Canadian jobless rate drops
Updated figures from Statistics Canada revealed another decline in the nation’s unemployment rate. The 6.6% figure matches the cyclical low recorded in January 2015. In addition, employment gains totalled 15,300 for the month. This was sufficient to boost the annual growth rate to 1.6%, the fastest pace in four years. The composition of the job gains was also favourable as full-time jobs recorded an increase of 105,100 while part-time jobs dropped 89,800, reversing the trend seen in recent months. Nevertheless, the report was not uniformly strong. The participation rate dipped from 65.9% to 65.8%, average hourly earnings were up only a modest 1.3% from a year ago and hours worked recorded a year-over-year decline of 0.3%. These mixed elements of the report suggest that the Bank of Canada will remain on hold even if the U.S. Federal Reserve decides to raise interest rates at its upcoming policy meeting.

Market looks for Fed rate hike
In the wake of another strong U.S. payroll report for February, market participants have raised their expectations of a 25 basis point (a basis point is 1/100th of one per cent) rate hike at the March 14-15 Federal Open Market Committee meeting. Non-farm payrolls added another 235,000 jobs in February as the unemployment rate dipped to 4.7% and the participation rate climbed to 63.0%. However, perhaps more important to the Fed, average hourly earnings rose an additional US$0.06 following the $0.05 and $0.07 gains recorded in the previous two months. Wage growth now stands at 2.8% (year-over-year), suggesting that some tightening of labour markets is spilling over into wage inflation. Even though a material shift in consumer inflation has yet to appear, it is likely that the Fed will wish to avoid falling behind the curve.

China posts rare trade deficit as imports surge
Official data from China’s General Administration of Customs revealed the first monthly trade deficit in three years in February. During the month, exports shrank 1.3% (year-over-year) after rising 7.9% (on the same basis) in January. Conversely, imports soared 38.1% in February on the back of a 16.7% advance in the prior month. The February surge in imports is the largest in five years. The combination left the country with a rare trade deficit of US$9.15 billion for the month. The surprise deficit comes against a backdrop of increased U.S. political pressure. Coincidentally, China’s February trade surplus with the U.S. narrowed to $10.42 billion, the smallest since February 2012. Analysts noted that, even though trade figures in January and February can be distorted by the week-long Lunar New Year holiday, the increase in imports suggests that domestic demand remains resilient.

Longer View

Following several years of a general expansion in the price-earnings ratio of equities, we believe returns from this asset class will moderate somewhat and become more closely tied to the rate of growth in company earnings. With equity market volatility increasing to at least the normal range, it’s important to keep in mind that equities are best suited for long-term investing, and that the allocation in your portfolio should reflect your investment horizon and risk tolerance. Fixed-income investments, while generally providing limited income in today’s low interest rate world, are an effective diversifier in a portfolio. When there is extreme pessimism in the equity market, fixed-income tends to outperform. There is no one asset class that looks better than others, in our view, as their current valuations accurately reflect their potential and risk. Talk to your professional advisor to ensure your portfolio is optimized and continues to meet your needs.

Courtesy of CI Funds

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