“Golden Week” for equities

While markets in China and South Korea took the week off for the mid-autumn festival, or “Golden Week” holiday, the S&P 500 Composite index climbed to new highs in four of the five sessions, ending its string of consecutive record-setting trading days at six, the longest such streak since 1997. Canada and most other developed markets tagged along for a nice start to the fourth quarter, a period that traditionally generates the best returns of the year. Spain was a notable exception, where last weekend’s Catalonian independence referendum unnerved investors and pushed the IBEX 35 index to a 15 month low. The tension surrounding the vote also appeared to weigh on the euro and strengthen the U.S. dollar. Disappointing trade data caused the Canadian dollar to retreat further from recent highs, dipping back below 80 U.S. cents.

Most sectors of the S&P/TSX Composite index advanced. The gains were led by the materials sector, especially miners, as copper and other industrial metals saw higher prices. Energy stocks, on the other hand, struggled as crude prices fell. Various reports suggested oil supplies were rising: Reuters reported OPEC output grew in September despite its earlier production cut agreement; oilfield services company, Baker Hughes, said more drilling rigs were in operation; Libya restarted its biggest oil field; and U.S. inventory data showed an increase in stockpiles.

The energy sector was a key laggard in the U.S. as well, where most sectors of the S&P 500 advanced. The financials sector led the gains, boosted by rising bond yields after Friday’s employment report showed rising wages and a tight labour market. Although most weekly and monthly data are currently being whipsawed by the effects of Hurricanes Harvey and Irma, activity is recovering quickly. This week saw new motor vehicle sales at one of the highest paces on record (boosted by replacement of storm-damaged vehicles), strong purchasing managers indices for both manufacturing and services (the latter at the fastest rate of growth in this 93-month expansion), and solid employment reports (allowing for the hurricane distortions.) The materials sector was strong, as it was in Canada, but because of its comparative low weight, had less absolute impact.

Some peripheral equity markets in Europe, including Italy and Greece, lost ground, along with Spain, but major markets moved higher as the eurozone’s manufacturing expansion continues, led by Germany. The manufacturing PMI just hit a 77-month high and has been above the 50 percent mark (a signal of growth) for 51 consecutive months. Equities in the United Kingdom were also higher as Britain’s PMI slightly disappointed but remained at a healthy level. However, the pound weakened as doubts arose concerning Prime Minister Theresa May’s continued leadership.

Most Asian markets were closed at least part of the week, but joined the global stock rally when they were open. Hong Kong’s Hang Seng index led a strong move mid-week and approached a 10-year high. Japanese markets, like those elsewhere, rose on stronger economic data, and the Nikkei 225 index broke out to a 20-year high.

What’s ahead next week:

Canada

  • Building permits (August)
  • Housing starts (September)
  • Teranet-National Bank home price index (September)

U.S.

  • NFIB small business optimism (September)
  • FOMC meeting minutes (September)
  • Job openings and labour turnover survey (JOLTS) (August)
  • Consumer and producer price indices (September)
  • Retail sales (September)
  • University of Michigan consumer sentiment index (October)
  • Business inventories (August)

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