More trouble in the second half of 2015.
By Christine Hughes, Canada. Chief Investment Strategist, OtterWood Capital:
The high-yield bond market is typically a leading indicator of stocks. So when it signals trouble, stocks generally follow their lead. The graph below shows how high-yield credit sectors (“junk bonds”) have started to weaken in recent weeks, with the energy sector leading the drop.
Energy equities have also fallen with high yield energy bonds, and the combined weakness in both equities and bonds is a real concern for the price of oil.
Check out the relationship between the price of oil (brown) and energy shares (blue) in the chart below.
Canada’s monthly GDP data for April came in lower than expected, and when you strip out inflation it’s downright ugly. It was the fourth month in a row of negative GDP growth. And continued weakness in the energy sector could mean more trouble in the second half of 2015.
As you can see in the chart below, real GDP growth is at its worst level since the Financial Crisis!
Energy continues to take a large toll, but the manufacturing sector is also weak.
The Bank of Canada is scheduled to meet on July 15 for its interest rate decision and growth outlook. It will be interesting to hear what they are thinking. The weaker Canadian dollar has been helpful, but data is still looking downright recession-like. By Christine Hughes, OtterWood Capital
Nevertheless, in the US, the M&A Boom, the biggest ever, is far bigger than the last two, and they ended in crashes. Read… “Everyone Is Wondering When the Volcano Will Erupt”