 9.8% YTD: 19.0% U.K.: FTSE 100 M/M: 2.1% YTD: 4.1% Germany: DAX M/M: 0.7% YTD: -0.9% MSCI World Index: Global USD M/M: 2.3% YTD: 7.3% India: Sensex M/M: 3.0% YTD: 27.7% China: Shanghai Index M/M: 0.8% YTD: 8.0% Hong Kong: Hang Seng M/M: 0.2% YTD: 9.6% Japan: Nikkei M/M: -1.2% YTD: -4.4% Australia: S&P/ASX 200 M/M: 0.9% YTD: 9.3% All returns are on a total return basis unless otherwise noted All returns calculated in local currency except for MSCI World ** These indices are calcuated on a price return basis Source: Bloomberg 5 MONTH IN REVIEW

6 Canadian & U.S. Equities August 2014 S&P/TSX Composite Sector Movement S&P 500 Sector Movement -7% -5% -3% -1% 1% 3% 5% 7% Consumer Staples Financials Industrials Information Technology Consumer Discretionary Materials Telecom Services Utilities Energy Healthcare -6% -4% -2% 0% 2% 4% 6% Telecom Services Information Technology Healthcare Consumer Discretionary Financials Materials Consumer Staples Energy Industrials Utilities Top 10 S&P/TSX Contributors/Decliners by Index Points Top 10 S&P 500 Contributors/Decliners by Index Points Royal Bank of Canada Toronto-Dominion Bank/The Bank of Nova Scotia Canadian National Railway Co TransCanada Corp Enbridge Inc Canadian Pacific Railway Ltd Manulife Financial Corp First Quantum Minerals Ltd Bank of Montreal Tourmaline Oil Corp Cenovus Energy Inc Penn West Petroleum Ltd TELUS Corp Suncor Energy Inc Crescent Point Energy Corp Encana Corp Potash Corp of Saskatchewan Inc Canadian Natural Resources Ltd Valeant Pharmaceuticals International Inc Apple Inc Intel Corp Gilead Sciences Inc Time Warner Inc Microsoft Corp International Business Machines Corp Facebook Inc Amgen Inc Verizon Communications Inc EMC Corp/MA AbbVie Inc Twenty-First Century Fox Inc Exxon Mobil Corp Wells Fargo & Co United Technologies Corp QUALCOMM Inc General Electric Co Coca-Cola Co/The Schlumberger Ltd Johnson & Johnson 6 MONTH IN REVIEW Source: Bloomberg

7 Canadian and U.S. Economic Data August 2014 Release Date Economic Indicators: Canada Period Consensus Actual Prior 08/29/2014 Gross Domestic Product (m-o-m, SA) Jun 0.20% 0.30% 0.50% 08/29/2014 Gross Domestic Product (y-o-y, SA) Jun 3.00% 3.10% 2.30% Labour market 08/15/2014 Net Change in Employment (000, SA) Jul /15/2014 Participation Rate (SA) Jul 66.10% 66.10% 66.10% 08/15/2014 Unemployment Rate (SA) Jul 7.10% 7.00% 7.10% Housing market 08/11/2014 Housing Starts (000, SAAR) Jul /14/2014 New Housing Price Index (y-o-y) Jun % 1.50% 08/15/2014 Existing Home Sales (m-o-m) Jul % 0.80% 08/13/2014 Teranet/National Bank HPI (m-o-m) Jul % 0.90% Consumer & Manufacturing 08/22/2014 Retail Sales (m-o-m, SA) Jun 0.30% 1.10% 0.90% 08/22/2014 Retail Sales Less Autos (m-o-m, SA) Jun 0.30% 1.50% 0.30% 08/15/2014 Manufacturing Sales (m-o-m, SA) Jun 0.40% 0.60% 1.70% Trade 08/06/2014 Merchandise Trade (billion, SA) Jun Prices 08/22/2014 Consumer Price Index (m-o-m) Jul -0.10% -0.20% 0.10% 08/22/2014 Consumer Price Index (y-o-y) Jul 2.20% 2.10% 2.40% 08/22/2014 Bank of Canada CPI Core (m-o-m) Jul 0.10% -0.10% -0.10% 08/22/2014 Bank of Canada CPI Core (y-o-y) Jul 1.90% 1.70% 1.80% 08/29/2014 Industrial Product Price (m-o-m) Jul -0.20% -0.30% 0.10% 08/29/2014 Raw Materials Price Index (m-o-m) Jul -1.80% -1.40% 1.10% 7 MONTH IN REVIEW

8 Economic Data continued from page 7 Release Date Economic Indicators: Canada Period Consensus Actual Prior 08/20/2014 Wholesale Sales (m-o-m, SA) Jun 0.40% 0.60% 2.30% 08/07/2014 Ivey Purchasing Managers Index (SA) Jul /07/2014 Building Permits (m-o-m, SA) Jun -1.90% 13.50% 15.40% Release Date Economic Indicators: U.S. Period Consensus Actual Prior 08/28/2014 GDP (q-o-q, SAAR) 2Q S 3.90% 4.20% 4.00% 08/28/2014 GDP Price Index (q-o-q, SAAR) 2Q S 2.00% 2.10% 2.00% 08/28/2014 Core PCE (q-o-q, SAAR) 2Q S 2.00% 2.00% 2.00% Labour market 08/01/2014 Change in Nonfarm Payrolls (000, SA) Jul /01/2014 Unemployment Rate (SA) Jul 6.10% 6.20% 6.10% Housing market 08/19/2014 Building Permits (000, SAAR) Jul /19/2014 Housing Starts (000, SAAR) Jul /25/2014 New Home Sales (000, SAAR) Jul /21/2014 Existing Home Sales (million, SAAR) Jul /18/2014 NAHB Housing Market Index (SA) Aug /01/2014 Construction Spending (m-o-m, SA) Jun 0.50% -1.80% 0.80% Consumer & Manufacturing 08/13/2014 Advance Retail Sales (m-o-m, SA) Jul 0.20% 0.00% 0.20% 08/13/2014 Retail Sales Less Autos (m-o-m, SA) Jul 0.40% 0.10% 0.40% 08/26/2014 Consumer Confidence (SA) Aug /29/2014 U. of Michigan Confidence Aug F /28/2014 Personal Consumption (q-o-q, SAAR) 2Q S 2.40% 2.50% 2.50% 08/26/2014 Durable Goods Orders (m-o-m, SA) Jul 8.00% 22.60% 2.70% 08/05/2014 Factory Orders (m-o-m, SA) Jun 0.60% 1.10% -0.60% Trade 08/14/2014 Import Price Index (m-o-m) Jul -0.30% -0.20% 0.10% 8 MONTH IN REVIEW

9 Economic Data continued from page 8 Release Date Economic Indicators: U.S. Period Consensus Actual Prior 08/14/2014 Import Price Index (y-o-y) Jul 0.80% 0.80% 1.10% 08/06/2014 Trade Balance (billion, SA) Jun Prices 08/19/2014 Consumer Price Index (m-o-m, SA) Jul 0.10% 0.10% 0.30% 08/19/2014 Consumer Price Index (y-o-y) Jul 2.00% 2.00% 2.10% 08/19/2014 CPI Core Index (SA) Jul /29/2014 PCE Deflator (y-o-y, SA) Jul 1.60% 1.60% 1.60% Other Indicators 08/01/2014 ISM Manufacturing Index (SA) Jul /29/2014 Chicago Purchasing Manager Index Aug /21/2014 Philadelphia Fed Index Aug /21/2014 Leading Indicators (m-o-m) Jul 0.60% 0.90% 0.60% 08/13/2014 Business Inventories (m-o-m, SA) Jun 0.40% 0.40% 0.50% Source: Bloomberg SA = Seasonally Adjusted; SAAR = Seasonally Adjusted Annual Rate; m-o-m = Month-over-month % change; q-o-q = Quarter-over-quarter % change; y-o-y = Year-over-year % change. This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc. (RBC DS)*, RBC Phillips, Hager & North Investment Counsel Inc. (RBC PH&N IC), RBC Global Asset Management Inc. (RBC GAM), Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the Companies ) and their affiliates, RBC Direct Investing Inc. (RBC DI) *, RBC Wealth Management Financial Services Inc. (RBC WM FS) and Royal Mutual Funds Inc. (RMFI). Each of the Companies, their affiliates and the Royal Bank of Canada are separate corporate entities which are affiliated. *Members-Canadian Investor Protection Fund. RBC advisor refers to Private Bankers who are employees of Royal Bank of Canada and mutual fund representatives of RMFI, Investment Counsellors who are employees of RBC PH&N IC and the private client division of RBC GAM, Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC DS. In Quebec, financial planning services are provided by RMFI or RBC WM FS and each is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC DS. Estate & Trust Services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies or RMFI, clients may request a referral to another RBC partner. Insurance products are offered through RBC WM FS, a subsidiary of RBC DS. When providing life insurance products in all provinces except Quebec, Investment Advisors are acting as Insurance Representatives of RBC WM FS. In Quebec, Investment Advisors are acting as Financial Security Advisors of RBC WM FS. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, RBC WM FS, RBC DI, Royal Bank of Canada or any of its affiliates or any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. Registered trademarks of Royal Bank of Canada. Used under license Royal Bank of Canada. All rights reserved. 9 MONTH IN REVIEW