Global Asset Allocation Team Market Update – November 2023
Financial markets kicked off the fourth quarter on a somber note. While unrelenting strength in the US economy underscored the case for restrictive monetary policy for an extended time, escalating geopolitical tensions in the Middle East added to the gloomy mood and saw both stock and bond markets retreat in tandem last month.
The rout in global stock markets extended for a third straight month as the combination of interest rate angst and geopolitical headwinds clouded the outlook for risky assets. The MSCI All Country World declined 3.1%, with all major benchmarks we track generating negative results. The S&P 500 slipped 2.2%, while the S&P/TSX tumbled 3.4%. Elsewhere, the MSCI EAFE struggled (-4.1%) and is on the cusp of erasing its 2023 gains – while the MSCI gauge of emerging market stocks fell by 3.9%.
In fixed income markets, treasury yields resumed their upward climb in October as stronger-than-expected economic data out of the United States saw investors brace for a prolonged period of higher interest rates. The US yield curve steepened in a bearish fashion. After briefly surpassing 5%, the 10-year treasury yield edged back to a still-elevated 4.93% and was up 36 basis points for the month – while the policy sensitive 2-year treasury yield rose by a more modest 4 basis points to 5.09%. Consequently, the Barclays US Aggregate Bond Index shed 1.6% last month. Meanwhile, Canada’s economy has begun to display some signs of softening versus its neighbor to the south, which saw the FTSE Canada Bond Universe gain 0.37% in October. The Government of Canada two-year yield fell sharply (by 24 basis points) to 4.64%, which more than offset a modest 4 basis point increase in the 10-year yield (to 4.06%).
In currency markets, the US dollar advanced on the back of relative resilience of the US economy versus its global peers, while safe haven demand also buttressed the dollar. The greenback was stronger against most of its major trading peers, with the Canadian dollar (-2.1%), pound (-0.4%), and yen (-1.5%) all depreciating – while the euro was virtually unchanged last month.
Finally in commodity markets, crude oil retreated by over 10% in October as the prospect for weaker demand outweighed fears the Israel-Hamas war will escalate and jeopardize supply from the Middle East. Meanwhile, geopolitical turmoil saw gold surge higher, with the conflict in the Middle East countering the impacts from the latest backup in treasury yields and a firmer US dollar.