In a familiar pattern, tech and industrials contributed the majority of market gains. Unlike earlier in the quarter though, this time there was no sharp decline in rate-sensitive stocks offsetting the gains. The latter suggests that another increase in interest rate expectations has now been digested, and equity investors remain optimistic.
The CAD fell 2%, and is now down 7% in just six weeks. The most recent move was attributed to cautious comments by Poloz. Arguably though, that reasoning is just a symptom of the bigger issue: rising real rates in the US, due not only to Fed tightening but also to higher deficit spending. In this context, CAD could fall another 5% and only just return to its levels from last Spring (see chart below).
On a different macro note, I think that the past week’s constitutional changes in China are noteworthy from a medium-term investment perspective. The Party has now effectively permitted Xi Jinping to be President-for-Life. A reasonable case can be made that with his position ironclad, he will now tackle difficult issues that ultimately foster social stability. Those issues are not necessarily growth-friendly, for example: reducing the country’s “private” sector debt; moderating property speculation; reducing pollution and industrial over-capacity; and so on.