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 December 9, 2022.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	19,947	-2.6%	-6.0%
S&P 500	3,934	-3.4%	-17.5%
NASDAQ	11,005	-4.0%	-29.7%
Euro Stoxx 50	3,943	-1.4%	-8.3%
Hang Seng	19,901	6.6%	-14.9%

Source: Bloomberg, RBC Wealth Management

• Stock markets retreated last week, with the S&P/TSX Composite (Canada) down 2.6% and the S&P 500 (U.S.) down 3.4%. Hang Seng Index (Hong Kong) was the only major index that was up 6.6% last week.

• Excerpt from RBC Wealth Management 2023 Outlook:

  • Several leading indicators, including short-term interest rates being higher than long-term rates, point to a recession.

  • The arrival of a recession would have consequences for investors. U.S. recessions have typically been associated with global equity bear markets.

  • Against this backdrop, as we enter 2023, we would lean more heavily toward quality and sustainable dividends, and away from individual company risks that may come home to roost in a recession.

  • In fixed income, with the economy likely to slow around midyear and the Fed potentially to start cutting rates in the latter part of the year. We would thus lock in historically high yields in intermediate and longer-dated bonds to maintain income and to benefit from capital appreciation if recession risks and the potential for Fed rate cuts push yields lower, and bond prices higher.

  • It can be argued that at current valuations the S&P/TSX Composite Index is already pricing in a modest recession. Canadian banks, in particular, could provide an interesting opportunity for investors who can see through the valley of the expected upcoming economic contraction.

 

Economy

Canada

• The Bank of Canada (BoC) raised its benchmark overnight interest rate by 50 basis points (bps) to a target rate of 4.25% last week, the latest step in its effort to curb inflationary pressures on the economy. BoC Governor Tiff Macklem indicated that he is willing to pause and assess the situation now that the benchmark interest rate is four percentage points higher than it was at the start of the year.

• Canada is stepping up efforts to promote its national interests in its Indo-Pacific Strategy with a renewed focus on trade and foreign investment. The federal government has already begun restricting investment in the critical minerals sector, particularly within the lithium and uranium spaces, as officials ordered three Chinese firms with state connections to divest from projects in early November.

U.S.

• Economic data have largely come in hotter than expected last week, fanning concerns that the Fed may have to continue its rate hiking cycle longer than currently anticipated, which could raise recession risks.

• As the Federal Reserve continues its balance sheet reduction program, excess reserve balances within the U.S. banking system are dwindling. It is the movement in excess reserves within the U.S. banking system that appears to have impacted the direction of markets thus far this cycle.

Further Afield

• The euro area economy expanded by more than previously thought in Q3, according to Eurostat data, with GDP growing 0.3% q/q versus the initial estimate of 0.2%.

• China’s National Health Commission published 10 new measures to further loosen its COVID-19 control policies, covering quarantine requirements, close contact, vaccination, and treatment. Hong Kong equities rallied strongly on Thursday following a local media report that the Hong Kong government is also considering rolling back COVID restrictions.

 

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

 

Regards,

Shiuman