A few topics our newsletter touches on this month:
- Our Thoughts: Eyes on interest rates
- By the numbers: August
- Other Things: Globe finance, Disruptors (reboot episodes on AgriTech & AI)
Coming up – Our team is once again participating in RBC Race for the Kids on October 5th at Wesley Clover Park in the west end. It is a great family event that raises much-needed funds for CHEO. Follow the link for more info on how to participate if interested. The RBC DS Bell Corners team has already raised of $17K this year!
Our Thoughts: Eyes on interest rates
As Q2 earnings season concludes, we move into what’s historically been a weaker month (Sept) for stocks following a strong summer rally. While economic data continues to show soft momentum, the prospect of monetary easing has shored up confidence and lifted many major global equity markets. Weak jobs data (released today) has markets pricing in a 90% chance the Bank of Canada cuts rates at the Sept 17th meeting. Our eyes on also on what is going on with rates & bond yields south of the border – more on that below.
Watching the U.S. data
Signs of continued softening in the U.S. labour market have pulled forward market expectations for a Federal Reserve rate cut to as early as this month. July’s underwhelming jobs report was accompanied by large downward revisions to the prior two months’ figures. At the same time, inflation remains above the Fed’s 2% target, with some indicators suggesting that price pressures could flare up again. The backdrop means Fed policymakers will need to navigate a delicate balancing act between supporting growth and price stability. Growing optimism for monetary easing has helped bolster equity markets since the Fed’s Jackson Hole symposium in late August, making upcoming jobs and inflation data crucial in shaping the outlook for interest rates.
Bond markets
While short-term Treasury yields in the U.S. have fallen on rate cut expectations, long-term yields have risen, resulting in a “steepening” of the yield curve. Several factors have likely contributed to this dynamic, including concerns around the U.S. budget deficit and the Trump administration’s rhetoric that raised questions around central bank independence.
A common thread behind the upward pressure on long-term yields is elevated budget deficits, as many governments face increasingly complex fiscal tradeoffs, balancing political priorities, defense spending, and industrial policy for strategically important industries with the need for fiscal restraint to maintain credibility in public finances and investor confidence.
Takeaway
Resilient corporate earnings and optimism over potential Fed rate cuts have helped support global equity markets, allowing them to extend gains despite a tepid economic growth environment. But with September’s historical tendency towards weakness and valuations that appear to reflect an upbeat outlook, we believe “invested, but watchful” remains a sensible posture for portfolios as we continue to monitor economic data, earnings trends and global bond yields.
Should you have any questions, feel free to reach out.
By the numbers (Aug):
The TSX was up 5% while the S&P 500 was up 2% in U.S. dollars (up 1.2% in $CAD). The Europe, Australia & Far East index (EAFE) was up 3.2%, while the Emerging Markets index rose 0.4%. The Canadian bond market was flat for the month.
Interesting Listening/Reading:
- Disruptors - A dynamic 30 min RBC podcast about reimagining Canada’s economy in a time of unprecedented change.
- To check out our Global Insight Monthly for Aug find the link here.
Regards,
Mark, Peter, Sarah, Corinne & Nathalie