This week in the markets


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Global equities buffeted by geopolitics


December 14, 2018    

Politics and trade jostled stocks this week, with most European markets finishing higher, other regions mostly lower, and with no end in sight for the ongoing uncertainty. The foremost recent villains, China-U.S. trade tensions and Brexit, continued to dominate headlines. But domestic U.S. politics joined the spotlight over a couple of issues. First the sentencing late last week of President Donald Trump’s former lawyer, Michael Cohen, raised the possibility of the White House becoming distracted or incapacitated by further investigations. Then fears of a government shutdown, an action that in the past has sparked stock market pull backs, grew serious after Trump said he would be “proud” to shut down the government if demands for border-wall funding weren’t met. Disappointing economic data on Friday from Europe and China ensured most markets ended the week on a negative note.

Investor sentiment concerning U.S.-China trade appeared on balance to brighten slightly, after reports that the two sides continued to talk despite the arrest of Huawei Technologies Chief Financial Officer Meng Wanzhou in Canada. On Thursday, Commerce Secretary Wilbur Ross said that there have been “frequent conversations” with China. Earlier, Canada granted bail to Meng (even as China appeared to detain two Canadians in retaliation), and President Trump signaled he might intervene in the case if it would further a trade deal. Among major global stock indices, Canada’s S&P/TSX Composite lagged near the back of the pack, perhaps reflective of the economic and political dangers posed by being centre stage in the Huawei arrest controversy. The risks were made stark by the calls in China to boycott Canadian brands. Parka maker Canada Goose Holdings Inc., which this week postponed the opening of a flagship store in Beijing, has seen its stock price tumble almost 25% since Meng’s arrest was made public. That move helped press the consumer discretionary group to the worst sector performance in the TSX this week.  All sectors except staples declined.

Losses in the S&P 500 were led by the financials and energy sectors. Communication services (which now includes internet giants Facebook and Alphabet (Google)) managed a gain. Facebook shares, which have slumped more than 30% since July, received a significant lift when the company announced a large stock buyback to boost confidence. The utilities sector also posted a modest advance.

Headlines from Europe focused on Brexit. U.K. Prime Minister Theresa May postponed the parliamentary vote on the proposed deal, prolonging the uncertainty into next year. But days later, May won a vote of confidence in her leadership of the Conservative Party, ensuring at least some continuity in how the process is shepherded through the coming months. Meanwhile, European Central Bank (ECB) President Mario Draghi, after affirming an end to the ECB’s asset purchase program, went on to warn that the eurozone economy had weakened and risks were moving to the downside. Despite the growing uncertainty, reflected in a raft of weaker economic data and a sharp drop in eurozone investor confidence measures, all major equity markets advanced with the more positive trade outlook. In Japan, stocks fell after economic activity in the third quarter was reported to have contracted at twice the initial estimate, and business spending saw its biggest drop in nine years.

What’s ahead next week:

Canada

  • Consumer Price Index (November)
  • Retail sales (October)
  • Gross Domestic Product (October)

U.S.

  • Federal Reserve interest rate decision
  • Empire State Manufacturing Index (December)
  • Housing starts, building permits, existing home sales (November)
  • Conference Board Leading Index (November)
  • Gross Domestic Product (3rd Quarter)
  • Durable goods orders (November)
  • Personal income and spending (November)
  • U. of Michigan Consumer Sentiment Index (December)

This weeks market closing values

EQUITY INDICES Level Change 1-week YTD 1-year 5-year
      CAD CAD CAD CAD
S&P/TSX 14,595.07 -200.06 -1.35% -9.96% -8.87% +2.14%
S&P 500 2,599.95 -33.13 -0.70% +3.80% +2.55% +13.05%
DJIA 24,100.51 -288.44 -0.63% +4.07% +2.87% +14.04%
FTSE 100 6,845.17 +67.06 +0.25% -11.68% -10.05% +0.67%
CAC 40 4,853.70 +40.57 +0.58% -8.32% -9.14% +4.43%
DAX 10,865.77 +77.68 +0.45% -15.60% -16.61% +4.62%
Nikkei 21,374.83 -303.85 -1.37% -0.44% -2.32% +9.77%
Hang Seng 26,094.79 +31.03 +0.72% -6.89% -6.44% +7.04%
CURRENCY RETURNS CAD Change 1-week Yth 1-year 5-year
US$ 1.3388 +0.0066 +0.50% +6.50% +4.62% +4.81%
Euro 1.5135 -0.0026 -0.17% +0.31% +0.43% +0.80%
Yen 0.0118 -0.0000 -0.10% +5.84% +3.72% +2.87%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 1.63 +0.00 Oil $51.18 -$1.43
5-year 2.04 +0.03 Gold $1,238.47 -$9.88
10-year 2.1 +0.03 Natural Gas $4.31 -$0.20