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Recommendation Changes
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Non Inflationary Growth; Earnings: RPI, EIF, CRR, REI. SRU - Preferred Shares

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Recent economic data is confirming there is little risk any of the major economies will overheat enough to generate sustained inflation. US central bank chief Jerome Powell has confirmed there is no rush at all to raise interest rates.

GDP growth rates are returning to the long run normal level of about 2%, inflation forecasts are much the same at 2%, labour data is inconsistent. Central bankers are spending much less time at the media microphones talking about raising rates. This is a big change from as recently as January of this year, when popular opinion was central banks were firm in their resolve to keep on with raising interest rates. The era of technology is muting inflation, and increasing productivity. Even trade tariffs and ballooning US trade imbalances are not enough to kick start inflation. The lack of inflation is also the reason why rising government debt levels are being tolerated by the bond markets. It is important for this to continue; comments this week discuss why.

The waning outlook for higher interest was also apparent last week in the Canadian preferred share segment. On average there was no change in price for the fixed rate preferred share issues, rate reset preferred shares lost 1.8%. In a flat to possibly declining interest rate environment, the value accorded to the rate reset feature is lessening. For a flat interest rate outlook, rate reset preferred shares will have to be priced to yield the same as comparable fixed rate names. If the outlook shifts to a drop for interest rates, the rate reset feature will be accorded even less value. The reappearance of fixed rate preferred share new issues might not be that far off.

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