Market Commentary

Investors headed towards the end of 2019 in an optimistic mood as two policy risks that were plaguing sentiment throughout the year receded in December, while some nascent signs of a stabilizing global economy also buoyed risk appetite. Of note, the US and China managed to agree on the details of a “phase one” trade accord that averted a fresh onslaught of tariffs and modestly rolled back some existing duties. And across the Atlantic, the likelihood of a disorderly Brexit scenario declined after PM Boris Johnson secured a solid Conservative majority in the general elections, which has paved the way for a smooth exit in 2020.

January 2020

Global equity markets had a blockbuster finish to 2019, with the MSCI All Country World breaching all-time highs. The S&P 500 broke through the 3200-mark and capped its best annual gain since 2013, while the TSX closed out the decade with its best annual performance since 2009. Looking abroad, international stocks also posted some impressive gains, while MSCI’s gauge of emerging market equities led the global charge and all but erased losses from 2018 as appetite for the riskiest assets prevailed alongside the improved tone to US-China trade deliberations and a supportive message from the Federal Reserve. 

The US treasury yield curve bear-steepened in December, with the spread between the 10- and 2-year treasury yield reaching its highest level in over a year. The biggest upward move took place in the long-end of the curve, thanks to the improved growth outlook that has sparked a revival in inflation expectations. Specifically, the 10 year treasury yield rose by 14 basis points to 1.92%, while the short-end was virtually unchanged reflecting expectations for steady Federal Reserve policy next year. Meanwhile, market-based measures of US inflation expectations rose to their highest level since July, with the 10 year breakeven inflation expectations rate rising to a new five-month high of 1.79%. 

After spending most of 2019 trending higher, the US dollar lost some notable momentum in December as fading trade and political anxieties reduced appetite for the greenback. The pound was among the top-performing currencies amid optimism for an amicable outcome to Brexit negotiations, while the euro also gained alongside the latest backup in German bund yields. The Canadian dollar thrived following the approval of the revised USMCA, newly announced fiscal measures, and soaring crude prices - which when taken together sent the loonie to its strongest level since October 2018.

Finally, renewed optimism on the state of US-Sino trade relations and the diminished risk of a “hard” Brexit scenario have helped to dispel global economic growth fears and eased two of the biggest risks overhanging commodity prices. Gold climbed to a three-month high on the heels of the weaker US dollar. Crude prices thrived and jumped above $60/barrel, owing to the increased likelihood of a US-China trade truce and an agreement between OPEC and its allies to deepen supply cuts in 2020. Finally, copper trended higher as the improved US-China trade dynamic bolstered global growth prospects and the demand outlook for the red metal, while newly announced stimulus measures from the Chinese central bank also added to the positive trajectory in early 2020.