Over the past 3 months, global markets have lifted thanks to solid fundamental indicators and positive sentiment. In this economic update, we’ll look at the news driving the returns, and discuss what Trump’s first 100 days in office can tell us about what to expect going forward.
*Equity Indices - FTSE Global Indices in CAD, Bonds - Barclays Global Aggregate Canadian Float Adjusted Bond Index
Fundamentals and Sentiment
As we’ve noted in past months, global consumer spending is on the rise – the effects of which are manifested in inflation and corporate earnings. Earnings per share are expected to have grown by 12.5% over last year, and sales have grown by 8%. Private fixed investment has jumped to an annualized rate of 12% after being a dismal 2.1% on average since 2008. And US inflation came in at 2.3% in Q1, further justifying the Fed’s rate increase campaign and a stronger USD. In Europe, GDP is climbing faster than it is in the US and economic-sentiment is the highest level in over 10 years.
Global consumer confidence is also improving, but perhaps the biggest market-mover in April was the relief that a potential negative risk has been avoided, as France seems likely to elect a president who favours remaining in the EU. Before the first round of election results were in, the market priced in the possibility that the two finalists would favour leaving the EU, stoking fears of another EU crisis.
While the Trump administration has made many promises, little has actually been accomplished. For example, the tax cut plans that caused a surge in the stock market have failed to materialize into what the market hoped. Due to the lack of clarity in the 1-pager put forward, market experts say that it has not improved the odds of any meaningful reform.
Of all the changes promised in the first 100 days, Trump’s protectionist measures have been the only things to really take shape. Almost immediately after inauguration, the country backed out of the Trans Pacific Partnership (TTP) and stopped progress on a trade deal with the EU. He’s balked at the importance of trade with China and most recently has threatened to withdraw from NAFTA.
While investment has picked up and the global economy is gaining speed, America’s political uncertainty continues to be a stumbling block. But if anything can be taken from Trump’s first 100 days in office, it may be that once he’s done ruffling feathers, calmer insights will drive the administration to pivot into more traditional positions. It even appears now that his government is trying to salvage the TPP deal.
Opening Canadian Borders
As the US figures out its position on trade, the rest of the world is moving forward. That picture is taking shape right here in Canada.
In 2017 alone, Canada has moved forward on CETA – a trade deal with Europe; trade talks have moved forward with a range of Asian countries including China, and; exploratory talks are beginning with Mercosur - the South American trading block that includes Brazil and Argentina, among others.
Reducing its reliance on a volatile neighbor to the south, Canada is taking advantage of the higher growth rates in these countries by reducing boundaries to Canadian exports overseas.
As always, it is uncertainty that keeps investors up at night. While the repercussions from proposed policies seem to have a larger historical impact than usual, leading economic indicators support a positive outlook.
In these times, it’s best to spread your risks, just like Canada is doing with trade agreements. As our one major partner threatens protectionism, we are shifting our sights to partners who are looking forward, not backward. The benefits of diversification played out on the grandest scale.