Market Commentary

In June, financial markets thrived on the string of dovish rhetoric from central banks including the likes of the Federal Reserve, the European Central Bank, and the Bank of Japan – while thawing US-China trade tensions also lent support ahead of the highly-anticipated meeting between President’s Trump and Xi. In the end, the gathering between the two superpowers proved successful in producing a framework for the resumption of trade talks, but fell short of reaching an all-encompassing deal. The details were fairly scarce, though Trump agreed to defer any new tariffs “for the time being” and lifted some restrictions on Huawei Technologies, while Chinese officials agreed to the purchase more US agricultural products.

JUly 2019

Global equity markets welcomed the supportive undertones from central banks and receding trade tensions that buoyed risky assets in June.
The S&P 500 breached record highs as expectations for multiple fed fund rate cuts ignited US stocks. The S&P/TSX followed suit – though by a lesser extent as robust performance in gold stocks was countered by weakness in the energy space. Positive results also extended to overseas markets, with European and Japanese bourses cheering pledges for support from the ECB and the BOJ, while emerging market shares prospered alongside the Federal Reserve’s dovish-pivot and hopes for a breakthrough at the US-Sino trade talks late in the month.

Bond yields declined decisively and yield curves bull-steepened as monetary policymakers in the US, Europe, and Japan signaled a willingness and readiness to act should economic or financial market conditions deteriorate. The US 10 year treasury yield broke below 2% for the first time since 2016, while investors were paying German and Japanese governments to hold their money for a decade. Meanwhile, markets got even further out in front of the Fed and are now fully-discounting a rate cut at the July gathering, while pricing-in a total of 2.5 rate cuts in 2019. Finally, the revival in risk appetite saw credit spreads narrow, with investment grade bonds outperforming their government peers during the month.

Dollar momentum dwindled in June as investors ramped-up their wagers for aggressive easing from the Federal Reserve. In contrast, the loonie took flight alongside rebounding crude prices, while rate differentials between the US and Canada narrowed after the Fed opened the door to the possibility of rate cuts at the same time that strong growth and inflation results in Canada endorsed a sidelined approach from the Bank of Canada.

Oil prices bounced profoundly higher as tensions between the US and Iran fanned fears of a conflict that threatened to disrupt supplies in the Middle East, while OPEC reiterated their commitment to maintaining a balanced market - all of which propelled oil to its biggest monthly increase since January. Gold also extended its impressive rally and broke through $1400/oz thanks to the dovish bias from central banks, while rising geopolitical tensions also boosted the allure of bullion as a haven. Finally, copper posted its first monthly gain since February on renewed hopes for a trade détente that would help to alleviate tensions between the world’s two largest consumers of the red metal.