By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: Dec. 13

Dec 13, 2019 | 10:10 AM

Big Picture

Markets Continue to Look for Signals on Trade Truce

Global markets stumbled out of the gate on Monday after President Donald Trump said he’d restore tariffs on some imports from Brazil and Argentina, while also threatening France with additional tariffs. Adding to the negative sentiment was a downbeat report on the U.S. manufacturing sector, which saw a drop in new factory orders in November to their lowest level since 2012. The Dow plunged nearly 270 points Monday and an additional 280 on Tuesday , while the TSX was down 59 and 89 points, respectively.

The Bank of Canada on Wednesday kept its key interest rate unchanged in its final rate decision of 2019, holding steady at 1.75%, where it has stood since October 2018. In related news, the loonie firmed to a two-week high against the U.S. dollar Wednesday as the likelihood of near-term rate cuts by the central bank dwindled. Also on Wednesday, oil prices surged 4% over news that OPEC would continue to limit production and that U.S. crude stockpiles had fallen sharply. After months of slowdown, China’s economy has showed signs of stabilizing. Data released this week showed that two purchasing managers indexes for the manufacturing sector rose, citing increased confidence and rising demand. The Chinese economy, the world’s second-largest, grew 6% in the third quarter.

While U.S. manufacturing has slowed somewhat, U.S. service-sector activity expanded in November, allaying recession fears as 2019 comes to a close. The Institute for Supply Management on Wednesday said its nonmanufacturing index for November was up, despite a slightly slower pace versus October.

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Finally, while U.S. markets were fairly flat on Thursday, the TSX extended this week’s slide, weighed down by weak earnings reports from two of Canada’s big five banks, which cited higher loan-loss provisions.

Markets

N.A. Markets Slide Over Trade Uncertainty, Banks Weigh on TSX

For the four days covered in this report, the Dow plunged 373 points to close at 27,678, the S&P 500 shed 24 points to settle at 3,117, while the tech-heavy Nasdaq lost 94 points to close at 8,571. In Canada, the TSX surrendered 185 points to end at 16,855.

Equities/Strategy

Strategy

Uncertain times requires a concerted effort from governments and monetary authorities to strengthen confidence among market participants. Business investment has ground to a halt across the globe as firms question the viability of their supply chains and end-markets. Labour markets in many major economies remain tight, with unemployment hovering near historically low levels, as firms delay capital investment and spend on temporary labour instead. Funding markets in the U.S. have also been stressed despite the appearance of ample reserves in the financial system. Repeated Brexit delays and the uncertainty surrounding the U.K.’s future trading relationship with the European Union have strained British industry. Monetary policy has risen to the occasion, with central banks lowering benchmark interest rates to offset global economic headwinds. Fiscal policy responses have been slower to emerge, but new packages are being announced in select jurisdictions. Next year, there is the potential for additional fiscal stimulus to buoy sentiment and modestly extend the business cycle.

(Bill Curry)

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