This week in the markets


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TSX powers to new high even as metals sector pounded by trade war

July 13, 2018

Global equities churned through another week of trade war turmoil. Stocks started higher on hopes that the strong U.S. economy and the start of earnings reporting season would draw attention away from tariff concerns. The technology-heavy NASDAQ Composite Index and Canada’s S&P/TSX Composite Index both climbed to new all-time highs. But on Wednesday, the U.S. tariff war with China kicked into high gear with the Trump administration announcing a list of $200 billion worth of Chinese goods that will be the subject of the next round of protectionist measures. Equities around the world got pummeled and the U.S. dollar shot higher. By the next day, when it appeared China was striking a conciliatory tone, North American stock indices reversed course and more than made up the previous day’s losses.

Despite the late-week reversal that lifted the market to new highs, the materials sector, which led Wednesday’s plunge, failed to regain much of its drop. Metals and mining stocks were hit hard by concerns that tariffs would slow global growth, and slow the Chinese economy in particular. China is the biggest consumer of almost all industrial metals. The interest rate-sensitive utilities and real estate sectors also fell, as the Bank of Canada raised its benchmark rate 25 basis points to 1.5% and signalled its intent to continue on a higher rate trajectory despite mounting trade uncertainty. The consumer staples sector led the index’s climb. Convenience store operator Alimentation Couche-Tard (33% of its sector’s weight) jumped after reporting better-than-expected quarterly results. Information technology, a relatively light-weight sector in the S&P/TSX, was also particularly strong. Shopify Inc. and Constellation Software Inc., each representing more than 20% of the sector weight, were both among the broader benchmark’s top gainers. Shopify got a boost when U.S. giant Alphabet Inc. (Google) announced a deal with the company aimed at spurring e-commerce and ad spending.

Technology and industrials led the advance in the S&P 500, with heavyweight Facebook Inc. climbing to a new high. The company’s stock has surged more than 35% since the height of the Cambridge Analytica scandal that shook investors in March. Amazon.com Inc. also pushed to record high territory, lifting consumer discretionary into third place on the sector leaderboard for the week. As in Canada, interest rate-sensitive sectors underperformed. Utilities, telecom, and real estate all fell as economic data increased the probability that the Federal Reserve would tighten monetary policy again when it meets in September. Tight labour market readings, high consumer and business confidence, and a gradual upward drift in inflation all point to continued rate hikes.

Major Asian markets were all higher as trade sentiment improved at week’s end; but European markets struggled in the face of some disappointing economic data. Most ended higher, but to a much more modest degree than their North American and Asian counterparts. Germany’s ZEW Economic Sentiment Index dropped to its lowest level since 2012 and the European Commission revised down its estimate for Euro area growth this year from 2.3% to 2.1%. In Britain, investors are growing concerned as Prime Minister May’s government teeters into crisis with just a few months left to negotiate a Brexit deal.

What’s ahead next week:

Canada

  • Retail sales (May)
  • Consumer Price Index (June)

U.S.

  • Federal Reserve Beige Book release
  • Retail sales (June)
  • Industrial Production and Capacity Utilization (June)
  • Empire Manufacturing Index (July)
  • Housing starts and building permits (June)
  • Conference Board Leading Index (June)

This weeks market closing values

EQUITY INDICES Level Change 1-week YTD 1-year 5-year
      CAD CAD CAD CAD
S&P/TSX 16,561.12 +189.34 1.16% 2.17% 9.42% 5.85%
S&P 500 2,801.31 +41.49 2.06% 10.13% 18.30% 16.15%
DJIA 25,019.41 +562.93 2.86% 6.39% 20.00% 15.45%
FTSE 100 7,661.87 +44.17 0.77% 2.38% 9.27% 5.34%
CAC 40 5,429.20 +53.43 0.93% 4.31% 9.87% 9.77%
DAX 12,540.73 +44.56 0.29% -0.91% 5.10% 11.56%
Nikkei 22,597.35 +809.21 2.46% 4.47% 17.12% 11.76%
Hang Seng 28,525.44 +209.82 1.29% -0.25% 11.36% 10.93%
CURRENCY RETURNS CAD Change 1-week Yth 1-year 5-year
US$ 1.3158 +0.0074 0.57% 4.67% 3.43% 4.83%
Euro 1.5373 +0.0003 0.02% 1.88% 6.02% 2.50%
Yen 0.0117 -0.0001 -1.13% 4.99% 4.31% 2.25%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 1.42 +0.14 Oil $70.72 -$3.08
5-year 2.05 +0 Gold $1,241.40 -$13.80
10-year 2.14 +0 Natural Gas $2.86 -$0.05