This week in the markets


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Trade talks and U.S. government funding deal lift stocks


February 15, 2019    

Stocks in Canada advanced for the seventh straight week, and in the U.S for the sixth week of the last seven. Investor sentiment got a lift from the resumption of U.S.-China trade negotiations in Beijing, and reports that President Donald Trump was considering pushing back the March 1 deadline, after which tariffs on Chinese imports are set to increase if no deal is reached. U.S. lawmakers added to the positive mood by striking an agreement to keep the government funded through September. President Trump said he would sign the bill to avoid another government shutdown.

Canada’s S&P/TSX Composite Index got its biggest boost from the energy sector. The group was helped by higher prices for the benchmark West Texas Intermediate (WTI) crude and by continued narrowing of the spread between WTI and Canada’s heavy oil prices. The technology sector was also strong, lifted by a jump in the stock price of Constellation Software, after the company reported better-than-expected earnings. The materials sector led on the downside due to retreating gold stocks. Although finishing higher, the yellow metal’s price came under pressure most of the week from a stronger U.S. dollar and lower global inflation and economic growth forecasts.

Energy stocks also led the S&P 500 higher. The U.S. benchmark saw gains in every sector except utilities. Other defensive sectors – staples and real estate – managed gains, but underperformed, as investors’ appetite for risk continues to recover from the sharp sell-off in December. Economic data was mixed, but mostly negative, reinforcing expectations that the Federal Reserve will not raise interest rates this year. Retail sales for December registered the biggest surprise, posting their worst monthly drop in nine years (not what was expected; but very reflective of the year-end financial turmoil and government shutdown effects). Other signs of slower economic momentum came with higher unemployment claims, a weaker Producer Price Index, lower industrial production, and a drop in small business confidence. On the other hand, a record high number of job openings underscored a still robust labour market.

All major European equity markets made gains on the growing trade optimism, shrugging off increasingly disappointing economic numbers. With Italy already reported to be in a technical recession, Germany’s real GDP was flat in the fourth quarter, bringing in the full year for 2018 at only 1.5%. The economy of the United Kingdom was also reported to be slowing at an alarming rate in the face of Brexit uncertainty. U.K. activity shrank 0.4% in December alone, leaving real GDP just 1.2% above year-ago levels.

Japanese stocks jumped notably, in a holiday-shortened week. The country’s fourth quarter growth was reported in line with expectations - strong enough to keep the government on course for a planned hike in the consumption tax later this year, but weak enough for the central bank to maintain its stimulative stance. Chinese equities were also strong, benefiting from the better trade outlook, and the recent stimulative measures that pushed Beijing’s deleveraging campaign to the backburner. But investors were keeping a wary eye on China’s credit market after two large borrowers missed bond payments.

What’s ahead next week:

Canada

  • Wholesale trade sales (December)
  • Retail sales (December)

U.S.

  • Release of January 30 FOMC minutes
  • Durable goods orders (December)
  • Markit Purchasing Managers Indices (February)
  • Conference Board Leading Index (January)
  • Existing home sales (January)

This weeks market closing values

EQUITY INDICES Level Change 1-week YTD 1-year 5-year
      CAD CAD CAD CAD
S&P/TSX 15,838.24 + 204.91 + 1.31% + 10.58% + 2.79% + 2.42%
S&P 500 2,775.60 + 67.72 + 2.53% + 7.87% + 7.83% + 12.80%
DJIA 25,883.25 + 776.92 + 3.13% + 8.10% + 8.98% + 14.15%
FTSE 100 7,236.68 + 165.50 + 1.89% + 5.80% - 2.76% + 0.21%
CAC 40 5,153.19 + 191.55 + 3.37% + 4.47% - 5.37% + 3.41%
DAX 11,299.80 + 393.02 + 3.11% + 2.63% - 12.22% + 3.09%
Nikkei 20,900.63 + 567.46 + 2.04% + 1.50% - 0.31% + 10.22%
Hang Seng 27,900.84 - 45.48 - 0.13% + 4.96% - 5.17% + 8.39%
CURRENCY RETURNS CAD Change 1-week Yth 1-year 5-year
US$ 1.3251 - 0.0027 - 0.20% - 2.83% + 6.17% + 3.84%
Euro 1.4963 - 0.0071 - 0.47% - 4.31% - 4.13% - 0.10%
Yen 0.0120 - 0.0001 - 0.81% - 3.51% + 2.05% + 2.16%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 1.68 + 0.03 Oil $55.74 + $3.02
5-year 1.80 + 0.01 Gold $1,321.46 + $6.96
10-year 1.90 + 0.02 Natural Gas $2.60 - $0.02