By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: Oct. 11

Oct 11, 2019 | 2:40 PM

Big Picture

U.S.-China Trade News Continues to Sway Markets

The ongoing trade war is still holding markets in its grip as anxious investors continue to follow every development, hoping for clear signs of progress. On Thursday U.S. stocks rallied following remarks by President Trump that he would meet with China Vice Premier Liu He for talks Friday. The stakes remain high: the Trump administration is set to hike the tariff rate on $250 billion worth of Chinese goods next Tuesday if no real progress is made. While trade optimism helped lift markets also on Wednesday, N.A. markets tumbled on Tuesday after Washington expanded its list of blacklisted Chinese firms, adding 28 Chinese entities to an export blacklist and casting a large shadow on the week’s pending trade talks. The Dow lost more than 300 points Tuesday, while TSX was off 128 points.

According to a survey by the Wall Street Journal, U.S. manufacturing is in recession. Two-thirds of economic forecasters surveyed said the sector is in the midst of two or more consecutive quarters of contraction. Meanwhile, all eyes this Friday will be on the U.S. consumer sentiment index, which is likely to signal dimming expectations about the economic outlook. So far, consumer spending has been a bright spot for the U.S. economy, as American consumers have been largely sheltered from the economic impact of the ongoing trade war.

Finally, with less than three weeks to go before the October 31 Brexit deadline, British PM Boris Johnson and Irish PM Leo Varadkar on Thursday expressed optimism that a possible Brexit deal could still be in reach. That was good news for the pound, which posted its biggest one-day increase against the greenback in over two years.

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Markets

N.A. Markets Down Slightly as Trade Concerns Linger

For the four days covered in this report, the Dow lost 77 points to close at 26,497, the S&P 500 dropped 14 points to settle at 2,938, while the tech-heavy Nasdaq declined 31 points to close at 7,951. In Canada, the TSX surrendered 26 points to end at 16,423.

Equities/Strategy

Strategy

Monetary policy easing underway, fiscal measures still to come across the region. Eurozone GDP growth has fallen below trend, while the global investment cycle has turned and the threats of escalating protectionism, a hard Brexit, and a slump in China continue to weigh on sentiment.

The European Central Bank (ECB) offered more support to keep the economy on track in September, announcing the resumption of its asset purchase program (APP) at a monthly pace of 20bn euros for as long as necessary. The deposit rate was also lowered by 10 basis points and some of the cost to banks from negative interest rate policy will be eased by the introduction of a tiering system and tweaks to liquidity operations. Still, downbeat forecasts predict depressed sentiment and slowing investment and manufacturing activity will continue to weigh on growth in the Eurozone, particularly in Germany. September PMI readings for the Eurozone make for a worrying end to the third quarter.

The composite figures for both manufacturing and services fell sharply, which suggests the weakness is broadening. Fiscal stimulus measures are starting to be unveiled in prominent economies across the region but a more concentrated effort will likely be required to avoid a more pronounced slowdown.

(Bill Curry)

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