Canadian economy accelerates
The latest data from Statistics Canada showed a substantial gain for the domestic economy. Overall, real gross domestic product (GDP) grew by 4.5% (annualized) in the second quarter, following a 3.7% advance (on the same basis) in the first. The second quarter result is the strongest quarterly gain since Q3 2011 (5.7%) and is well above the Bank of Canada’s July forecast for a slowdown to a 3% pace. The combined first and second quarter result is the best start to a calendar year since 2002 (+6.1% and +2.3%, respectively). The latest monthly figures also suggest that the economy carried at least some momentum into the third quarter. In addition, GDP by industry rose 0.3% in June, the eighth consecutive monthly gain. The advance left year-over-year growth at 4.3%. The strength of this report is likely to reinforce market expectations of an additional 0.25% rate hike by the bank of Canada before the end of 2017.

U.S. GDP sees upward revision
The U.S. economy expanded at a 3% (annualized) pace during the second quarter of 2017. The Bureau of Economic Analysis reported that the upward revision (GDP growth during Q2 2017 was originally reported as +2.6%) was due primarily to gains in both consumer spending and non-residential fixed investments that were larger than previously recorded. This is the 13th consecutive quarterly gain and the strongest since Q1 2015. However, analysts suggest that the economic fallout from Hurricane Harvey will dampen overall GDP growth, at least temporarily, when that data becomes available at the end of October.

German unemployment rate drops to new low
Germany’s federal statistical office reported that the number of unemployed workers in Germany stood at 1.59 million in July 2017. This represents a decline of approximately 27,000 from June’s level. As a result, the seasonally adjusted unemployment rate was 3.7% during the month. This is the lowest jobless rate since October 1980. During July, employment increased by a seasonally adjusted 42,000, or 0.1%. The strength of the labour market appears to be underpinning a robust upswing in Europe’s largest economy at a politically opportune time. With less than four weeks before the general election, most of the recent economic data has been positive.

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

Although the above information has been compiled from sources believed to be reliable, as at the date indicated, we cannot guarantee its accuracy or completeness. The information is provided solely for informational and educational purposes and is not to be construed as advice in respect of securities or as to the investing in or buying or selling of securities, whether express or implied. All data provided is subject to change without notice. The authors of this publication are employed by CI Investments Inc. or its affiliates. CI Investments and the CI Investments design are registered trademarks of CI Investments Inc. Neither CI Investments Inc. nor any of its affiliates or their respective officers, directors, employees or advisors is responsible in any way for damages or losses of any kind whatsoever in respect of the use of this information.

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