Global equities markets sharply recovered from the losses incurred during May, resulting in one of the best Junes in equity market history. This change was fueled by positive outlooks towards global monetary policy and increased optimism surrounding global trade policies.
*Equity Indices - FTSE Global Indices in CAD, Bonds - Barclays Global Aggregate Canadian Float Adjusted Bond Index as of end of day June 30 2019
US equities gained this month on news that the Fed is in the process of shifting from a neutral policy stance to one that’s more accommodative, signaling that a rate cut could come as early as July. The Fed is set to meet next at the end of next month; investors will pay close attention to whatever rate decision is reached at that meeting.
Another point of optimism in the markets was that President Trump and Chairman Xi held their highly anticipated bilateral meeting at the G20 summit in Japan, where the leaders agreed to hold off on new tariffs and proceed with negotiations. There are still many kinks and complex topics that need to be worked out, so it’s unlikely that a trade deal will be finalized within the coming weeks, however any signs of progress will likely be perceived positively across the globe. Optimism surrounding monetary policy and trade was certainly the main driver of markets throughout the month and that led to the S&P 500 hitting a new record high.
The loonie reached a five-month high in June as the spread between Canada’s two-year yield and its US counterpart has narrowed to its smallest gap since February 2018. The labour market is still in very healthy shape and wages are growing. For the time being, odds of rate cuts by the Bank of Canada are lower than they are in the US.
However, not all developments out of Canada have been positive for the month. Tensions between Canada and China further escalated when China announced that they would no longer be accepting the imports of beef and pork from Canada citing “forged certificates” as their main concern. Many view these actions as pressure being put on Canada to release Huawei CFO Meng Wanzhou, who Canada had placed under arrest at the request of US authorities in late 2018.
In addition to the meat imports, China has already put limits on Canadian canola imports as well as limits on soybeans and peas. They also took the retaliatory measure of detaining two Canadians in China. Although Prime Minister Trudeau has raised this issue with the Chinese president at the G20 summit in June, the challenging relationship between the two countries continues to persist.
Many global central banks such as the Bank of Japan and the European Central Bank have reiterated a similar message to that of the Fed and have moved towards a more accommodative stance.
A major headwind that is still present for the global economy is trade policy. Global trade is a large driver of global growth; therefore, the resolution of ongoing tariff wars is the highest priority for growth to remain on a sustainable path.
We continue to expect volatility in the markets in the near-term, fueled by trade policy until any meaningful agreements are reached. As always it is useful to keep a long-term view of the markets and approach investing with a disciplined pre-determined approach; it will remove emotion from the equation to maximize the likelihood of achieving your goals.
From all of us at Invisor, we would like to wish you a warm and enjoyable summer!