By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: September 27, 2024

Sep 27, 2024 | 3:48 PM

Week in review

Equity markets move higher despite mixed economic data

Equity markets experienced mixed performance for the week but closed in positive territory. U.S. equities remained stable, reaching new record highs early in the week, while Chinese stocks rallied following the People’s Bank of China’s (PBoC) comprehensive stimulus package. However, European equities faced challenges, with a contraction in business activity and confidence weighing on sentiment. Midweek, U.S. equity futures rose on expectations of further fiscal stimulus from China and potential easing by the U.S. Federal Reserve (Fed) and the European Central Bank (ECB). By week’s end, U.S. equities saw slight gains after the Federal Reserve’s preferred inflation measure aligned with expectations, while European stocks benefited from declining inflation expectations in the Eurozone.

Highlights:

• U.S. markets closed 0.76%¹ higher for the week, driven by robust sentiment following a spate of positive economic releases including gross domestic product (GDP) and personal consumption expenditures (PCE), the Fed’s preferred inflation gauge.
• Canadian markets rose 0.82%² for the week with performance influenced by modest GDP growth and expectations of additional rate cuts by the BoC.
• European markets returned 3.61 %³ for the week, driven by declining inflation expectations across the eurozone and positive sentiment from China’s comprehensive stimulus measures.
• Emerging markets closed 2.79%⁴ higher for the week after the PBoC announced a comprehensive stimulus package aimed at revitalizing the economy and boosting GDP growth towards the 5.0% target.

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Credit markets set September record for IG issuance

This week, fixed income markets saw cautious optimism amid global economic developments. The PBoC’s aggressive stimulus measures initially drove yields higher, but concerns about China’s property market and consumer spending tempered enthusiasm. In North America, government yields edged up slightly, influenced by strong economic data and expectations of further monetary easing by the Fed and the BoC. Credit markets remained firm, with investment-grade spreads tightening slightly due to a robust primary market. High yield markets also experienced positive momentum, with spreads narrowing as investor sentiment improved.

Highlights:

• The 2- and 10-year U.S. Treasury yields were 5 basis points (bps) and 8 bps higher, respectively, while in Canada the 2- and 10-year yields were 8 bps and 9 bps higher, respectively.
• Credit markets remain firm as a September record has been set for U.S. IG issuance ($168bn USD and counting), which brings full year issuance to $1.261tn USD.
• High yield primary issuance has also been robust with spreads on the U.S. index hovering around the 300 bps level, rallying close to 100 bps year to date.

Weekly dashboard

Canadian GDP growth surpasses forecasts

Canada’s July Gross Domestic Product (GDP) report revealed a mixed economic landscape. The economy grew by 0.2% month-over-month (MoM), driven primarily by the services sector, despite the adverse effects of wildfires on various industries. However, early estimates for August indicate a stagnation in growth, with declines in manufacturing, transportation, and warehousing. The second quarter saw an annualized growth rate of 2.1%, but projections for the third quarter suggest a softer performance than initially expected.

Highlights:

• Canada’s real GDP increased by 0.2% in July, largely due to the services-producing industries.
• Wildfires significantly affected several sectors, including transportation and warehousing, leading to contractions.
• Preliminary estimates for August show no significant growth, with likely declines in key sectors like manufacturing and transportation.

U.S. GDP accelerates in second quarter

In the second quarter of 2024, the U.S. economy grew at an annual rate of 3.0%, driven by robust consumer spending and business investment. This growth marks a significant acceleration from the 1.6% increase in the first quarter. The increase in GDP primarily reflected gains in consumer spending, private inventory investment, and nonresidential fixed investment. However, these positive contributions were partially offset by a downturn in residential fixed investment. The overall economic expansion underscores the resilience of the U.S. economy amidst global uncertainties and fluctuating market conditions.

Highlights:

• Strong consumer spending was a key driver, particularly in services like healthcare and recreation.
• There was a notable upturn in private inventory investment, contributing significantly to GDP growth.
• A downturn in residential fixed investment partially offset the overall GDP growth.

Slowing eurozone composite PMI signals weakness

The eurozone’s flash composite Purchasing Managers Index (PMI) for September revealed a sharper-than-expected contraction in business activity. The index fell to 48.9, down from 51.0 in August, marking the lowest level since January. This decline was driven by a stagnation in the services sector and an accelerated downturn in manufacturing. The unexpected drop below the forecasted 50.6 indicates a challenging economic environment, with both sectors struggling to gain momentum.

Highlights:

• The manufacturing PMI dropped to 44.8, the sharpest contraction this year, highlighting ongoing challenges in the sector.
• The services PMI stagnated, hitting a seven month low of 50.5, contributing significantly to the overall decline in the composite index.
• The composite PMI’s fall to 48.9 was below the forecasted 50.6, signaling a more severe contraction than anticipated.

In the news: Saudi Arabia abandons $100 oil target to reclaim market share

Saudi Arabia is reportedly ready to abandon its target of $100 per barrel for crude oil, aiming instead to reclaim market share by increasing production. This strategic shift comes as the kingdom seeks to counter rising competition and stabilize its economy amidst fluctuating global oil prices. By boosting output, Saudi Arabia could influence global oil markets, potentially lowering prices and impacting other oil-producing nations’ strategies. This move reflects the kingdom’s adaptive approach to evolving market dynamics and its efforts to maintain a dominant position in the global energy sector.

Behind the headline:

• If Saudi Arabia were to increase production to maintain market share, it would likely encourage other members to follow their lead and increase their own production to maintain market share.
• Countries heavily reliant on higher oil prices, such as Venezuela and Nigeria, may express concerns about market stability and potential revenue losses.
• OPEC+ as a whole might need to reassess its strategies and agreements to balance the interests of all member countries and maintain some level of market control.

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

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