Victor Marquez, an assembler at Standen's Limited in Calgary, grinds a heavy truck spring.Chris Bolin
The factory orders data scheduled for release today are expected to remain strong as the U.S. manufacturing sector stages a robust recovery, but Canadians could see any potential stock-market gains eroded by depreciation of the greenback, cautions one strategist.
What are the expectations? The lure of U.S. industrials for investors should continue with the anticipated flow of strong U.S. economic data. Factory orders in the U.S. today are forecast to have increased by 0.5 per cent during November, compared with 0.6 per cent in October, according to a survey of economists by Bloomberg.
The data include durable goods, which account for just over one-half of the total factory orders. Non-durable goods orders, which consist of petroleum-based products and other items, account for the balance.
The previously released durable goods orders data - excluding aircraft - increased 1.6 per cent during November, but only 0.2 per cent overall because of a sharp drop in Boeing Inc. orders during the recent month, said Michael Gregory, a senior economist with BMO Nesbitt Burns Inc. Today's expected strong demand for non-durable factory orders are expected to offset the weakness in the volatile aircraft sector, he said.
How will the market react? Despite the likely bullish data, Canadian investors must also consider the implications for the currency markets.
David Baskin, president of Baskin Financial Services Inc., a boutique investment counselling firm and portfolio manager, said he is not playing the recovery in U.S. manufacturing. "We are quite bullish on the Canadian dollar versus the U.S. dollar," he said and, as a result, he does not like the major U.S. manufacturers.
"If the thesis is that the U.S. manufacturers such as Deere & Co. and Caterpillar Inc. will do well because of the weak [U.S.]currency, how do you play it?" Mr. Baskin asks. In periods of a strengthening Canadian dollar and a declining greenback, investment gains made on U.S. stocks can be offset by the drop in the greenback, he said.
As an alternative strategy, Canadian investors might prefer to look at European companies with consumer exposure, Mr. Baskin said. "We like companies that have very strong brands, such as Nestlé SA, Unilever NV and Syngenta AG, an agricultural products company." No European industrials make his list.