Market Commentary

Volatility reasserted itself in October as the environment of rising interest rates, lingering trade tensions between the world’s two largest economies, and tightening financial conditions roiled the marketplace. Notably, nervous investors fled indiscriminately from risky assets amid fears that rising interest rates will erode global growth, corporate profits, and equity valuations - while the trade rift between the US and China, Italy’s budget showdown with the European Commission, and ongoing Brexit uncertainties also dampened investor sentiment. In the end, more than $8 trillion was swept from global equity values since September’s highs – marking the biggest wipeout since the depths of the global financial crisis.


Global equity markets posted their worst monthly performance in six years, with the MSCI All Country World shedding more than 8% in October. The rout in equity markets was fairly broad based in nature, with no region left unscathed. The S&P 500 broke firmly below its 200-day moving average and has all but erased its year-to-date gains, while the Nasdaq bore the brunt of selling pressures and entered official correction terrain as some disappointing earnings reports from US technology bellwethers saw the high-flying sector reverse course. The S&P/TSX was not spared and selling pressures intensified owing to weakness in the energy sector, particularly as pipeline bottlenecks pushed Canada’s heavy crude prices towards decade-lows. Looking abroad, European shares posted their worst month since January 2016, while emerging market bourses extended declines as investors contemplated the Federal Reserve’s interest rate trajectory, escalating trade tensions, and some signs of economic moderation in China.

Despite the risk-averse tone in the marketplace, North American fixed income markets posted negative results in October. Bond yields were broadly higher in the US and Canada as major central banks reiterated their commitment towards monetary policy normalization. Meanwhile, corporate, high yield, and emerging market bond spreads all widened in the wake of the global equity rout, the latest slump in crude prices, and heightened levels of risk aversion in general.

In currency markets, the greenback touched its strongest level in over a year. Meanwhile, the Canadian dollar retreated even after the central bank raised interest rates and reinforced the need to return borrowing costs back to neutral. Instead, the generally robust US dollar and stumbling crude prices largely overwhelmed the mildly hawkish undertones from the Bank of Canada. The euro was softer after third quarter growth results missed estimates, while the standoff between the Italian populists and the European Commission over the 2019 budget lingered on. The pound was weaker as a lack of progress in Brexit talks rattled sentiment, while the Chinese yuan hovered around a decade-low. In contrast, the yen bucked the global trend and advanced as the dismal mood in the marketplace triggered safe haven buying.

Finally in commodity markets, crude prices tumbled lower as havoc in global equity markets and the trade dispute between the US and China threatened to stifle global oil demand, while a buildup in US stockpiles also weighed. Gold posted its first monthly advance in seven months as the tumultuous trading environment boosted the appeal of the yellow metal as a haven, while copper pulled back alongside some early indications of a slowdown in Chinese growth.