N.A. Markets Struggle for Direction; No-Deal Brexit Looking Less Likely
U.S. stocks slumped for a third straight session Thursday as investors considered slowing U.S. GDP growth for Q4 and an early, somewhat abrupt, end to the U.S.-North Korea summit. GDP rose at a 2.6% annual rate in the last three months of 2018; while that beat many analysts’ estimates, it fell short of the 3.4% growth rate in Q3 and 4.2% in Q2. On the diplomacy front, Trump on Thursday cut short his summit with North Korea’s Kim Jong Un after failing to make any progress on limiting North Korea’s nuclear-weapons program. Although Trump on Monday delayed raising tariffs on Chinese imports, optimism over U.S.-China trade talks is fading a bit as it’s becoming clearer that Beijing is still unwilling to make the large structural changes to its economy that Washington is seeking. Adding to the negative sentiment was news that Chinese factory activity shrunk to a three-year low and that China’s export orders declined at their fastest pace since the global financial crisis.
British Prime Minister Theresa May agreed Tuesday to allow Parliament to delay the U.K.’s exit from the EU if lawmakers again reject her divorce agreement with the bloc, making a no-deal Brexit extremely unlikely. The news sent the British pound up to its highest level against the greenback since October. Additionally, the opposition Labour Party on Wednesday night confirmed it would file a parliamentary motion calling for a new referendum by March 12, the date by which Ms. May has promised to hold a second vote on her withdrawal agreement.
Meanwhile, the Stoxx Europe 600 has gained 10% in 2019, putting it on course for its best combined January and February in four years. The index is now closing in on the S&P 500, which is up 11.4%. In Canada, after three straight positive sessions, the TSX surrendered ground on Thursday, weighed down by disappointing earnings from two major Canadian banks.
N.A. Markets Flat As Growth Concerns Linger
For the four days covered in this report, the Dow lost 116 points to close at 25,916, the S&P 500 shed 9 points to settle at 2,784, while the tech-heavy Nasdaq inched up 5 points to close at 7,533. In Canada, the TSX surrendered the week’s early gains and was down 14 points to end at 15,999.
The U.S. Federal Reserve’s (Fed’s) patience and data dependence are consistent with a flexible approach to future monetary policy adjustments. In their speaking engagements to begin 2019, members of the Federal Open Market Committee (FOMC) have emphasized the conditional nature of the committee’s monetary policy decision making process and explained what is meant by the terms patient and data-dependent. The challenge the FOMC currently faces, as policy rates reach the estimated neutral range, is how to most effectively communicate what actions the central bank is contemplating and how incoming data affects its evaluation of the broader economy. To address this challenge, the Fed has revamped its communications strategy of late.
Over the course of Fed Chairman Jerome Powell's tenure, policy statements have been shortened and simplified to state more plainly the state and trend of the U.S. economy. The FOMC has also endeavoured to discuss a consistent set of factors that informs its outlook, outline risks and track progress toward monetary policy goals. Most importantly, the Fed has indicated that data-dependence refers to the future path of monetary policy depending on changes in economic and financial conditions. Under this approach, individual data points are considered in the context of the broader economy, and short-term data carry less weight than their medium or long-term counterparts. Admittedly, the bar for any additional policy interest rate hike is high. Even so, Scotia Wealth’s Global Portfolio Advisory Group continue to believe the FOMC will twice raise interest rates by 25bps in 2019.
This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc. (SCI). This publication is intended as a general source of information and should not be considered as personal investment or tax advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. Opinions, estimates, and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither SCI nor its affiliates accepts liability whatsoever for any loss arising from any use of this publication or its contents. This publication is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. SCI, its affiliates and/or their respective officers, directors, or employees may from time to time acquire, hold, or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. SCI and/or its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may receive remuneration for same. All insurance products are sold through Scotia Wealth Insurance Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Insurance Advisors (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. This publication and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI.
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