Cidel - Q3 | Quarterly Report


Looking Back
In our opinion, these were the most important stories in Q3…
During the third quarter of 2018, the performance of the global equity markets continued to diverge. Over this period, U.S. equities performed strongly, up approximately 8%, while international equities displayed moderate performance, and both Canadian and Emerging Markets had negative returns over the period. While the U.S. market has been strong, equity markets in various other economies were negatively impacted by trade issues (e.g. Canada, China), debt and political issues in Europe, and country-specific issues in several important emerging markets (eg. Brazil, Argentina, Turkey). These factors all contributed to the large difference in equity market performance.
The U.S. economy continued to perform well with unemployment continuing to fall, consumer and business confidence remaining high, and corporate earnings beating consensus estimates. While news of trade disputes continued, particularly on the U.S. and China front, market reaction in the U.S. has seemed fairly muted over the course of the year thus far. In Canada, growth has slowed over the past few quarters and at the end of the third quarter, an agreement was finally reached on the three country trade agreement, renamed USMCA (United States-Canada-Mexico Agreement) removing some uncertainty. The multi-year period of synchronized global growth has stalled.
Interest rates increased during the quarter in both Canada and the U.S. The Bank of Canada raised rates by 0.25% at its July meeting and held steady in September. In the U.S., the Fed raised rates as expected in September and have given clear indications that more increase are to come later this year and into 2019. Rates have risen across the curve throughout the third quarter and into Q4, as evidenced with 10-year government bond rates close to 2.5% in Canada and comfortably above 3% in the U.S. While government rates have risen, corporate credit spreads have tightened in both investment-grade and non-investment grade corporate bonds as demand for yield has continued to be strong. In Europe, there has been evidence of continuing slowdown in the economic growth rate as concerns have risen over the Italian budget deficit and the expectation that it could lead to a showdown with the European Commission.
Overall, the recent quarter saw a variety of factors impact global markets, signifying the importance of the interconnectedness of the global economy to investment activities.


Looking Forward
As we enter Q4, the points below have our Investment Team's attention...
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Trump and Impeachment: Odds remain low, but could be rising – The likelihood of President Trump being impeached may have increased marginally with the results of the mid-term elections. However, the Republicans did retain their majority in the Senate in the early November elections.
What history tells us: Difficult to isolate effect of impeachment on equity markets – We have two modern examples of Presidents behaving badly and facing impeachment: Nixon and Clinton. We also have recent examples with the impeachment proceedings in South Korea (December 2016) and in Brazil (August 2016).
What is different this time? – President Trump’s populist approach is very different than the strategy used by many of his predecessors. To achieve political victory, President Trump played into a rising
anti-establishment sentiment and presented himself as a Washington outsider.
President Pence: Economically, probably more of the same but likely more favorable on trade wars – The odds of Vice-President Pence getting a promotion are long but the market’s view on what kind of president he would be is sure to play an important role in the market’s reaction to a Trump impeachment.

The Rise of ESG Disclosure

Philip Young takes on :The Rise of ESG and What it Means for you

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Chief Executive & Investment Officer Arthur Heinmaa, discusses the announement of the USMCA.

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Away From the Desk

Cidel in the News

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This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information contained in this document has been compiled by Cidel Asset Management Inc. from sources believed to be reliable, but no representations or warranty, express or implied, are made by Cidel Asset Management Inc. as to its accuracy, completeness or correctness. The opinions expressed are as of the date of this publication and may change without notice and are provided in good faith, but without legal responsibility. Cidel Asset Management Inc., carrying on business as Cidel, Cidel Financial Group, Toron Asset Management International, (“Cidel”) is registered as a portfolio manager, investment fund manager and exempt market dealer in Ontario. Cidel is also registered as a portfolio manager and exempt market dealer in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Quebec and Saskatchewan. This document may not be reproduced, distributed or published by any recipient hereof for any purpose.