Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

 

Markets

Market scorecard as of close on Friday September 30, 2022.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	18,444	-0.2%	-13.1%
S&P 500	3,586	-2.9%	-24.8%
NASDAQ	10,576	-2.7%	-32.4%
Euro Stoxx 50	3,318	-0.9%	-22.8%
Hang Seng	17,223	-4.0%	-26.4%

Source: Bloomberg, RBC Wealth Management

• TSX finished little changed Friday, well off best levels after today's gains evaporated into the close. Sectors were mixed, with real estate and materials the big gainers, while tech, health care and utilities ended modestly higher. Communication services, consumer discretionary, industrials and staples the notable decliners, with energy and financial slightly lower. Canadian equities ended slightly lower on the week, with the TSX closing out September down 4.6% for the month and only slightly above the mid-July lows.

• US equities were lower in Friday trading, closing near worst levels with the S&P logging a fresh YTD closing low. Followed renewed selling pressure on Thursday. Stocks finished notably lower for September and Q3. Apparel, (NKE-US earnings), cruise lines (CCL-US earnings), rails, media, HPCs, biotech, airlines were among laggards. REITs, refiners, steel, precious metals, forest products, off-price retail, building products were some of the stronger areas. Treasuries were weaker after a volatile week. Dollar was firmer vs euro and yen, but weaker vs sterling.

 

A Note About Currencies 

• The U.S. dollar has been riding high this year, driven by a few factors. More specifically, a general flight to safety with risk aversion driving many investors to seek the liquidity and safety typically offered by the U.S. dollar. Moreover, an aggressive central bank compared to others has provided a relative yield advantage in the U.S., thereby attracting some capital.

• The U.S. dollar has appreciated more than 20% relative to the Japanese Yen, nearly 15% relative to the Euro, and close to 20% relative to the British pound. The latter has perhaps been the most noteworthy as it has come under significant stress in recent weeks and now sits at a historic low relative to the U.S. dollar.

• The Canadian dollar, too is lower this year, by a less noteworthy amount, having fallen by close to 7% relative to the U.S. dollar. The Bank of Canada has been as aggressive, if not more, than the U.S. Federal Reserve with its interest rate policy. Moreover, the strength in commodities witnessed through the first half of the year offered meaningful support for the loonie.

• Nevertheless, growth concerns have started to permeate across global markets and commodity prices have weakened of late, leaving the Canadian dollar more vulnerable over the past month.

• Currencies have been notoriously difficult to predict with any consistency through history. Yet, we recognize they can move to extremes from time to time, only to then be followed by a reversion to the mean. It’s possible we are experiencing such a scenario.

 

Economy

Canada

• The Canadian dollar has declined by roughly 8% against its U.S. counterpart so far this year, and is now trading at approximately US$0.73, its lowest level in more than two years. The weakness in the loonie has occurred in an environment of broad-based U.S. dollar strength, as aggressive rate hikes by the Federal Reserve and demand by investors seeking refuge from heightened financial market volatility have bolstered the greenback.

• Nevertheless, it is worth noting that the loonie has held up much better than many other major currencies, thanks in part to Canada’s relatively stronger economy and the Bank of Canada largely matching the Fed in the pace and scale of rate hikes. The yen, British pound, and euro have depreciated between 14% and 25% relative to the U.S. dollar year to date.

• The OECD reduced its Canadian GDP growth forecast for 2023 to 1.5%, down from 2.6% in June, and cut its projection for global economic growth amid ongoing monetary policy tightening by major central banks and intensifying conflict in Ukraine.

U.S.

• It was a relatively light week in terms of economic data. On Tuesday, the FHFA House Price Index, which measures changes in single-family home values, was released and showed that home prices rose 13.9% y/y in July, but fell 0.6% from their June levels. This was the first monthly decline in home prices since May 2020 as rising mortgage rates and a challenging macroeconomic environment continue to weigh on housing affordability.

Further Afield

• The UK government’s latest Growth Plan, which involves unfunded tax cuts and threatens long-term debt sustainability, attracted wide criticism, including from the International Monetary Fund.

• China’s total industrial profits contracted 2.1% y/y from January to August. It is encouraging to see some recovery of certain industries. However, we think the recovery trend will remain bumpy as rising external uncertainties and elevated operating costs may continue to weigh on the Industrials sector.

 

 

Notes About Companies in Model Portfolio

• Johnson & Johnson (JNJ) announced Kenvue as the name for the planned New Consumer Health Company. Kenvue will become a standalone leading global consumer health company in 2023, as previously stated. Planned separation of the consumer health business was initially announced back on 12-Nov-21.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman