Markets Cautious in September

Sign showing 'September'

At the close of business last Friday, global equities lost ground on the week as several Wall Street firms downgraded their Q3 growth outlooks for the United States and trimmed their allocations to US equities due to continued coronavirus concerns.

The yield on the 10-year US Treasury note, at 1.32%, was little changed this week. Amid lingering supply disruptions resulting from Hurricane Ida, the price of a barrel of West Texas Intermediate crude oil, at $69.50, did not change much either. Volatility, as measured by the Cboe Volatility Index (VIX), rose to 17.50 from 16.6.



Our economy added 90,000 jobs in August, the third consecutive monthly increase. With this, our unemployment rate fell to 7.1 per cent for the month which is the lowest level since the onset of the pandemic. Most of the gains were in full-time work and in the hard-hit service sector.

On the election front, we go to the polls September 20th. Since the leaders’ debates this past week, polling suggests Canadians will vote Conservative (31%), followed by Liberal (28%), NDP (18%), People’s Party of Canada (9%), Bloc Quebecois (8%), and Green (4%).
With only eight days until the election we will see if these numbers hold.



US debt ceiling focus sharpens
Time is running out for the US Congress to raise the national debt ceiling, Secretary of the Treasury Janet Yellen warned this week. She said conservation measures being undertaken by her department to preserve cash will run out next month. If the debt ceiling–a perennial political hot potato in Washington–is not raised, the US government risks defaulting on its debt. President Joe Biden is said to be contemplating raising the debt ceiling along with hurricane relief legislation to garner support from reluctant Republican senators.

Fed preparing to taper
The Wall Street Journal reported Friday that US Federal Reserve officials are preparing to announce at the November meeting of the Federal Open Market Committee, their intention to reduce the pace of the central bank’s $120 billion per month bond-buying program. Currently, the plan is to conclude asset buying by mid-2022. The report is in line with the market consensus and had little impact on prices.



UK growth slowed sharply in July
The economy in the United Kingdom grew just 0.1% in July, down from June‘s 1% growth rate, as aggressive contact tracing amid a resurgence in coronavirus cases kept many workers at home. However, early data show signs of a rebound in August.. The UK economy stands 2.1% below its pre pandemic peak, the Office for National Statistics reported, while the report shows that manufacturing outpaced services.

ECB dials back PEPP pace
As widely expected, the European Central Bank announced it would moderately slow the pace at which its buys assets for its Pandemic Emergency Purchase Program starting in the fourth quarter of the year. The program is set to expire in March, but it could be extended at the December ECB meeting. Alternatively, the ECB‘s Asset Purchase Program could be increased as the central bank‘s forecast suggests inflation will remain well below its 2% target over the longer run. The ECB forecasts 5% GDP growth in 2021 and 4.6% growth in 2022.

Negative Interest rates
How would you feel if you invested $1,000.00 in a German ten-year bond with a guarantee that you would receive zero interest and cash it out in ten years for $979.20? The German ten-year bunds fell to record lows this week of -2.08% as breakeven inflation rates rose above 1.60%.



For the first time since February, US President Biden and Chinese President Xi Jinping spoke via telephone Thursday night in an attempt to reduce tension between the two countries. The leaders discussed the responsibility of both nations to ensure that competition does not veer into conflict.

Chinese Vice Premier Liu He tried to assure investors this past week that President Xi attached great importance to the country’s digital economy. Beijing’s support for private business had not, and would never, change, Lui said. The comments came after a series of actions by Chinese regulators to rein in China’s Internet giants.

Japan’s Nikkei 225 index surged more than 9% after the resignation of Japanese Prime Minister Yoshihide Suga on expectations that whomever is chosen by the Liberal Democratic Party to replace him will pursue additional economic stimulus.

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