Market Watch: November 8, 2024

Equity markets navigated a week of mixed signals, starting with China’s Caixin PMI data showing economic resilience, which boosted sentiment. U.S. markets were buoyed by strong retail sales and jobless claims data, while the Federal Reserve’s rate cut added to the positive momentum. In Europe, the ECB’s dovish stance and the BoE’s rate cut supported equities, despite ongoing inflation concerns. Canadian markets reacted to lower-than-expected inflation, raising hopes for another rate cut by the Bank of Canada. Geopolitical developments, including the U.S. presidential election and easing oil supply fears, also played a role, creating a narrative of cautious optimism across global markets.

Highlights

U.S. markets closed 4.69%¹ higher for the week as investors digested strong retail sales, resilient consumer spending, a slight rise in jobless claims, the Federal Reserve’s rate cut, and positive earnings reports, particularly from major tech firms.
Canadian markets fell 2.08%² for the week, largely due to lower-than-expected inflation data, which raised expectations for a rate cut by the Bank of Canada, and concerns over slower-than-expected economic growth, particularly in light of U.S. election results.
European markets returned -0.12%³ for the week following the European Central Bank’s dovish stance in anticipating protectionist trade policies. Additionally, the Bank of England’s rate cut, ongoing inflation concerns, and mixed corporate earnings weighed on equity returns.
Emerging markets closed -1.71%⁴ lower for the week. Despite stronger-than-expected GDP growth, ongoing concerns over the property market, a tepid response to Beijing’s stimulus measures, and the anticipation of tariffs on goods produced in China weighed particularly heavy on risk assets.

Bond markets rally in anticipation of accommodative regulatory environment

Early in the week, U.S. Treasury yields fluctuated as investors anticipated the U.S. presidential election results and the Federal Reserve’s rate decision. The Fed’s 25 basis point rate cut midweek provided some stability, though concerns about future inflation under the re-elected Trump administration lingered. In Europe, the ECB’s dovish stance and the BoE’s rate cut led to a decline in short-term government bond yields. Canadian bonds reacted to lower-than-expected inflation data, increasing expectations for a rate cut by the Bank of Canada.

Highlights

The 2- and 10-year U.S. Treasury yields were 3 basis points (bps) and 4 bps higher, respectively. In Canada, the 2- and 10-year yields were flat despite the likelihood of additional rate cuts from the BoC.
Credit continues to be in demand driving spreads to levels we haven’t seen in 20 years. The risk-on rally is fuelled by expectations of less regulation and lower taxes, a priority of Trump administration.
Canadian and U.S. bond markets will be closed Monday for Remembrance Day.

Weekly dashboard

Canadian manufacturing PMI rose to 20-month high in October

Canadian manufacturing activity increased faster in October as production and employment picked up in anticipation of rising orders. The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) rose to 51.1 in October from 50.4 in September, its highest level since February 2023. The reading in September marked the first move above the 50.0 no-change mark in 17 months.

Highlights

The data also pointed to a dissipation of inflationary pressures, providing further support to the Bank of Canada’s current focus on moving quickly towards a more neutral monetary policy stance.
The output index rose to 52.2 from 49.8 in September, ending a 14-month run of contractions, while employment was at 52.1, its highest level since April 2023.
The input price index dipped to 55.8 from 56.4 in September, while the measure of output prices was at 50.4, down from 51.4.

Fed cuts rates by quarter of a percentage point, notes labour market easing

The U.S. Federal Reserve (Fed) cut interest rates a quarter of a percentage point, as policy-makers took note of a job market that has “generally eased” while inflation continues to move towards the U.S. central bank’s 2% target. “Economic activity has continued to expand at a solid pace,” the Federal Open Market Committee said at the end of its two-day policy meeting. The decision was unanimous.

Highlights

Fed officials lowered the benchmark overnight interest rate to the 4.50%-4.75% range.
The new statement also slightly altered the reference to inflation, saying that price pressures had “made progress” towards the Fed’s objective rather than the prior language that it had “made further progress.”
The personal consumption expenditures price index, excluding food and energy items, has changed little in the past three months, running at a roughly 2.6% annual rate as of September.

China Caixin services PMI adds to signs of economic progress

A private gauge of China’s services sector signalled a solid start to the fourth quarter as activity rose at the fastest pace in three months, adding to signs that Beijing’s stimulus is starting to energize the economy. The Caixin services purchasing managers index rose to 52.0 in October from 50.3 in September. The index has remained above the 50 mark that separates contraction from expansion for 22 consecutive months.

Highlights

The PMI print indicated that both supply and demand in the services sector continued to grow last month. Overseas demand also improved for the 14th straight month.
Growing total new orders helped boost the services labour market, with the employment indicator staying in positive territory for a second straight month.
Market optimism also improved, with the gauge for future activity expectations reaching a five-month high.

¹ S&P 500 Index CAD
² S&P/TSX Composite Index CAD
³ Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index CAD
⁴ Bloomberg EM Large & Mid Cap Price Return Index CAD

by Scotia Wealth Management

Market Watch: November 8, 2024

Bond markets rally in anticipation of accommodative regulatory environment

China Caixin services PMI adds to signs of economic progress

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