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Allen's Analysis Blog

Weekly Market Comment

January 17th, 2020

“The key to all relationships, growth, and happiness is the ability to say ‘I was wrong. I’m going to try to fix this.’ The people who are beyond help are the ones who are constantly defensive and looking for somebody else to blame.” - Carolyn Hax

The TSX Composite gained 1.9% as the S&P 500 rose 2%.

The China-US partial trade agreement helped send stocks higher. It couldn’t come fast enough for China, which reported its lowest annual growth rate in 29 years. On its face, their GDP growth was still a strong 6.1% but that’s not only down from 6.6% the year before but, well, these are Chinese figures widely understood to be dictated by the dictatorship.

What is real is China’s slowing economy, rising debt and pain felt by all the tariffs. But the trade deal is only “phase one” and does not undo all of the tariffs and embargos. Also, there is the question of enforcement of the new terms, which will not be easy. We share more thoughts on the subject in our Musings section.

While North American stocks continue to rise, early indication from Q4 earnings results is earnings did not. This has been a major market driver and we’ll be watching this closely. In Canada’s case, it needs to do all it can to drum up economic activity. And to this end, there was some progress, as Alberta’s Energy Minister Sonya Savage called the Supreme Court of Canada’s decision to reject B.C.’s lawsuit against the Trans Mountain pipeline “great news for Alberta, great news for Canada and it’s great news for an industry that’s been struggling to get its product to international markets.”

It also appears that TC Energy (formerly TransCanada) Keystone XL plans to move ahead with its US$8 billion pipeline. They haven’t made a final decision but they have been pushing things along. Enbridge’s Line 3 replacement project is also reported by the Calgary Herald to be gaining traction.

By the way, this is what a pipeline project on hold looks like:

Unused pipes for the North Dakota pipeline

Notable reads:

Weekly Market Comment

From Raymond James’s Washington-based political analyst:

Phase one China deal to lay down critical marker, but pressure points threaten a deal’s longevity. U.S. officials continue to relay positive sentiments ahead of Wednesday’s phase one China trade deal White House signing ceremony. The U.S. is expected to remove China from its watch list of currency manipulators, a development related to commitments on currency laid out in the phase one deal. Further, the leading China hawk in the Trump administration, Peter Navarro, highlights the deal’s strong enforcement mechanism as a significant win that would allow the U.S. to impose penalties without retaliation from China.

However, we continue to see risks on the horizon – specifically related to regional geopolitical developments. Saturday’s general election in Taiwan heavily favored the incumbent pro-independence President Tsai, which may ultimately see more aggressive regional moves by China against Taiwan and Hong Kong. There has been some thought that China’s response to the Hong Kong protests were moderated in order to avoid stirring further anti-China sentiment ahead of the elections in Taiwan, but with the election now concluded, China may see an opportunity to reassert itself in both regions. These geopolitical considerations may cause flare ups in the U.S.-China relationship over the course of the next year, and as such, potentially threaten the stability of the phase one deal.

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Gridlock on the Granville St. bridge. One might be excused for thinking the bus drivers were now protesting snow!

world map