Market Watch: July 17

Wall Street climbed back on Tuesday as investors piled into energy and materials stocks. The Dow finished more than 2 per cent higher, while the TSX jumped nearly 270 points, buoyed by the energy sector, which climbed more than 4 per cent.

It was another strong day for N.A. markets on Wednesday as major indexes climbed over promising early data for a potential Covid-19 vaccine and strong earnings from some key banks. However, earnings for S&P 500 companies are expected to have declined nearly 45 per cent from the second quarter of 2019, which would mark the steepest year-over-year drop since 2008, according to FactSet.

Also on Wednesday, as expected, the Bank of Canada held its overnight rate at 0.25 per cent. Bank officials indicated that near-zero rates would probably be the new norm for the next two years.

Looking at economic data, U.S. retail sales increased 7.5 per cent in June as stores and restaurants reopened and consumers resumed spending on big-ticket items. Meanwhile, new U.S. jobless claims held nearly steady last week at 1.3 million, after a period of larger declines, suggesting that re-imposed coronavirus restrictions are negatively impacting the U.S. labour recovery. I

n light of the mixed data, U.S. stocks declined modestly Thursday, with the Dow down 0.5 per cent, while the TSX was also off slightly. Finally, Chinese stocks suffered their biggest drop Thursday in more than five months, tumbling 4.5 per cent on new worries over rising infections and a stalling global economy.

Nasdaq Slightly Off; Dow, S&P and TSX Hang on to Gains

For the four days covered in this report, the Dow surged 659 points to close at 26,734, the S&P 500 rose 31 points to settle at 3,216, while the tech-heavy Nasdaq surrendered 143 points to close at 10,473. In Canada, the TSX added 311 points to end at 16,025.

Strategy

Governor Macklem’s Governing Council strengthens forward guidance, tying future changes to realized inflation gains

The Bank of Canada (BoC) held a scheduled policy meeting on Wednesday and opted to leave its current policy mix unchanged, as was widely expected.

The bank rate was left at 0.25 per cent and continuing its quantitative easing (QE) program, with large-scale asset purchases of at least $5 billion per week of Government of Canada bonds. The Bank’s short-term liquidity programs announced since March to improve market functioning are having their intended effect and, with reduced market strains, their use has declined.

The provincial and corporate bond purchase programs will continue as announced. It is Governor Tiff Macklem’s bank now, as the Governing Council provided guidance that the bank rate would remain at 0.25 per cent until economic slack has been absorbed and 2 per cent inflation is sustainable achieved. This is significant insofar as former Governor Stephen Poloz was hesitant to provide firm forward guidance on policy evolution. To that end, the bank rate is likely to remain at its current level until 2023, given the determining factors listed above do not occur in the current forecast horizon.

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by rdnewsNOW staff

Market Watch: July 17

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