By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: Nov. 22, 2024

Nov 25, 2024 | 9:39 AM

This week’s highlights

• Equity markets rebound despite geopolitical tensions, post election re-pricing
• Shifting interest rate forecasts push bond yields higher
• Canada’s inflation rate jumps back up to 2% in October
• U.S. home sales rose in October following decline in mortgage rates
• Eurozone trade surplus rises on jump in exports to U.S.

Week in review

Equity markets rebound despite geopolitical tensions, post election re-pricing

On Monday, Canadian inflation data exceeded expectations, impacting the Bank of Canada’s rate cut prospects, while U.S. equity futures were volatile amid post-election repricing. Tuesday saw U.K. inflation rise, affecting the Bank of England’s policy outlook, leading to mixed performance in European equities. By Wednesday, U.S. equity futures rebounded due to strong labour market data, despite ongoing geopolitical tensions in both Eastern Europe and the Middle East. Thursday’s global composite Purchasing Manager Index (PMI) data revealed a contraction in most major economies’ manufacturing and services sectors, reinforcing expectations of further policy easing from central banks, which put a slight bid back under European and Japanese stocks. Additionally, China’s announcement of a significant stimulus package to revive its economy boosted emerging market equities.

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Highlights:

• U.S. markets were 1.37%¹ higher for the week, influenced by strong labor market data, geopolitical tensions from the Russia-Ukraine conflict, and central bank policy expectations amid mixed economic indicators..
• Canadian markets rose 2.05%² for the week as markets shook off higher-than-expected inflation data that likely impacted the Bank of Canada’s rate cut prospects.
• European markets returned 0.02%³ for the week with rising U.K. inflation and declining Eurozone composite PMI leading investors to recalculate monetary policy expectations.
• Emerging markets closed -0.05%⁴ lower amid heightened geopolitical tensions which typically weigh on risk assets despite China’s announcement of a significant stimulus package to revive its economy.

Shifting interest rate forecasts push bond yields higher

Early in the week, resurgent Canadian inflation offset geopolitical tensions driving risk-off sentiment which led to increased safe haven flows – particularly U.S. Treasuries. Tuesday saw U.K. inflation rise, impacting the Bank of England’s policy outlook, with credit spreads remaining firm despite active primary markets. By Wednesday, U.S. rates remained elevated, with the market focused on upcoming economic data and Fed speakers. Thursday’s global PMI data indicated contraction in major economies, reinforcing expectations of further policy easing from central banks, while credit spreads remained firm amid solid demand for corporate bonds.

Highlights:

• The 2- and 10-year U.S. Treasury yields were flat and 1 basis point (bp) higher respectively. In Canada, the 2- and 10-year bond yields rose 19 bps and 17 bps respectively. Bond yields and prices move inversely to one another.
• The latest FOMC minutes will be released next Tuesday followed by a busy Wednesday with the release of the second read of Q3 U.S. GDP, durable goods orders and Personal Consumer Expenditure (PCE) index for October.
• Credit spreads remained firm amid a continued solid demand for corporate bonds. A four-deal session later in the week brought the weekly investment grade (IG) volume to $37.0bn USD, well above projections.

Weekly dashboard

Canada’s inflation rate jumps back up to 2.0% in October

Canada’s inflation rate perked up in October, weakening the case for the Bank of Canada (BoC) to make another outsized cut to interest rates next month. The report also showed that certain core measures of inflation, which strip out volatile movements in the Consumer Price Index (CPI), heated up last month. This could prompt the BoC to shift back to rate cuts of a quarter-percentage-point after the central bank made a half-point reduction in October.

Highlights:

• According to Statistics Canada, CPI rose at an annual rate of 2.0% in October, up from 1.6% in September. Analysts were expecting an upturn to 1.9%.
• Property taxes rose 6.0% in October, year over year, up from 4.9% in 2023 and the largest increase since 1992.
• The trend differed for other housing costs. Shelter prices rose 4.8% year-over-year, compared with 5.0% in September. Mortgage interest cost increases are slowing as the BoC cuts interest rates, and rents rose by an annual 7.3%, down from 8.2% in September.

U.S. home sales rose in October following decline in mortgage rates

Sales of existing homes rose in October, reflecting a short-lived drop in mortgage rates that improved affordability for buyers and produced the first year-over-year gain in sales in more than three years. According to Freddie Mac, the average rate for a 30-year fixed mortgage slid throughout the summer and reached a two-year low in late September.

Highlights:

• National Association of Realtors reported U.S. existing-home sales in October rose 3.4% from the prior month to a seasonally adjusted annual rate of 3.96 million. Economists had estimated a monthly increase of 2.9%.
• October sales rose 2.9% from a year earlier, the first year-over-year increase in sales since July 2021.
• As of the end of October, the supply of homes on the market was 4.2 months, which is at the low end of what is considered a balanced market between buyers and sellers.

Eurozone trade surplus rises on jump in exports to U.S.

The eurozone’s trade surplus climbed in September on year, with exports to the U.S. growing as the threat of tariffs proposed by U.S. President-elect Donald Trump looms large. Economists expected an uptick in imports to the U.S. from the EU ahead of the implementation of any proposed tariffs as firms look to guarantee orders before they come into effect.

Highlights:

• Unadjusted figures from the European Union’s data agency showed that the eurozone’s trade surplus in goods with the rest of the world increased to €12.5 billion in September, up from €9.8 billion in September 2023.
• Eurostat said that on a seasonally adjusted basis, exports increased 0.4%, and imports decreased 0.8% compared with August this year. Exports of machinery and vehicles rose, while energy imports edged lower.
• For the European Union as a whole, exports to the U.S. jumped 8.9% on year in September.

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