Financial markets had a relatively solid month with no major surprises either positive or negative. Earnings and economic data provided little reason for investors to sell. Europe, despite Greece, continues to show signs of strength and is one of the best performing areas in the world so far in 2015.

The Canadian government finally presented its budget, with treats for investors, seniors and small businesses.

April 2015 Market Performance

All index returns are Total Return (includes reinvestment of dividends) and are in Canadian Dollars unless noted.

Indexes		Return for April	2015 YTD Return
S&P/TSX Composite		+2.43%	+5.07%
S&P500		-3.55%	+5.93%
MSCI EAFE (Europe, Asia & Far East)		-0.38%	+14.37%
MSCI World		-2.07%	+9.71%
MSCI Emerging Markets		+3.02%	+15.21%
FTSE TMX Universe Bond		-1.36%	+2.74%
JP Morgan Emerging Markets Bond (EMBI)		-2.80%	+8.42%

Other Market Data	Month-end Value	Return for April	2015 YTD Return
Oil Price (USD)	$59.63	+26.39%	+11.94%
Gold Price (USD)	$1182.40	-0.19%	-0.14%
US 3 month T-bill	+0.01%	-0.02%*	-0.03%*
US 10 year Bond	+2.05%	+0.11%*	-0.12%*
USD/CAD FX rate	1.2064	-4.75%	+3.99%
EUR/CAD FX rate	1.3547	-0.50%	-3.50%
CBOE Volatility Index (VIX)	14.55	-4.84%	-24.22%

*Absolute change in yield, not the return from holding the security.

Market Update

April was a positive month for most equity markets. Canadian and emerging market equities were positive when measured in Canadian dollars. The strength in the Canadian dollar wiped out all of the gains on U.S., EAFE, and World equities for Canadian investors. Small cap stocks in Canada outperformed those in the US, largely due to the energy and materials sectors being overrepresented in Canada. The NASDAQ 100 hit a new all time high in April, finally recovering all of the losses from the tech bubble bust in 2000-2002.

Equity market volatility, both realized and implied declined sharply in April. US and Canadian markets haven’t seen any sharply positive or negative days since early January so the continuing decline in volatility should not come as a surprise.

Bond markets were mostly negative, with the exception high yield. The broad index for Canadian bonds, the FTSE TMX Universe Index, was down over 1% and US bonds were down similarly. High yield performed well, up 1-2% depending on the index, while emerging market bonds fared poorly when measured in CAD.

Commodities in general strengthened in April. The broad Bloomberg Commodity Index was up 5.7%, driven by the rise in energy markets. The most widely reported commodities, oil and gold, were +26.4% and -0.2%, respectively. The last time oil was up more than 20% in a month was just after the bottom of the financial crisis in May 2009 (+29.7%). Most agricultural commodities struggled; oats and wheat were the standouts, down more than 10%. Coffee and orange juice were down while sugar was up. Depending on what you have for breakfast, your breakfast may get cheaper in the next few months.

The sharp rise in oil prices led to a stronger Canadian Dollar against most currencies, however the Euro regained nearly all of its losses in the last few days of the month on strong economic data out of Europe.

April Economic Indicator Recap

Canada

This will not be a surprise to anyone who has looked at buying a home lately, prices were up in Canada. The national average increase in February was +0.2%, +1.4% on an annual basis. Of course in major centres like Vancouver and Toronto prices climbed much more than that. New housing starts in March climbed back above 180,000 after a low report from February.

The March employment report painted a mixed picture. The overall number of new jobs created was well ahead of a forecasted 5,000 at 28,700. Unfortunately, all of those jobs created were part-time as full-time jobs declined by 28,200. The unemployment rate remained at 6.8%.

March inflation statistics were released on April 17, along with retail sales. The Consumer Price Index (CPI) was +1.2% on an annual basis, below the forecasted +1.0%, helped by low gasoline prices. Core inflation which excludes more variable items such as gasoline, natural gas, fruit & vegetables and mortgage interest rose more than expected at 2.4%. Retail sales in February recovered from a weak January, but remained below historical averages.

Canada’s gross domestic product (GDP) was 0.0% in February, up from -0.2% in January. The economic data reported during the month was benign enough for the Bank of Canada to leave interest rates unchanged on April 15. A survey of the Big 5 Canadian banks’ March economic forecasts suggests that the BoC will leave interest rates as they are in 2015. Scotiabank is the most pessimistic, expecting a 0.25% cut this year and no changes to interest rates in 2016. On average the banks forecast that the BoC rate will be 1.25% by the end of 2016, up 0.50% from today.

U.S.

The U.S. unemployment rate remained unchanged at 5.5% in March. Fewer new jobs were created than forecast or than were created in February, however applications for unemployment benefits hit a 15 year low.

Retail sales in March were weaker than forecast at +1.3%. Sales growth this low hasn’t been seen since the financial crisis. The US economy is much more dependent on consumer spending than the economies of most other developed countries. Given these low levels, unless inflation really picks up fast, the US Federal Reserve may continue to hold off on raising interest rates longer than many forecasters expect.

On the housing front, building permit and new construction activity slowed more than forecast. Sales of new homes were down 11.4% while sales of existing homes, were strong: up 6%.

Inflation in the U.S. was +0.2% in March, but was -0.1% on an annualized basis, while core inflation was +0.2% (+1.8% annualized). The U.S. Federal Reserve left its benchmark interest rate unchanged at +0.25% and removed all mentions of future dates from its post-meeting statement. Given that inflation remains very low and the early estimate of Q1 GDP growth was only +0.2% an interest rate increase is seeming less and less likely as the year unfolds.

Eurozone

Retail sales in February continued to show strength, rising 3.0%, ahead of the forecasted 1.8%. Inflation in the Eurozone remains low; March’s reading of +1.1% is a good sign that the economy is improving. The inflation comparison from a year ago continues to improve and is now -0.1%. Thus, it appears that the ECB’s quantitative easing program is having the desired effect. Unsurprisingly, the ECB left their benchmark interest rate unchanged at +0.05%.

The unemployment rate in March was unchanged from February at 11.3%. The unemployment rate peaked at 12% in February 2013 and has been declining more slowly than from past peaks.

Germany

Retail sales in Germany took a breather in March after a few months of strong gains. Inflation remains very low, the March reading was +0.5% and +0.3% for the last 12 months. The April estimate is even lower at -0.1%.

Germany’s unemployment rate was unchanged in March at 4.7%. Unemployment in Europe’s factory is at multi-decade lows; rates this low haven’t been seen since the early 1980s.

China

After hitting a new record in February ($60B), China’s balance of trade dropped sharply to $3B as imports climbed and exports continued to decline. Inflation dropped in March (-0.5%), but was steady at +1.4% over the last 12 months. Retail sales in China continued their multi-year trend of slower growth, but still outpaced all developed countries at +10.2% for the 12 months ended March. Prices of newly constructed homes declined -6.1% in March. Prices have posted declines for last 7 months as government efforts to cool the property market continue to slow demand. Chinese GDP growth continued to slow; for the first quarter GDP growth was 1.3%, or 7.0% annualized.

Japan

At its April meeting the Bank of Japan left interest rates at 0% and lowered its projections for inflation and GDP growth. Like the ECB, the BoJ continues to “expand its monetary base” aka quantitative easing. The BoJ is buying Japanese government bonds at the rate of ¥80 trillion (CAD$ 820 billion) per year and is also buying corporate bonds, REITs and ETFs but a much smaller amount. Inflation picked up in March to +0.4%, ahead of the forecasted +0.1%.

Japan posted a trade surplus for the first time in over two years. At +¥229B, the trade surplus was ¥626B ahead of forecasts. In case you forgot, the last time Japan posted a sizeable trade surplus was in 2011. Retail sales plunged -9.7% in March, a decline of this magnitude hasn’t been seen in Japan since March 1998.

May Economic Calendar

	Canada	US	Eurozone & Germany	China & Japan
GDP	May 29	May 29	May 21 & 21 (Germany), May 13 (Eurozone)	May 14 (Japan)
Consumer Inflation (CPI)	May 22	May 22	May 12 (Germany), May 19 (Eurozone)	May 8 (China), May 29 (Japan)
Interest rate decision	May 27	N/A	N/A	May 21 (Japan)
Housing Market	May 7 (Permits), May 8 (Starts), May 14 (Prices)	May 15 (Starts & Permits), May 21/22 (Sales), May 26 (Prices)	N/A	May 17 (China-Prices)
(Un)employment	May 8	May 6, 7 & 8	N/A	May 29 (Japan)
Retail Sales	May 22	May 13	May 6 (Eurozone), May 31 (Germany)	May 12 (China), May 28 (Japan)