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This week in the markets

market insights

December 15, 2017

No surprises from central banks

Central banks were in focus around the world, with the U.S. Federal Reserve, the Bank of England (BoE), and the European Central Bank (ECB) among those holding monetary policy meetings (the Bank of Canada got a jump on them holding its meeting last week, when it held rates steady as expected). All three of the majors did exactly what was expected of them – the Fed raising its benchmark rate by 0.25%, both the BoE and ECB making no changes to policy, and all leaving forward guidance untouched. However, the Fed and ECB did increase their forecasts of economic growth (but not their forecasts of inflation). One unexpected move came from the People’s Bank of China (PBoC), where short-term rates were nudged higher in an ongoing campaign to slow debt growth in that country.

The broad sense of accelerating growth, the lack of inflationary pressure, and progress on U.S. tax reform put a wind at the back of North American stock markets. Before settling back at week’s end, Canada’s S&P/TSX touched a new all-time high, led by the materials sector as most metals prices moved higher in response to stronger economic data in China. Energy stocks led on the downside as crude oil prices continued a modest retreat from two-year highs set just three weeks ago. A number of OPEC nations signaled they may end production curbs earlier than scheduled if the market improves. Brent crude saw a brief jump after a crack was discovered in a key pipeline, but the International Energy Agency quickly assured investors that the oil market was still well supplied.

In U.S. equities, the S&P 500 Composite, Dow Jones Industrials, and NASDAQ Composite indices all set record highs once again. If the S&P 500 can hold on to close December with a positive total return, 2017 will go down as the first time ever the index has delivered a positive total return each and every month of the year. In addition to taking support from the Fed’s forecast, equity investors were also generally optimistic about continuing progress in Congress toward corporate tax reform. The National Federation of Independent Business’s (NFIB) Small Business Optimism Index soared in November to its highest level since 1983. The telecommunications services sector, seen as one of the biggest beneficiaries of proposed tax changes, was easily the best performing S&P sector this week.

Although finishing stronger, the U.S. dollar spent much of the week down against most other major currencies in the face of both the Fed’s dovish view of the inflation threat, and a benign reading from the consumer price index (CPI). The commensurate strength in the euro and yen helped press stock indices in Europe and Japan, respectively, into the red, despite better growth expectations. The setting of an early March date for Italy’s next general election also weighed on European stocks as investors were reminded that the potential for another round of unsettling populist surprises was just around the corner. As a result, Italian equities saw the biggest decline this week among developed markets.

What's ahead next week:

Canada

  • Retail sales and wholesale trade sales (October)
  • Consumer price index (November)
  • Gross domestic product (October)

U.S.

  • Housing starts and building permits (November)
  • Existing and new home sales (November)
  • Gross domestic product (3rd quarter – 3rd release)
  • Conference Board leading index (November)
  • Personal income and spending (November)
  • PCE deflator (November)
  • Durable goods, capital goods orders and shipments (November – Preliminary)

This week's market closing values

Level Change 1-week Yth 1-year 5-year
EQUITY INDICES CAD CAD CAD CAD
S&P/TSX 16,041.98 - 54.09 - 0.34% + 4.93% + 5.41% + 5.46%
S&P 500 2,675.81 + 24.31 + 0.67% + 14.09% + 13.69% + 19.78%
DJIA 24,651.74 + 322.58 + 1.07% + 19.07% + 19.34% + 19.58%
FTSE 100 7,490.57 + 96.61 + 0.48% + 8.02% + 10.13% + 6.30%
CAC 40 5,349.30 - 49.79 - 1.09% + 17.15% + 20.53% + 11.31%
DAX 13,103.56 - 50.14 - 0.55% + 21.53% + 25.18% + 14.96%
Nikkei 22,553.22 - 257.86 - 0.65% + 16.58% + 17.67% + 17.44%
Hang Seng 28,848.11 + 208.26 + 0.35% + 24.19% + 24.80% + 10.51%
CURRENCY RETURNS CAD Change
US$ 1.2876 + 0.0028 + 0.22% - 4.20% - 3.45% + 5.49%
Euro 1.5135 + 0.0009 + 0.06% + 7.09% + 8.99% + 3.13%
Yen 0.0114 + 0.0001 + 0.96% - 0.48% + 1.32% - 0.63%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 0.93 + 0.04 Oil $57.32 - $0.04
5-year 1.67 + 0.00 Gold $1,255.75 + $7.25
10-year 1.83 - 0.03 Natural Gas $2.62 - $0.13