At the close of business last Friday, global equities were lower on the week after stronger-than-expected US inflation data increased pressure on the US Federal Reserve to hike rates aggressively. The yield on the US 10-year Treasury note jumped to 3.45% from 3.26% a week ago, matching the highest levels in about a decade. The price of a barrel of West Texas Intermediate crude oil was steady at around $85.50 while volatility, as measured by the Cboe Volatility Index (VIX), rose to 27.5 from 23 last week.
We often refer September to as the toughest month to invest and this year continues that long-term trend. Here is what we think and what we are doing. First, we are in constant contact with your fund managers and analysts and we expect to see stubborn inflation begin to fall significantly in the last quarter of this year and continue to fall in 2023.
The equity markets globally are now greatly oversold, and we see this as a buying opportunity. Europe appears to already be in a recession. Canada and the US economies remain robust and we do not see a recession in North America in 2022. We are positioning our client portfolios for what we expect to be a strong rally in the last quarter of this year and we anticipate this rally to continue into 2023.
Canadian Economic News
Our TSX stock index was down over 170 points on inflation worries and there was a warning from FedEx about worsening trends in the economy. The Canadian market was down with weakness in industrials, technology, energy, and financials. The US dollar remains strong as it is seen as a haven in times like this, so we believe the Canadian dollar is likely to continue to struggle against it. Having said this, our Loonie is doing really well against most other currencies globally. Canadian household net worth fell a record $990 billion in Q2 as home prices and equities sank.
US Economic News
Investors had hoped that a rapid retreat in US gasoline prices in August would translate to a bigger drop in the Consumer Price Index. While the data showed gas prices fell 10.6% from July, they also showed a big rise in the costs of shelter and health care. The CPI rose 8.3% from a year earlier in August, above the 8.1% consensus forecast, while the core rate, which strips out the volatile food and energy categories, rose 6.3%, higher than the 5.9% forecast. The rise in the core rate was the first since March, and will not be welcomed by the Fed. Immediately after the data release, markets priced in more aggressive Fed action. We now expect a 0.75% increase in the fed funds target at next Wednesday’s Federal Open Market Committee meeting and have priced in about a 20% chance of a 1% increase.
European Economic News
Amid an ongoing cost-of-living crisis, UK economic growth was unchanged in the three months leading to July. The labour market remains strong, with unemployment dropping to 3.6%, its lowest level since 1974. The British pound fell below $1.14 for the first time since 1985 on Friday after UK retail sales dropped 1.6% in August.
The European Union is considering a windfall tax on the profits of energy companies that do not burn natural gas, which it estimates will generate about €140 billion in revenue. Those funds would cushion the burden on consumers as those profits are redistributed. Final details, which could include a price cap, are expected to be worked out before an EU summit at the end of the month. Illustrating the gravity of the energy situation in Europe, the German government nationalised three utility companies to avoid a collapse in the domestic energy market.
JAPAN, CHINA and EMERGING MARKETS ECONOMIC NEWS
Economic activity in China perked up in August as retail sales, industrial production, and fixed asset investment all rose more than expected. China also eased the COVID lockdown in Chengdu, a large manufacturing hub.
Here’s a shocking statistic from Sun Life: within 18 months of their spouse passing away, 80% of widows leave their financial advisor.
Eighty per cent! How can that be?
Here’s what we think: it’s because the widow was not properly included in discussions. Her questions were not answered, or perhaps even asked, because the advisor didn’t do a good enough job of including her.
We cannot think of anything more important than ensuring every one of our clients, especially our female clients, feels comfortable with our work. You likely know our brand promise by now: Here your dreams are safe™. A client’s dreams surely cannot feel safe if they personally do not feel safe to ask questions and be fully involved. That’s one crucial reason that the following are among the values embedded in our brand foundation:
- Every client should always feel safe
- There is never a stupid question
- There is always a solution
- Clients should always understand what they are invested in, and why
Do you have any questions for us? Have we ever left anything unanswered? Is there anything you are not absolutely sure about?
We will continue to ask you these questions. And in the meantime – and always – absolutely do not hesitate to ask us anything you wish.