Terry Tang, Investment Advisor
January 15, 2020
Optimism for Canadian Economy
The Canadian economy registered a loss of 71,200 jobs in the month of November, the biggest since the financial crisis, but added back 35,200 jobs in December, reversed the losses in previous month and pushed the unemployment rate to 5.6 per cent. Overall, the Canadian economy added 320,300 jobs in 2019, including 282,800 full-time positions and 37,500 part-time jobs, which Ontario and Quebec led the job gains1.
Despite uncertainties glooming over Middle East and China, we predict another resilient year for the Canadian economy, mostly fueled by oil hovering at $60 a barrel, low unemployment rate, population growth, strong housing market and consumer spending. The BoC lifted its interest rate to 1.75% in October 2018 and has kept it on hold. We anticipate the rate to remain unchanged after the meeting on January 22nd.
On another note, according to the latest edition of the World Economic League, Canada has once again ranked as one of the world’s 10 largest economies with a GDP of $1.731 trillion USD in 2019. Russia took the 11th place with GDP of $1.638 trillion USD, and South Korea fell to 12th place with GDP of $1.63 trillion USD2.
No Signs of Recession For The U.S. Economy
The U.S. economy grew modestly in 2019, propelled by strong jobs data and pushed the unemployment rate down to a 50-year low of 3.5%3. The Fed is widely expected to keep U.S. interest rates low for a longer period of time. The lack of wage growth could indicate inflation poses little or no threat to the economy despite the tightest labor market. Nevertheless, uncertainties surrounding trade and tariffs could put a drag on the economy and another rate cut could be needed to ease the tension and keep the longest economic expansion in history going.
U.S. China Trade Deal - Too Early For Phase Two
After three years of negotiations, the U.S. President Donald Trump and Chinese Vice Premier Liu He have finally signed a phase one deal, which the market has widely expected. The deal outlined a $200 billion spending spree by China, mostly agricultural products, to close its trade imbalance with the U.S. The deal also requires China to crack down on IP theft, avoid currency manipulation, and an enforcement system to ensure these promises are kept. However, other fundamental issues such as state-back hacking of American companies and financial reform have not been dealt with in this deal.
The focus now is on implementation - whether or not China will keep those promises in the phase one deal. Although the U.S. Administration hinted a phase two deal will be on its way, it is our view that such a deal will be difficult to realize in the foreseeable future, tariffs will remain and economic conflicts between U.S and China will continue to persist.
U.S. Iran Conflict
The assasination of Iranian general Qassem Soleimani and the subsequent retaliation by Iranian Regime that destroyed American military bases in Iraq have roiled the global stock markets and caused the oil price to rise. Despite these geopolitical tensions, we do not see an escalation of war and it does not pose a threat to the global stock market.
1 Source: Canada’s labour market rebounds in December, capping off a strong 2019, The Globe & Mail
2 Source: World Economic League Table 2020
3 Source: U.S. Bureau of Labor Statistics