By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: August 30

Aug 30, 2019 | 10:07 AM

Big Picture

Up-and-Down Week for North American Markets

The U.S.-China trade war and global recession fears continue to hold sway over markets this week as investors try to parse conflicting signals in the U.S. and abroad. U.S. and Canadian markets kicked off the week with gains Monday, buoyed by a rally among shares of banks and tech companies, which surged over news that the White House was laying the groundwork for a new round of trade talks with Beijing. The Dow added 250 points, while the TSX climbed 154 points.

However, the flight to safe-haven assets resumed Tuesday as traders focused on concerns over a global slowdown. In Canada, energy shares mirrored declining oil prices as worries over demand re-emerged. Markets bounced back Wednesday, however, after strong earnings reports from U.S. retailers eased some fears over the well-being of the U.S. consumer.

But N.A. markets wavered Thursday after weaker-than-expected manufacturing data raised fresh worries over the health of the U.S. economy. Preliminary data showed U.S. factory activity slowed in August, as the purchasing managers index fell to 49.9 in August, falling below 50 for the first time in about a decade. While the Dow was up slightly, the TSX, S&P 500 and Nasdaq surrendered ground.

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Turning to Europe, Germany on Wednesday sold 30-year debt at a negative yield for the first time, as investors hungry for safe assets bet that yields will head even lower. Demand for government debt has been extremely strong this year, as central banks around the world continue to lower rates in an effort stave off a global recession. Meanwhile in Italy, the yield on Italian government debt reached its lowest level in roughly three years Wednesday, following the resignation of Prime Minister Giuseppe Conte. The breakdown of Italy’s government comes at an especially critical time as the world’s eighth-largest economy continues to struggle from the effects of global trade tensions.

Markets

N.A. Markets Gain Ground

For the four days covered in this report, the Dow climbed 366 points to close at 26,252, the S&P 500 added 34 points to settle at

2,923, while the tech-heavy Nasdaq rose 95 points to close at 7,991. In Canada, the TSX gained 103 points to end at 16,253.

Equities/Strategy

Strategy

2019 word of the year: Protectionism.

Protectionist trade policies are intended to shield legacy industries in developed nations from off-shoring jobs and production to jurisdictions with comparatively cheaper labour and looser regulations. In the case of the U.S.-China trade spat, protectionist trade policies serve three purposes: protecting legacy jobs, incentivizing and exacting structural changes from a previously unwilling Chinese government, and stemming the rise of a strategic and technological threat. The tangible effect of tariffs on the broader economy has been small to date but uncertainties stemming from protectionist measures have depressed sentiment and, thus, weighed on growth.

Nevertheless, the pace of hiring in July (164k) was in-line with the year-to-date trend (165k) and remains well-above estimates of job growth needed to maintain the current unemployment rate, roughly 100k jobs per month. Continued job growth, paired with rising wages, should allow consumer spending to maintain its current levels and remain the dominant growth engine for the U.S. economy.

(Bill Curry)

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