This week in the markets


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Stocks make gains after being whipsawed by trade headlines

October 11, 2019  

As Chinese trade officials made their way to Washington this week for a new round of negotiations, investors scrambled to make sense of signs of a possible thaw in U.S.-China tensions, as well as escalations that sporadically undercut the tentative optimism. By Thursday optimism had won out and most developed market equities were higher (Canada was an exception). The news Friday of a “mini deal” lifted global stocks solidly into the green. The brightened mood reversed the flight-to-safety seen the previous week after disappointing economic news. The price of gold retreated, as did government bonds, lifting bond yields. Yields surged over 20 basis points on 10-year U.S. treasuries and almost 30 bps on 10-year Government of Canada bonds. Oil prices also climbed, gaining additional lift after an explosion on an Iranian tanker reignited fears of a supply disruption in the Middle East. Stocks got a further boost from tame U.S. inflation readings that clear the path for another interest rate cut from the U.S. Federal Reserve at the end of this month.

Hopes of progress in U.S.-China trade talks buffeted stocks all week. From the U.S. side, first came news that restrictions on U.S. pension fund investments in Chinese stocks were still being considered. This was followed by the U.S. blocking another 28 Chinese organizations from doing business with U.S. companies without additional licenses, and putting visa bans on Chinese officials linked to the mass detention of Muslim minority groups. The linking of trade negotiations to alleged human rights violations was a new direction for the trade war. However, the U.S. signed off on some licenses to do some business with Huawei Technologies Co., and suggested further tariff increases could be postponed as part of any deal. From the Chinese side, the week started with signals they were reluctant to agree to a broad deal, narrowing the range of topics they were willing to discuss, and vows they would retaliate to the backlisting of Chinese technology firms. Then came encouraging reports that China was again buying U.S. soybeans, quickly followed by rumours the Chinese negotiators were cutting short their U.S. trip. The eventual announcement of a limited deal reduced fear of a slowing U.S. economy, allowing stocks to advance despite recent weakness in some economic data and uncertainty about corporate earnings.

Canada’s S&P/TSX Composite Index underperformed other developed markets, not quite breaking even for the week. Gains were led by the financials and industrials sectors. Health care once again led declining sectors as cannabis stocks extended their six month-slide due to regulatory difficulties and disappointing revenues. The materials sector fell with lower gold prices, and rising bond yields pressured utilities and staples. In the S&P 500, materials, industrials and technology led the way higher. The interest rate-sensitive utilities, staples and real estate sectors fell as bond yields climbed.

All major equity markets in Europe and Asia were higher. In Europe, there were plenty of signs the economy was still struggling – lower German factory orders, a drop in Italian retail sales, and lower industrial production in France and Britain. But there were also numerous “green shoots” of activity – German and Italian industrial production and British construction output all rose. Sentiment got an extra boost from signs that a Brexit deal might still  be possible this month.

 

What’s ahead next week:

Canada

  • Consumer Price Index (September)
  • Manufacturing sales (August)

U.S.

  • Empire State Manufacturing Survey (October)
  • Retail sales (September)
  • Housing starts, Building permits (September)
  • Industrial production, Capacity utilization (September)
  • Conference Board Leading 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 16,415.16 - 34.19 - 0.21% + 14.61% + 7.17% + 2.90%
S&P 500 2,970.27 + 18.26 - 0.39% + 14.69% + 10.19% + 12.94%
DJIA 26,816.59 + 242.87 - 0.10% + 11.27% + 8.34% + 13.84%
FTSE 100 7,247.08 + 91.70 + 3.01% + 3.61% + 0.46% + 1.23%
CAC 40 5,665.48 + 177.16 + 2.81% + 11.86% + 7.21% + 7.48%
DAX 12,511.65 + 498.84 + 3.73% + 10.68% + 4.77% + 7.98%
Nikkei 21,798.87 + 388.67 - 0.63% + 7.27% + 1.18% + 10.83%
Hang Seng 26,308.44 + 487.41 + 0.86% - 1.62% + 5.28% + 5.86%
CURRENCY RETURNS CAD Change 1-week YTD 1-year 5-year
US$ 1.3204 - 0.0110 - 0.83% - 3.18% + 1.32% + 3.35%
Euro 1.4572 - 0.0044 - 0.30% - 6.80% - 3.54% + 0.60%
Yen 0.0122 - 0.0003 - 2.13% - 2.05% + 4.86% + 3.21%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 1.64 + 0.01 Oil $54.70 + $1.89
5-year 1.53 + 0.28 Gold $1,487.65 - $17.10
10-year 1.52 + 0.29 Natural Gas $2.26 + $0.01