This week in the markets


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Global equities lower in face of central bank announcements and political standoffs

September 18, 2020

Most key global stock markets ended the week lower after wobbling in reaction to central bank statements, and stalled negotiations in the US and Europe over fiscal stimulus measures and Brexit terms, respectively. The US Federal Reserve (the Fed) was unexpectedly dovish in its policy statement - it extensively revamped its forward guidance to reinforce that interest rates will remain near zero for years to come. The Bank of England (BoE) surprised markets with the news that it is actively discussing the possibility of negative rates in the UK. Meanwhile, investors are growing increasingly concerned about a possible “fiscal cliff” in the US, as prospects dimmed for the passage of an expanded fiscal support package. Current programs, including supplemental unemployment benefits, are set to expire for millions of Americans at the end of September. And in Europe, the risk of the UK leaving the EU without a free-trade agreement is rising, as Britain moves to violate terms of the post-Brexit deal that it signed earlier this year.

In Canadian economic data, existing home sales rose at the highest monthly rate (seasonally adjusted) on record, and retail sales posted a moderate gain. Trade tensions eased as the US government backed away from tariffs on Canadian aluminum just hours before Canada was set to unveil retaliatory measures. Despite this being mostly positive, Canada’s S&P/TSX Composite Index finished slightly lower. Health care had the strongest sector increase after Bausch Health Companies Inc. climbed in the wake of several analyst recommendation upgrades. The interest rate-sensitive utilities and real estate sectors climbed in response to the dovish Fed guidance, even though Canadian bond yields rose. The materials sector was higher on stronger gold prices. Technology was among the declining groups as sector heavyweight Shopify Inc. continued to retreat in tandem with US mega-cap computer and Internet stocks. Canadian energy stocks fell despite a 10% jump in crude oil prices, following a surprise drop in US stockpiles.

In the S&P 500, the consumer discretionary and communication services sectors led decliners, weighed down by Amazon.com Inc. and Alphabet Inc. (Google), respectively. The communications group was also pressured by news of a potential anti-trust investigation of Facebook Inc. Energy was the top-performing sector as crude prices climbed. The industrials sector was especially strong after several gauges of manufacturing activity — including the Empire State survey and Philly Fed Index — jumped more than forecast. Other economic releases pointed to slowing momentum. Retail sales, housing starts and unemployment claims data were all weaker than expected.

In Europe, concern about Brexit negotiations and a dramatic rise in new COVID-19 cases dominated a better-than-expected German ZEW investor sentiment index and pushed stocks lower. Japanese stocks edged lower as the Bank of Japan — like the Fed and the BoE — said that it would hold rates steady. A steady course in fiscal policy was also expected after Yoshihide Suga won the LDP leadership vote to take over the role of Prime Minister from Shinzo Abe.

 

What’s ahead next weeks:

Canada

  • No significant releases.

U.S.

  • Existing home sales (August)
  • Markit Purchasing Managers’ Indices (September)
  • New home sales (August)
  • Durable goods orders (August)

This weeks market closing values

EQUITY INDICES Level Change 1-week YTD 1-year 5-year
      CAD CAD CAD CAD
S&P/TSX 16,198.97 - 23.49 - 0.14% - 5.07% - 3.58% + 3.49%
S&P 500 3,319.47 - 21.50 - 0.71% + 4.32% + 9.56% + 11.18%
DJIA 27,657.42 - 8.22 - 0.10% - 1.60% + 1.10% + 11.08%
FTSE 100 6,007.05 - 25.04 + 0.78% - 21.04% - 15.41% - 3.90%
CAC 40 4,978.18 - 55.96 - 0.94% - 10.65% - 5.72% + 2.80%
DAX 13,116.25 - 86.59 - 0.48% + 5.72% + 12.69% + 6.71%
Nikkei 23,360.30 - 46.19 + 1.44% + 3.94% + 9.40% + 8.26%
Hang Seng 24,455.41 - 47.90 - 0.26% - 11.47% - 8.34% + 2.25%
CURRENCY RETURNS CAD Change 1-week YTD 1-year 5-year
US$ 1.3196 + 0.0017 + 0.13% + 1.59% - 0.70% - 0.05%
Euro 1.5631 + 0.0019 + 0.12% + 7.30% + 6.65% + 0.91%
Yen 0.0126 + 0.0002 + 1.64% + 5.51% + 2.96% + 2.74%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 0.14 - 0.01 Oil $40.89 + $3.56
5-year 0.37 + 0.01 Gold $1,951.50 + $10.95
10-year 0.58 + 0.03 Natural Gas $1.56 - $0.37