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Daily Pulse

Canada

Slowing global growth and the threat of a drawn-out trade war between the two largest economies have impacted corporate profits across the world. Not so in Canada, where equity bulls have boosted their earnings expectations to a record high. Strategists are expecting profits for companies listed on the benchmark S&P/TSX Composite Index to climb to C$1,143 ($864) a share for 2019 thanks to the nation’s expanding economy, stronger commodity prices and a solid earnings season that’s currently underway. Companies listed on Canada’s benchmark index have beat estimates by about 6% on average, the most in a year. More than 80% of S&P/TSX companies have reported results, according to Bloomberg data. And about two-thirds of those firms have postedprofits that beat estimates.

United-States

U.S. 30-year yields fell to their lowest level ever as investors sought shelter amid a fraught geopolitical backdrop and concern increased about the impact of the escalating global trade war on economic growth. Meanwhile, the stream of investors into the safest parts of the market has triggered yet another recession warning, driving the 10-year Treasury yield below the two-year one. The 30-year yield tumbled as much as nine basis points to 2.0738%, below the previous record low of 2.0882% from July 2016. The gap between 5-year and 30-year debt, a widely watched yield curve, flattened to 54 basis points, while the equivalent gap between 2-year and 10-year debt inverted for the first time since 2007.

Oil declined after its biggest surge in five weeks as an industry report showed American crude stockpiles expanded, paring a rally that was fueled by signs the U.S.-China trade deadlock may be easing. Futures lost as much as 1.5% in New York after the American Petroleum Institute was said to report that crude inventories rose by 3.7 million barrels last week. If confirmed by government data Wednesday, it will be a second weekly increase, though a Bloomberg survey predicts a draw in stockpiles. Oil surged 4% on Tuesday after the U.S. postponed tariffs on some Chinese goods, offering a glimmer of hope for global demand.

Europe

Germany’s economy shrank in the second quarter, ramping up pressure on Chancellor Angela Merkel to unleash fiscal stimulus as manufacturers reel from a U.S.-China trade war. The latest report, paired with a protracted slump in business expectations, raises the risk that Europe’s largest economy is on the verge of falling into a recession. It would be the first in six and a half years. Separate data showed euro- area industrial production plunged the most in more than three years in June, while economic growth cooled to 0.2% in the second quarter. German output fell 0.1% in the three months as exports slumped, a second contraction in four quarters.

The yield gap between U.K. 2-year and 10-year bonds inverts for the first time since 2008.

Asia

Chinese officials are sticking to their plan to visit Washington in September for face-to-face trade meetings, people familiar with the matter said, signaling that talks remain on track for now despite an abrupt escalation in tariff threats this month. The U.S. on Tuesday delayed the imposition of some new tariffs after top negotiators spoke on the phone, with President Donald Trump saying the encounter was “very productive,” and that he thinks Beijing wants to “do something dramatic” to end the impasse. That said, Chinese negotiators are not very optimistic of any imminent progress, one of the people said. Officials are unlikely to make concessions in the run up to October 1, the celebration of the 70th anniversary of the founding of the People’s Republic, the person said.

China posted the weakest industrial output growth since 2002 and slumping retail sales in July, as a cyclical slowdown and trade tensions add to the case to roll out more stimulus. Industrial output rose 4.8% from a year earlier, retail sales expanded 7.6%, and fixed-asset investment slowed to 5.7% in the first seven months. While some seasonal effects likely compressed the data, all results were lower than forecast by economists in a Bloomberg survey.

The author

Michel Doucet

Michel Doucet

Vice-President and Portfolio Manager
After obtaining a Bachelor's degree from the Faculty of Social Sciences at the Université du Québec in Montréal and his Master’s degree, Michel Doucet began his career as a junior economist at the National Bank head office in Montreal. In 1992 he joined the institutional equities and fixed income group at Lévesque Beaubien Geoffrion as an economist and market analyst. Over the years, he has led various projects related to the North American and international economies as well as Canadian public finances. In 1996, the team of institutional economists to which he belongs was ranked first in Canada by Brendan Wood International. In August 1997, Mr. Doucet joined the personal services division of Lévesque Beaubien Geoffrion where he served as an economist, fixed income market analyst and vice president. In 2004, he joined the Desjardins Securities full service team as Vice President. He now occupies the roles of fixed income strategist, economist and portfolio manager. He manages the Securities Portfolio Advisory Group, advisor marketing and distribution of financial planning and insurance.