This week’s Market Focus

Bank of Canada remains on the sidelines
The latest policy decision from the Bank of Canada came as no surprise to market players, as the central bank left interest rates unchanged. The press release that accompanied the announcement specifically highlighted that “the bank’s three measures of core inflation, taken together, continue to point to material excess capacity in the economy.” This came despite the admission that “growth in the fourth quarter of 2016 may have been slightly stronger than expected.” This expectation was clearly borne out in the subsequent release of the GDP data showing growth for the quarter at an annualized 2.6%, well above the January forecast of 1.5%. Despite the fourth quarter surge, Statistics Canada reported that overall growth for 2016 as a whole was 1.4%, well above the 0.9% recorded for 2015, but only marginally higher than the bank’s 1.3% forecast.
U.S. consumers step up
Even though the updated data from the U.S. Bureau of Economic Analysis left overall GDP growth unchanged at an annualized 1.9% pace in the final quarter of 2016, the composition of the growth was altered. Both government spending and inventory accumulation were revised down. However, revisions to personal consumption expenditure (PCE) took its annualized growth rate to 3.0% from 2.5% for the quarter. In addition, January saw some follow through with another 0.2% gain in consumption. The combination lifted the year-over-year growth pace to 4.7%, the fastest since November 2014.The continued strength in the U.S. labour market suggests further expansion of consumer spending. However, for the first time in several years inflationary pressures may partially offset these gains.
Economies close 2016 on a strong note
At the end of last year, the world entered an era of greater political uncertainty. While the future impact on global economic growth is not yet known, the final quarter of 2016 proved to be a solid foundation for a number of countries. In the last three months of 2016, Sweden recorded a quarter-over-quarter 1.0% advance in GDP. This was well above the prior quarter’s 0.3% pace and provided some hope of meeting the country’s inflation targets. The Australian economy registered a 1.1% expansion on the quarter, as it bounced back from the 0.5% contraction in the previous three-month period, thus avoiding a technical recession. Meanwhile, in India, GDP expansion in the October to December period slowed to 7.0% from 7.4% in the prior quarter, but it retained the title of the world’s fastest-growing “big” economy.
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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