Markets Move Higher
At the close of business last Friday, global equities were higher on the week. The yield on the US 10-year Treasury note fell to 3.71% from Friday’s 3.79% while the price of a barrel of West Texas Intermediate crude oil slipped $1 to $77.50. Volatility, as measured by the Cboe Volatility Index (VIX), fell to 21.5 from 23.5.
Over the past couple of weeks, we have seen both the stock and bond markets move higher. This was because of news that US consumer prices rose less than expected in October. The expectation is that the US Federal Reserve will hike rates in smaller increments in the meetings scheduled for mid-December.
On the crypto front, we witnessed the failure of FTX, one of the largest and most trusted global cryptocurrency exchanges. For much of the last two years, when clients have asked me about investing in crypto, I have held firm in my belief that until proper regulation is in place, crypto is just too risky for most investors. The collapse of FTX confirms that. In the past year, we have seen bitcoin drop from a value of $72,871.99 to $22,202.80. US regulators and the US Department of Justice are investigating FTX’s use of customers’ funds.
CANADIAN ECONOMIC NEWS
At the start of this year, our central bank’s overnight lending rate was .25%. Today that rate is 3.75% which has caused a large monthly payment increase for people with variable-rate mortgages. We have been hearing that some of our big banks are extending mortgage amortizations and adding unpaid amounts to the loan principal in an effort to prevent defaults. This may seem like a helpful short-term fix, however, it can come with long-term consequences. Inflation is coming down and we expect to continue to see inflation fall throughout 2023. As the annual inflation rate eases back to the 2% range, we expect to see our central bank reverse course and drop rates in the 2nd half of 2023. Locking in a 5-year fixed rate now will give you a stable mortgage payment. However, you will pay a hefty price for that stability.
US ECONOMIC NEWS
The US purchasing managers’ index fell deeper into contraction in November at 46.3 from 48.3 in October, dragged lower by weakness in the dominant US services sector. A spike in US initial weekly jobless claims to 240,000 from 223,000 a week ago caught the market’s attention as layoff notices continued to pile up. US yields eased on the softer-than-expected data.
The threat of a nationwide freight rail strike in the US is growing as several unions have rejected terms negotiated by the White House in September.
EUROPEAN ECONOMIC NEWS
The flash estimate of the November purchasing managers’ index rose to a stronger-than-expected 47.8 in November from 47.3 in October. The UK Composite edged up to 48.3 from 48.2
JAPAN, China and EMERGING MARKETS ECONOMIC NEWS
Amid slow global growth and bloated inventories in the United States and Europe, exports from Asian manufacturing nations slumped in October. China saw exports to the US fall 12.6% in the last month while overall Korean exports were down 16.7% in the first 20 days of November. Taiwan saw a 6.1% decline in October, with orders from China sliding nearly 27%.
China is buying gold at the fastest pace since the 1960s to try to lessen its reliance on the US dollar.