Cautious tone sweeps markets

Global financial markets saw sentiment shift distinctly more negative this week. A variety of concerns pushed virtually all major equity indices into the red (save for the NASDAQ, which climbed to another record high). Signs of opposition to the details of U.S. tax reform efforts began surfacing while a political scandal in Alabama threatened to reduce the Republicans’ senate majority. A slew of weaker economic data in China, especially a sharp pullback in lending, raised fears of an imminent slowdown in activity and put pressure on industrial commodities. Oil prices declined sharply after industry data showed U.S. stockpiles unexpectedly rising and as Russia was seen to be wavering on the need to extend output cuts.

Stronger U.S. inflation numbers boosted expectations of a steady pace of interest rate hikes from the Federal Reserve. But, even as short term rates rose, a decline in long term yields (‘flattening the yield curve’) suggested investors are increasingly concerned that the pace of rate hikes may crimp economic growth.

The heavily weighted energy sector took the biggest toll on the Canadian benchmark S&P/TSX Composite, which slumped from its record high reached last week. The drop in crude prices also weighed on the Canadian dollar, seemingly reasserting the tight link between oil and the Loonie that dominated the currency’s moves for a number of years until Canadian and U.S. relative interest rates took over more recently. The beginning of the fifth round of NAFTA negotiations, with an overhanging threat of the treaty’s nullification by President Donald Trump, added to the worries of Canadian investors. The health care sector also declined sharply, as big drops were registered by both Valeant Pharmaceuticals International Inc. and Canopy Growth Corp., which together comprise over 60% of the sector’s index weight. Telecom services, technology, and consumer discretionary were among the sectors with the best gains.

In the U.S., consumer stocks generally gained ground after a report that September retail sales increased more than expected, signalling resilient demand heading into the holiday shopping season. Telecommunication services and financials were also among advancing sectors. Regional banks, in particular, got a boost from a senate deal to lift the Systemically Important Financial Institution (SIFI) designation for banks with less than $250 billion of assets. But the S&P 500 retreated slightly overall, with the index unable to overcome the big drop in energy stocks.

Major European indices all fell, taking their cue from global growth concerns, and ignoring continued strength in economic data out of the Euro area itself. An acceleration in German gross domestic product (GDP) anchored a solid GDP report for the region. In the United Kingdom, investors continue to worry about increasingly negative Brexit headlines, inflation stuck at a five-year high, and the fragility of Prime Minister Theresa May’s leadership. In Asia, bond yields and equity prices both reacted with concern over tightening credit conditions in China. And in Japan, stocks retreated from recent 25 year highs as third quarter GDP reportedly decelerated sharply from the previous quarter.

What’s ahead next week:


  • Retail and wholesale sales (September)


  • Leading index (October)
  • Existing home sales (October)
  • Durable goods, capital goods orders (October – Prelim.)
  • University of Michigan sentiment survey (November – Final)
  • Markit purchasing managers indices (November – Prelim.)
Posted in News | Leave a comment

Canadian stocks climb to record highs as Middle East tensions lift oil

Growing tensions between Saudi Arabia and Iran – combined with a Saudi crackdown on corruption – lifted oil prices to a two-year high and briefly pushed stock indices in both Canada and the United States to record highs this week. As U.S. President Donald Trump marked the anniversary of his election win – touring Asia with important stops in Japan and China – bond yields eased and tax reform questions grew, taking more wind out of the so-called “Trump trade.” And in New York, the unexpected early retirement announcement of Federal Reserve Bank of New York President William Dudley added more uncertainty back to the future course of the U.S. Federal Reserve monetary policy – all this just one week after Jerome Powell’s appointment as next Fed Chairman seemed to quiet that source of market anxiety.

Canada’s S&P/TSX Composite stretched to another record high early in the week, boosted by strength in energy stocks as crude prices climbed, as well as by a jump in precious metals prices that buoyed the materials sector. “Bond proxy” groups – real estate, staples – that tend to benefit from falling interest rates, were also generally higher, holding onto their gains even though rates turned higher late in the week. The lesser-weighted health care sector saw the most impressive gain, as Valeant Pharmaceuticals International Inc. surged after better than expected financial results, and an announced deal to sell its female sexual dysfunction drug back to the company’s former owners in exchange for a royalty on sales. The financials sector – the flip side of the “Trump trade”, whose profitability improves with higher rates – was among the decliners, as was the consumer discretionary sector, led by weakness in Magna International Inc. The technology sector fell as shares of Open Text Corp. continued the slide that began after last week’s earnings report, and as Shopify Inc. remained under pressure due to concerns raised by a prominent short seller.

Once again, all major U.S. stock indices touched new highs, but later retreated as tax reform worries grew. Performance in the S&P 500 clearly reflected the easing of global bond yields early in the week, especially after dovish comments from Bank of Japan Governor Haruhiko Kuroda. Sector leadership lay squarely with the bond proxies (real estate, staples) while the financials sector led decliners. Department of Justice concerns with the proposed AT&T/Time Warner merger continued to pressure the telecommunications services sector.

European equity indices mostly lost ground, even as the European Commission (EC) lifted its forecast for euro-area growth. But the EC also warned that the United Kingdom was headed for a prolonged slowdown. U.K. Prime Minister Theresa May is coming under mounting pressure over scandals and cabinet resignations, just as European Union negotiators seem to be losing patience with her government in ongoing Brexit negotiations.

Japan and China ranked among the best performing markets globally this week, despite President Trump’s tough talk on trade with both countries as he toured the region. As the yen fell Monday to a nearly eight month low against the U.S. dollar, the Nikkei index surged to its highest level in more than 25 years.

What’s ahead next week:


  • Teranet/National Bank home price index (October)
  • Existing home sales (October)
  • Manufacturing sales (September)
  • Consumer price index (October)


  • NFIB small business optimism index (October)
  • Producer and consumer price indices (October)
  • Empire manufacturing survey (November)
  • Retail sales (October)
  • Import and export price indices (October)
  • Industrial production and capacity utilization (October)
  • Housing starts and building permits (October)
Posted in News | Leave a comment

Toronto stocks finally join the record-setting party

Canada’s S&P/TSX Composite index crossed the 16,000 level for the first time this week, setting its first new record high since February. During the intervening eight months, virtually all other major equity market indices globally posted new highs relentlessly without Canada joining suit. The broad advance in recent weeks came as strong economic data around the world pushed oil and commodity prices higher. But in Canada itself, the run of amazing economic data came to a screeching halt as August gross domestic product (GDP) declined. A solid employment report for October did little to lift investors’ moods and the S&P/TSX managed only a small gain for the week.

It was another busy week on the central banking front. The Bank of Japan kept its policy on hold and the Bank of England raised rates, both as expected. The U.S. Federal Reserve’s meeting was also a non-event, indicating there was still a consensus towards gradual rate hikes, with the next coming as early as December. Arguably the biggest central banking news was President Trump’s appointment of Jerome Powell as the next Federal Reserve Chair, to replace Janet Yellen when her term expires in the new year. Powell is seen as possibly the smoothest transition from Yellen because they are closely aligned in policy preferences. After a few weeks of anxiety over the possibility of the job going to the more hawkish John Taylor, Powell’s appointment put downward pressure on North American and European bond yields.

The jump in the heavily-weighted energy sector provided the greatest lift to the S&P/TSX, but the smaller health care sector saw the sharpest advance. Medical marijuana producer Canopy Growth Corporation, which saw a big drop just two weeks ago, surged as Constellation Brands acquired a major stake in the company. Technology and industrials led the declining sectors in Toronto.

In New York, the release of tax reform proposals had little impact on markets, but all major equity indices again notched new record highs. The S&P closed out October with a solid gain, so that it has seen a positive total return for all 10 months so far this year. It hasn’t managed a streak like that in almost 100 years. As in Canada, energy was near the top of the sector leader board, along with real estate, which tends to do well as interest rates decline, and technology which got a big boost from Apple after its earnings report. Telecommunications services was the poorest performing sector, coming under pressure as media reports pointed to the termination of merger talks between Sprint and T-Mobile, and to possible Justice Department opposition to the AT&T/Time Warner merger.

European stocks were broadly higher on strong economic data. Spanish stocks were particularly strong as political risk deflated. Catalan leader Puigdemont fled to Belgium after the central government seized control over the region, leaving the independence movement aimless. In Japan’s holiday-shortened trading week, the Nikkei climbed to yet another 20-year high after the Bank of Japan’s meeting led to a weaker yen.

What’s ahead next week:


  • Ivey purchasing managers survey (October)
  • Housing starts (October)
  • Building permits (September)
  • New housing price index (September)


  • JOLTS job openings survey (September)
  • Wholesale inventories and sales (September)
  • University of Michigan consumer sentiment (November)
Posted in News | Leave a comment

Central Banks in the spotlight

The European Central Bank held its most-watched meeting of the year, setting out a roadmap for the withdrawal of quantitative easing (QE) that investors interpreted as moderately dovish. The Bank of Canada also took a more dovish than expected tone in the comments that accompanied its decision to leave its overnight rate unchanged. In Japan, Shinzo Abe’s landslide win in last weekend’s election shored up investor confidence in the continuation of stimulative monetary policy there. In stark contrast, increasing speculation that John Taylor might be the next Chair of the Federal Reserve pushed U.S. treasury yields up, with 10-year treasuries breaking solidly above 2.40%, the highest they have been since last March. The resulting U.S. dollar strength, and weakness in virtually every other currency, including the Canadian dollar and the Japanese yen, was the primary mover of most markets this week.

As the Bank of Canada sounded caution on Wednesday, citing household indebtedness and NAFTA uncertainty (among other things), the Canadian dollar dropped sharply. But strong corporate earnings helped the S&P/TSX Composite index shake off the Bank’s wariness and finish the week at a record high. The staples, industrials, telecommunication services, and technology sectors all posted strong gains, while the materials and health care sectors led decliners.

The S&P 500 managed a small gain (to another record high), but was held back by concerns that a “Taylor Fed” would raise interest rates too far, too fast, and choke economic growth. Also in Washington, comments from retiring Senators Corker and Flake increased fears of political resistance derailing tax reform efforts. Meanwhile actual economic readings and most corporate earnings reports continue to come in strong. New home sales blew away expectations, purchasing managers indices suggested accelerating growth, and third quarter GDP was solid despite the effect of hurricanes. Technology was the leading sector as mega-cap names such as and Alphabet (Google) surged on earnings reports. The telecommunication services and health care sectors saw big declines, driven by subscriber losses at AT&T, and earnings misses at Biogen Inc. and Celgene Corporation.

European equities were mostly higher as investors welcomed the dovish bias to the ECB statements, while keeping a cautious eye on Catalonia as Madrid took control of the region. Meanwhile economic news was also generally supportive. Eurozone PMIs pointed to ongoing expansion, GDP in the United Kingdom was stronger than expected, and the German business confidence index rose to its highest level in history. The yen sell off in Japan helped the Nikkei rally to its highest level since July 1996. The equity index’s step up on Tuesday capped a record 16-day winning streak, during which it gained about 7%. Stocks in Shanghai moved solidly higher as the Communist Party’s congress came to an end, elevating President Xi Jinping’s stature and power. However, Hong Kong equities didn’t get as enthused.

What’s ahead next week:


  • Gross domestic product (August)
  • Industrial and raw materials prices (September)
  • Markit purchasing managers index (October)
  • Employment report (October)


  • Federal Reserve interest decision
  • Personal income and spending (September)
  • Employment cost index (3rd quarter)
  • Conference Board consumer confidence (October)
  • Markit and ISM purchasing managers indices (October)
  • Vehicle sales (October)
  • Construction spending (September)
  • Employment reports (October)
  • Factory and durable goods orders (September final)
Posted in Business, Money | Leave a comment

Dark anniversary for market passes without fret or consequence

The 30-year anniversary of the Black Monday (October 19, 1987) came and went without generating fits of anxiety in equity markets. Equities were also mostly able to shake off rising geopolitical risk as the Spanish government took steps to suspend Catalan autonomy – the latest move in a standoff over the region’s drive for independence. In the U.S., Treasury yields and the dollar moved higher as investors contemplated the candidacy of John Taylor for the next Chair of the Federal Reserve (a “Taylor Fed” is viewed as likely to take on a distinctly more hawkish stance on monetary policy). Meanwhile, third quarter earnings reports continue to come in with mixed results.

Canada’s S&P/TSX Composite index saw its biggest sector moves driven not by earnings reports, nor by the apparent near collapse of NAFTA negotiations, but rather by other company-specific headlines. The industrials sector posted the best gains, as shares of Bombardier soared on news of the company’s deal to bring in Airbus as a partner on the all-important CSeries passenger jet program. The health care sector led decliners, for once not because of Valeant Pharmaceuticals. Instead it was Canopy Growth Corporation that got smoked. The medical marijuana producer saw a big drop after the TSX said marijuana firms with activities in the United States that might violate the country’s federal law could be subject to delisting. The materials sector was also weak as both base and precious metals declined (with the notable exception of copper). Oil prices started the week higher on fears of new Iran sanctions, and the outbreak of fighting between Iraqi and Kurdish forces near Kirkuk and its oil fields. But by week’s end, higher U.S. fuel inventories helped crude settle back to roughly where it began. The loonie was similarly little moved by the week’s events, but dropped Friday on weaker than expected sales and inflation data.

The S&P 500 Composite index once again touched new all-time highs. Sector strength was seen especially in financial services and health care, driven by strong earnings reports. The real estate and consumer staples sectors led losses, declining as they typically do in the face of rising bond yields. Macro-economic news, including strong manufacturing surveys and a 44-year low in unemployment claims, provided some lift to the broader market, and worries that political infighting will impede or derail attempts at tax reform faded as the U.S. Senate managed to pass a budget resolution.

European stock indices were mostly flat in light of the tension in Spain. Shares in London were further pressured by continuing difficulties in Brexit negotiations, as well as mixed economic news. Although unemployment remains near a multi-decade low, the Office of National Statistics reported that retail sales in the United Kingdom unexpectedly plunged in September. Things were more upbeat in Japan. The Nikkei 225 stock index added to its 20-year high on solid corporate earnings, a weaker yen, and positive sentiment ahead of Sunday’s general election.

What’s ahead next week:


  • Bank of Canada rate decision
  • Wholesale inventories (August)


  • Markit manufacturing and services PMIs (October-preliminary)
  • Durable goods order (September-preliminary)
  • New home sales, pending home sales (September)
  • Wholesale and retail inventories (September)
  • GDP (3rd Quarter-advance)
  • U. of Michigan sentiment survey (October-Final)
Posted in News | Leave a comment