MARKET WATCH: Feb. 14, 2020

The optimism over oil waned Thursday, however, as the International Energy Agency (IEA) forecast this week that global oil demand will fall in Q1 2020—the first quarterly drop in more than a decade. The IEA also slashed its oil demand growth forecast for 2020 by 365,000 barrels a day, a 30% reduction from its January estimate.

N.A. Markets Continue to Climb

For the four days covered in this report, the Dow gained 321 points to close at 29,423, the S&P 500 added 46 points to settle at 3,374, while the tech-heavy Nasdaq climbed 192 points to close at 9,712. In Canada, the TSX was up 166 points to end at 17,821.

Equities

Chair Powell highlights importance of fiscal policy in testimony to Congress

Earlier this week, U.S. Federal Reserve Chairman Jerome Powell delivered his semi-annual testimony to the House Committee on Financial Services. As part of his testimony, Mr. Powell noted that fiscal policy is important to help support the economy if it weakens. His comments suggest that the effectiveness of further monetary policy easing may be limited given the current low interest rate environment. European Central Bank (ECB) President Christine Lagarde echoed similar comments in a statement to the European Parliament yesterday, saying that “monetary policy cannot, and should not, be the only game in town”. Other central banks globally also face this issue, as many reduced interest rates last year to offset weak economic growth.

With limited ability to further reduce interest rates in the event of a recession, the Fed Chair urged Congress to ensure available capacity exists for potential future fiscal stimulus measures to be effective. The Fed’s target for short-term interest rates is now 1.5% to 1.75%, following three 25 bps interest rate cuts last year. As such, further easing is likely to be limited and Mr. Powell noted that the Fed would be unlikely to push rates below zero. Instead, he urged Congress to control budget deficits in the near term, saying “putting the federal budget on a sustainable path when the economy is strong would help ensure that policy makers have the space to use fiscal policy to assist in stabilizing the economy during a downturn”. His comments are timely, given the release of the federal budget on Monday which outlines plans that would increase the U.S. gross federal debt to over US$30 trillion by 2028 from US$23 trillion currently.

(Bill Curry)

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MARKET WATCH: Feb. 14, 2020

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