After a strong first quarter, markets continued their rally which has been driven by more accommodative central banks, expectations of a recovery in Chinese growth, and improving trade conditions.
*Equity Indices - FTSE Global Indices in CAD, Bonds - Barclays Global Aggregate Canadian Float Adjusted Bond Index
First quarter GDP results showed solid growth and beat economist expectations. Year-over-year GDP growth in the US currently sits at 3.2%, a considerably stronger number than the average annualized rate of 2.3% experienced since 2009.
Other fundamental economic data has also maintained its strength, with the country adding 196,000 jobs in March; unemployment has remained at record lows.
Corporate earnings season has kicked off and although there have been some high profile misses the evidence so far points to modest earnings growth, which mutes any concerns of an earnings recession.
News on the trade front suggests that China and the US are moving closer to a deal each day despite the recent threat by President Trump to increase tariffs on Chinese imports. The optimism around trade has certainly contributed to the generally positive market sentiment and performance year-to-date.
The Canadian jobs report revealed that the unemployment hasn’t changed. The Bank of Canada governors met and kept rates steady as they cut their gross domestic product forecast.
The Chinese economy has been showing signs of improvement amid expansionary fiscal measures implemented by the government. Improved consumer sentiment and trade expectations have helped the Shanghai composite. As China is the world’s second largest economy, improvements out of China will ripple over to other emerging markets and European economies that trade with China. The current sentiment is that we’re getting very close to the inking of a trade deal between the world’s two largest economies. This would eliminate a great deal of uncertainty from the markets and have a positive impact on both economies.
There was an emergency Brexit summit in April where an extension was granted to the UK until October 31st in order to avoid a “no-deal” scenario. This is not necessarily positive news as the longer the exit negotiations drag on, the longer members of the business community delay investment decisions involving the UK.
The International Monetary Fund (IMF) released a report in April cutting their global growth outlook. The reasons for their cut include the impact of tariff wars, a decline in business confidence in Europe due to headwinds such as Brexit, and political uncertainty in France and Italy as well as higher policy uncertainty.
Although there are some weak spots across the global economy, and emerging markets must continue dealing with headwinds presented by a strong US dollar, interest rates are low and corporate earnings are positive. This backdrop supports the case for continued growth.
No developments this month have fundamentally changed our outlook. We can expect moderating growth and bouts of increased volatility. As an investor you can benefit by thinking long-term and committing to a disciplined investment approach where you buy at predetermined intervals and rebalance when necessary.