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Briefing highlights

  • Time ‘to go long’ on TSX?
  • Shorting of loonie eases
  • TSX at a glance
  • U.S. markets closed
  • What to expect on trade, jobs

The past decade … one of the worst periods in modern history

Robert Kavcic


Let's kick off the second half of the year on this note: TSX-listed stocks may suck, but perhaps "it's time to go long," as one strategist puts it.

Indeed, as The Globe and Mail's Tim Shufelt reports, some market observers expect a pick-up in the next six months for a stock benchmark that has lagged its global peers big time.

Just how bad was the first half?

"At midyear, the S&P/TSX remains one of the worst-performing country benchmarks," said Stéfane Marion, National Bank of Canada's chief economist and strategist.

About the best that can be said is that the TSX beat out the Israeli market. Which means it trailed everyone else from Greece at the top to Australia at the bottom.

Looking at it a bit differently, David Rosenberg, chief economist at Gluskin Sheff + Associates, noted that the TSX isn't "far off its historical norm" by certain measures. Unlike the S&P 500.

Without going through his math on forward price/earnings multiples, the bottom line is that "the U.S. stock market is nearly four times (on a standard deviation basis in terms of the multiple) as expensive as Canada is at the moment," Mr. Rosenberg said recently.

But, as Mr. Shufelt writes, there are higher hopes for the second half.

National Bank, for one, expects a perkier global economy over the next six months, in turn helping to drive the Toronto Stock Exchange.

"This development argues for a reflation trade scenario, implying a somewhat weaker U.S. dollar and stronger commodity prices," said Mr. Marion.

"Energy, banks and materials have all struggled in Q2," he added in a recent report suggesting "it's time to go long S&P/TSX."

"We expect these sectors to do better in the second half of the year. The domestic economy remains sound and corporate profits have rebounded. We are changing our asset allocation today by reducing our cash position in favour of Canadian equities."

Like Mr. Marion, Brian Belski, Bank of Montreal's chief investment strategist, also expects a better second half of the year.

"With investors increasingly laser-focused on louder headline areas such as the U.S., Europe and emerging markets, perhaps it is time to turn down the noise and come home to Canada again," Mr. Belski said in a recent report, arguing for a "more contrarian view" where Canada is concerned.

"We believe the excessively negative sentiment toward Canadian equities is overdone and very consensus."

Saying "we smell a surprise recovery coming," Mr. Belski suggested investors "bottom fish" the Canadian market.

As Citigroup sees it, Canada is starting the second half on a weak note.

In its latest country "attractiveness" rankings released today, Canada ranks fourth from the bottom among 22 markets measured, ahead of Mexico, the U.S. and Belgium.

At the top are Italy, South Korea, Germany, Taiwan and Singapore.

As an aside, here's some historical perspective from one of Mr. Belski's colleagues, BMO senior economist Robert Kavcic, who looked far back as an exercise for Canada's 150th:

"The worst period for stocks, as you'd guess, was through the Great Depression, when the TSX shed more than 60 per cent of its value in the 10 years through 1939 (on a month-end basis). The 10-year period through 1974 was also slightly negative, while the past decade has seen the index rise less than 1 per cent annualized, one of the worst periods in modern history."

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TSX at a glance

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The not-so-short short

The massive shorting of the Canadian dollar continues to ease, this time by a lot.

The net short position against the loonie declined by $2.5-billion (U.S.) last week to $3.75-billion, according to numbers released Friday by the Commodity Futures Trading Commission, and measured as of one week ago.

In contract terms, the net short fell by more than 33,000 to 49,495.

"This looks to us to be an overdue reaction to the CAD's rebound that got under way in early May," said Bank of Nova Scotia currency strategists Shaun Osborne and Eric Theoret, referring to the loonie by its symbol.

"CAD gains have forced gross shorts to throw in the towel (and enticed some modest increase of gross CAD longs)," they added in a report on the weekly CFTC numbers.

"Given the CAD's continued rally in the wake of the [Bank of Canada's] hawkish turn, we expect a still sizable net CAD short … to have experienced a further, sharp decline in [this] week's data."

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What to watch for this week

We'll get a rundown on some of our most important measures, from trade to housing to jobs.

Today could well be a bit boring, given U.S. markets are closed, but Wednesday to Friday is packed.

The Real Estate Board of Greater Vancouver releases its report on June sales and prices Wednesday, of particular note as the city was hit with a provincial tax on foreign buyers that sparked a sales slump.

Vancouver's picking up, though, which makes observers wonder whether the recent fall in Toronto, in the wake of a similar Ontario levy on foreign speculators, may be only temporary.

One day after Vancouver, on Thursday, the Toronto Real Estate Board releases its monthly stats, but differently this time out.

The Toronto group usually just issues a report, though Thursday will see an added forecast and press conference.

Also on Thursday, Statistics Canada releases monthly trade numbers, for May, a report that takes on added importance amid the trade policies of the Trump administration. Some economists expect to see a wider deficit, with the possibility of zero balance.

The U.S. reports its May trade numbers on the same day.

Friday's a biggie, with June jobs reports in both Canada and the U.S.

While Canadian labour reports are difficult to forecast, economists expect to see job creation of between 5,000 and 20,000 positions, with unemployment holding at 6.6 per cent or perhaps easing by one notch.

Remember, this report comes just ahead of the Bank of Canada's July 12 decision, and markets have increasingly been placing bets on a rate hike that day.

"Given the huge volatility in these reports, only a completely disastrous one could impact the BoC's July policy decision (and even then, maybe not)," said Benjamin Reitzes, BMO's Canadian rates and macro strategist.

The U.S. report will be released at the same time, and is expected to show job creation of almost 180,000 and unemployment at 4.3 per cent.

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