Market Commentary

Central banks and trade deliberations dominated the headlines in September, with investors thriving on the accommodative message from central banks and some conciliatory undertones from US and Chinese authorities ahead of high-level trade talks in October. The Federal Reserve took out some additional “insurance” and cut rates for a second time this year, while the European Central Bank lowered rates further into negative terrain and restarted asset purchases. And while policy was left unchanged in Canada and Japan, policymakers left the door open to further stimulus if warranted. However, in a stark reminder of the vulnerability of the macro backdrop, political drama resurfaced at month-end on the heels of impeachment inquiries in Washington, while reports that the Trump administration is considering curbing US investment in China also weighed late in the month.

October 2019

Global equity markets regained some momentum in September. The US equity market managed to retrace almost all of its losses from August andcame within striking distance of record levels reached earlier this summer. Meanwhile, the Canadian equity market breached a new all-time high inSeptember amid a revival in the (previously lagging) energy and financials space, which together accounts for close to half of the TSX. Lookingabroad, international bourses welcomed the supportive message from central banks, with European stocks closing-in on a one-year high, whileJapanese bourses also posted some impressive results during the month. Even emerging market stocks joined the monthly upswing, with the MSCI gauge tracking gains across the rest of the globe. 

In contrast, fixed income markets posted negative results in September. Bond yields reverted higher after spending most of the third quarter in a downward spiral in a month that was fueled by stronger than expected economic data in both the US and Canada. Meanwhile, sentiment improved somewhat last month, which saw investors rotate out of the overcrowded bond market and towards riskier assets in the equity space. 

The US dollar maintained its positive momentum through September even after the Federal Reserve cut rates for a second time this year. In contrast, the euro slumped to its weakest level since 2017 as economic data in the Eurozone continued to deteriorate at the same time that US economic results surprised to the upside. The yen dropped after the Bank of Japan reduced purchases of bonds in the 3-5 year maturity zone in a bid to steepen the yield curve, while dovish undertones from Governor Kuroda also weighed. Finally, the loonie remained resilient in the wake of dollar strength and declining crude prices. Instead, the Bank of Canada’s sidelined approach saw the US-Canada rate differential narrow and lent support to the Canadian dollar. 

In commodity markets, gold pulled back below its 50-day moving average for the first time in four months amid relentless dollar strength. Finally, after the attack on Saudi Arabia removed 5% of global supply and sent crude prices soaring, oil reversed course as production was restored at a faster than expected pace, while a glimpse of easing tensions between Saudi Arabia and Iran also added to the downward move.


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