Equity markets fared well throughout the month with the S&P 500 rising to new heights to lead the way. The positive performance can be largely attributed to improving trade sentiment globally while central banks continue to reiterate their accommodative stance.
Throughout the month President Trump tweeted out that good things were happening at the China trade talk meeting and they are close to inking a “Phase One” trade deal. As a sign of good faith both parties are considering roll backs and equity markets responded positively. Although the progress this month has been positive, we have seen talks see-saw between escalations and a positive outlook and we can continue to expect some volatility until a complete resolution is made; in our opinion this is still a ways out as key points surrounding technology and financial markets need to be resolved.
The jobs report released during the month showed the unemployment rate is at a 50-year low of 3.5% despite turbulence with US auto workers. This is certainly good news for the economy and provides evidence that consumption will continue to be a driving force of the economy. While labour market data has been improving, we have seen declines in the manufacturing sector, which has been impacted by the trade war. Still, we believe that the strength in the labour markets and the accommodative policy position of the FED are factors that support continued growth.
Prime Minister Justin Trudeau won the 43rd election on October 21st to form a minority government. While the liberal government will keep their carbon tax in place, which can have an adverse impact on Canada’s automotive and forestry industries, we see no major implications from a portfolio perspective.
The Bank of Canada announced this month that they would be making no changes to Canada’s benchmark interest rate. Many central banks across the globe have been cutting rates in order to further stimulate their economies and the FED has cut rates 3 times already this year. Market participants are expecting one rate cut in Canada before the end of the year. The effect on the Loonie should be minimal.
In Europe, the odds of a no-deal Brexit seem slimmer. While the UK was not able to exit by their Halloween deadline that Prime Minister Boris Johnson was keen on accomplishing, he was able to write a revised deal that he will try and pass through Parliament as the new deadline has been extended to January 31st.
While trade tensions have been calming, geopolitical tension have been rising. The US has withdrawn troops from Syria which led to escalations between Turkey and Syrian Kurds. An Iranian oil tanker was struck by a missile during the month which is being viewed as a retaliation by Saudi Arabia of a previous attack on one of their facilities. Events such as these increase the probabilities of further escalations which add a lot of uncertainty to the region.
Elsewhere Hong Kong has officially entered a recession with two quarters of consecutive contractions. Hong Kong is a very important region to Asian capital markets, officials have implemented fiscal spending to combat the slowdown. European economies such as Germany that do a lot of trading with Asia have also been slowing down. We will certainly be keeping on eye on the state of global trade as positive developments in the space could be a major catalyst to extend the bull run that we have been on.
Equity markets have all produced sturdy returns so far this year. There is certainly a mix of risks and positives present in markets. We do believe that economic fundamentals are still positive. As an investor the greatest thing that you can do to deal with financial risk is ensure that your portfolio has been designed in a manner that is consistent with your goals and your true risk tolerance; also, if there are times of turbulence or doubt it is important to maintain control over your emotions and to have an outlet to voice your concerns. If you are a long-term investor, tune out today’s noise and invest frequently.