Hurricanes, nukes, and central banks shake markets

September didn’t waste any time reminding investors of its reputation as the worst month for markets. Just as Hurricane Harvey petered out, Irma took aim at the Caribbean and Florida. North Korea’s largest yet nuclear test sent investors scurrying for safe havens. Most equity indices sold off and gold jumped 1.6% to its highest since last September. Central bankers upset currency and government bond markets, with yields declining almost everywhere – with Canada being the notable exception where a Bank of Canada rate hike caught most observers off guard and led to a surge in the loonie and Canadian yields.

The holiday-shortened week in North America began with a move toward normalization in oil and gas prices following Harvey, but by week’s end Irma renewed the pressure on West Texas Intermediate crude (WTI) and energy stocks continued their slide. Consumer discretionary was the only sector of the S&P/TSX Composite index to finish measurably in the green. Overall the Canadian benchmark dropped 1.4%, with currency strength adding to the global concerns pressuring equities. Materials led the decliners on base metals weakness, but financials (which comprise a third of the index) contributed most to the index loss, taking their cue from the bank sell off south of the border (where yields fell), rather than from rising yields at home. The Bank of Canada rate hike led to speculation of further rate hikes sooner than what was expected, and pushed the loonie up 2.1% to its highest level since May 2015. Canadian bonds got thrashed as yields on the Government of Canada 10-year jumped roughly 10 basis points and the spread versus its U.S. counterpart fell to a four-year low of 6bp, down from over 80bp just three months ago.

The S&P 500 gave up 0.6%. Telecom services was the weakest sector but the heavier-weighted financials took the greatest toll, as it did in Canada. The sector saw banks pressured by falling interest rates – as hopes for another Fed rate hike this year faded (the 10-year Treasury yield dropped 11bps to 2.06%), and growing worries about potential Irma-related losses to insurers. A deal in Washington to delay the government debt ceiling faceoff only briefly relieved pressure on the U.S. dollar, which has now declined over 10% YTD against major world currencies. Dovish comments from Fed committee members added to the weak dollar outlook, as did new uncertainties about the future makeup of the committee.

Although European Central Bank President Draghi tried to talk down the Euro after the ECB’s meeting this week, the currency, nonetheless, pushed to a two and a half year high and put added pressure on European equities. German’s DAX was the only major European stock index to manage a gain for the week. All major equity markets in Asia and Japan participated in the global sell off. In Japan, as in Europe, currency strength added to the headwinds, with the Yen climbing to a ten-month high.

About David Kindy

David has been a keen and active investor in his overall financial health since high school and a client of Investors Group for the past 10 years. As a result of a down turn in the water treatment industry, David decided to take a new path in his career from being a global project manager and became a licensed financial professional with Investors Group. Investors Group, a top performing financial services company, blending with his high moral value made for an easy career transition. This allows David to help individuals with their own financial health and help protect families from life’s uncertainties. David also donates time and money to many philanthropic activities supporting many non-profit and charitable organizations. As a foster parent for the Lion’s Foundation of Canada Dog Guides, David and his wife have raised 8 dogs for the program. He sits on the Orillia Rowing Club board helping to steer the club to a prosperous future. David has also served on the Recreational Advisor Committee for the City of Orillia for the past 3 years. Recently, David has become involved with COPE Service Dogs, a charity out of Barrie that helps youth at risk with their Canines in the Classroom program which, ultimately leads to trained mobility assistance dogs. Regardless of age or income, David enjoys working with clients to reach their goals for a financial secure future utilizing the 6 pillars of financial planning: Cash Management, Education Planning, Investment Planning, Tax Planning, Retirement Planning and Estate Planning.
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