Investment Commentary For The Week Ended October 21 From Our Partners

Global equity markets finished higher over the week ended October 21. Relatively strong earnings results boosted sentiment, while investors hoped a bottom was reached after recent declines. Still, there were periods of volatility as signs of an economic slowdown persisted, with global central banks hinting they might need to keep raising rates. The S&P/TSX Composite Index posted a gain, led by the Information Technology sector. In the U.S., the S&P 500 Index advanced, with gains in all 11 sectors. Global bond yields moved higher over the week due to concerns the global economy is headed toward a recession. Oil and gold prices finished largely flat over the week.

A short but dramatic tensure

1. It was a very dramatic week in U.K. politics. It started with the cancellation of many new tax reductions and other benefits included in the government’s recently announced economic growth plan. The reversal was followed by the resignation of Prime Minister Liz Truss.
2. Amid the chaos in U.K. financial markets and politics, Truss resigned as PM, marking the shortest tenure ever for a U.K. PM at 44 days. (She will stay until a new leader is elected, possibly this week). She lost confidence among members of her party in response to her fiscal policy plan.
3. Upon taking office, Truss announced an economic growth plan that included tax reductions and support for households. However, the plan was widely criticized since it would likely push inflation even higher. This sent U.K. government bond yields surging upward, and the British pound lower.
4. Earlier last week, the Chancellor of the Exchequer scrapped some of the tax cuts and support for household energy bills. This raised expectations Truss may be ousted as PM.
5. The Bank of England also announced it would return to selling off U.K. government bonds it holds.

Canadian inflation remains broad-based

1. Canada’s inflation rate was higher than expected in September, reaching 6.9% compared to the 6.7% rate economists expected.
2. It was a slowdown from August’s 7.0% rate due to slowing gasoline price growth.
3. Consumer price growth remained broad-based, with the core inflation rate at 5.3% in September, unchanged from August.
4. This likely keeps the pressure on the Bank of Canada to keep raising rates aggressively at its last two meetings in 2022.

Rebound may not last long

1. Retail sales jumped 0.7% in August, rebounding from July’s 2.2% decline.
2. The increase beat economists’ expectations of a 0.2% rise. Stronger food and motor vehicles and parts sales contributed to the jump.
3. August’s results showed the Canadian consumer remained relatively resilient despite tightening financial conditions, but that relative strength may have waned in September.
4. Statistics Canada estimated retail sales dropped 0.5% in September.

Delayed data releases

1. While the Chinese Communist Party met during the week, the release of key economic data, including gross domestic product (“GDP”) for the third quarter, was delayed. Since a reason was not given, investors were left to speculate.
2. It was noted that the earlier release of trade data had been delayed due to the inability to sign off on the results because of COVID-19 restrictions, so many speculated this could also have been the reason for the GDP delay. However, it also raised speculation that the data could be particularly bad and thus delayed until a better time for discussion.
3. Economic activity in China slowed considerably this year amid new lockdown restrictions, geopolitical tensions and supply chain disruptions.
4. The People’s Bank of China (“PBOC”) did announce it was holding its one‑ and five‑year loan prime rates steady at 3.65% and 4.30%, respectively.
5. It appears the PBOC might be trying to minimize more divergence from other central banks who are raising rates. The yuan has fallen considerably this year, over the past month in particular, as the PBOC reduces rates. The yuan reached its lowest level against the U.S. dollar since 2008.