This week in the markets


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Global equities rally as U.S.-China trade fears fade


September 21, 2018

Major stock markets around the globe cheered an apparent easing of trade tensions between the United States and China, even as the U.S. moved to impose additional tariffs on a broader range of Chinese goods. Equities moved higher after the tariff rates announced by the U.S. were lower than initially threatened and were set to be implemented in a staggered fashion. Markets took a further step up after China was reported to be planning to cut the tariffs it levies on imported goods from most of its trading partners as early as next month. The more optimistic trade outlook allowed U.S. treasury yields to jump to their highest levels since May (the 10-year Treasury yield is near its highest level in over seven years), while the U.S. dollar fell, giving a boost to oil and other commodity prices. West Texas Intermediate crude (WTI) is flirting with its highest price since 2014.

Canada’s S&P/TSX Composite Index joined the global trade-relief party, despite a lack of substantial progress in NAFTA negotiations. The benchmark got a solid boost from the materials sector as metal prices rose. But the lesser-weighted health care sector saw the biggest absolute gain after a wild week for cannabis stocks, that started when Coca Cola was rumoured to have been talking to cannabis producers. The financials sector was also strong, because it is expected to see better profitability with higher interest rates. Yields on Canadian government bonds followed their U.S. counterparts higher, to their highest levels in four months, and helped lift the Canadian dollar. Higher interest rates pushed other rate-sensitive sectors to losses, including real estate, telecom, and utilities.

The S&P 500 moved to a new all-time high, led by the financials sector as it responded positively to higher treasury yields. The materials and energy sectors were both strong on the back of higher resource prices. As in Canada, sectors that typically lag when interest rates rise – real estate, utilities – lost ground.

All major European markets made gains, but stocks in the United Kingdom slightly lagged their continental counterparts. British investors continue to keep a wary eye on Brexit negotiations, while politicians continue to warn of a chaotic no-deal scenario, and Brexit related costs begin to show signs of creeping into inflation readings. The chances of a so-called “hard Brexit” increased this week when European Union leaders rejected the U.K. Prime Minister’s plan. Investors in France, Germany, Spain, and Italy grew more optimistic that Italy’s new budget, set to be tabled next week, will remain within the European Union’s limits and not spark a new EU crisis. Asian equities, already lifted by China-U.S. trade optimism, also gained support on the geopolitical front, as South Korean President Moon went to Pyongyang to meet North Korean leader Kim Jong-un for denuclearization talks. In Japan, the Nikkei index climbed to a seven-month high as the Bank of Japan kept monetary policy unchanged. Prime Minister Shinzō Abe easily won his party’s leadership election, ensuring a continuation of his “Abenomics” economic policies.

What’s ahead next week:

Canada

  • Industrial and raw materials prices (August)
  • Gross Domestic Product (July)

U.S.

  • Federal Reserve interest rate decision
  • Conference Board Consumer Confidence Index (September)
  • New home sales (August)
  • Gross Domestic Product (2nd Quarter – revised)
  • Durable goods orders (August)
  • Pending home sales (August)
  • Personal income and spending (August)
  • University of Michigan Consumer Sentiment Index (September)

This weeks market closing values

EQUITY INDICES Level Change 1-week YTD 1-year 5-year
      CAD CAD CAD CAD
S&P/TSX 16,224.13 +210.64 +1.32% +0.09% +4.98% +4.84%
S&P 500 2,929.67 +24.69 -0.11% +12.99% +22.75% +16.55%
DJIA 26,743.50 +588.83 +1.28% +11.56% +25.31% +16.79%
FTSE 100 7,490.23 +186.19 +1.65% -2.81% +4.13% +3.09%
CAC 40 5,494.17 +141.6 +2.58% +4.15% +7.53% +7.33%
DAX 12,430.88 +306.55 +2.46% +-3.08% +1.71% +9.32%
Nikkei 23,869.93 +775.26 +1.86% +8.11% +22.73% +12.40%
Hang Seng 27,953.58 +667.17 +1.95% +-3.63% +4.12% +8.28%
             
CURRENCY RETURNS CAD Change 1-week Yth 1-year 5-year
US$ 1.2917 -0.0119 -0.91% 2.75% 4.79% +4.62%
Euro 1.5182 +0.0027 0.18% 0.62% 3.13% +1.73%
Yen 0.0115 -0.0002 -1.35% 2.87% 4.72% +2.05%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 1.55 +0.03 Oil $70.83 +$1.84
5-year 2.33 +0.06 Gold $1,198.94 +$5.44
10-year 2.43 +0.09 Natural Gas $3.07 +$0.16