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September 2024 Market Update: Key Highlights Global equity markets strengthened in September, supported by rate cuts from central banks aiming to stimulate their respective economies. Here’s a brief overview of the key developments: 1️⃣ Canada’s Economic Outlook: Rate Cuts Continue: The Bank of Canada (“BoC”) reduced its benchmark overnight rate by 25 basis points (bps) to 4.25%, marking its third consecutive rate cut. This decision was driven by a weakening labor market and softer economic activity. Consumer Spending Boost: Lower interest rates supported consumer confidence, leading to a 0.9% increase in retail sales in July. Preliminary estimates show a 0.5% rise in August, indicating positive momentum despite tight financial conditions. 2️⃣ U.S. Economic Conditions: Aggressive Fed Rate Cut: The U.S. Federal Reserve Board (“Fed”) cut its federal funds rate by 50 bps to 4.75%-5.00%, citing moderating inflation and a cooling labor market. This larger-than-expected cut signals the Fed’s intention to support economic growth amid ongoing uncertainties. Revised Economic Outlook: The Fed lowered its inflation forecast for 2024 to 2.3% (previously 2.6%) and adjusted its GDP growth expectations to 2.0%. Additional rate cuts are expected before year-end. 3️⃣ Chinese Market Developments: Stimulus Measures Unveiled: The People’s Bank of China (“PBOC”) introduced multiple stimulus measures, including cuts to its seven-day reverse repo rate and one-year medium-term lending facility rate, and a 50 bps reduction in the reserve requirement ratio. These steps aim to increase liquidity, boost lending, and stabilize the troubled property market. 4️⃣ European Central Banks: Bank of England (“BoE”): The BoE cut its policy interest rate by 25 bps to 5.00% in August but held steady in September, as it aims to balance economic support with inflation management. While inflation fell to 2.2% in August, the BoE remains cautious and could cut rates further given the weak growth outlook. 5️⃣ Commodity Prices: Oil: Oil prices declined over the month due to concerns about global demand amid economic slowdowns in various regions. Gold: Gold prices rose, benefiting from its status as a safe-haven asset during times of economic uncertainty and monetary easing. Summary: September saw central banks around the world implementing measures to support economic growth. The BoC continued its rate cuts, the Fed surprised markets with a jumbo rate cut, and the PBOC introduced significant stimulus to counteract economic challenges. With global economic growth remaining uneven and inflation showing signs of moderation, central banks are navigating a complex environment to balance growth and inflation expectations. This summary provides a snapshot of the global economic and market trends for September 2024, reflecting the coordinated efforts by central banks to stimulate growth and manage inflation expectations.

What's Next for Bonds? As the most interesting quarter of the year begins, it’s time for a quick check-in on the fixed income landscape. But first, let’s take a moment to set the stage by understanding the key drivers influencing the market: Current Economic Conditions: Backward-Looking Perspective The U.S. economy has been more resilient than many anticipated. Earlier fears of a prolonged slowdown have eased, and we are now seeing growth clip along at around 2.5% backed by labour market stability (weak but not weakening more). The Fed has given us 50bps. Inflation remains subdued, aided by a sharp drop in gasoline prices, which is likely to result in softer inflation readings in the near term. All in all, the economic data has been better than expected, and you can track this with the Citi Economic Surprise Indicator – a useful tool for anyone keeping an eye on macro trends. Looking Ahead: What’s on the Horizon? There is more stimulus in the pipeline from the Fed, China might have joined to provide the global economy with a boost, and low gasoline prices acting like a bonus stimulus for consumers. We are also seeing strong equity markets, a solid year for bonds so far, tight credit spreads, and loose financial conditions – all contributing to a supportive environment for continued growth. The Power of Flows: A Key Driver in Fixed Income Of course, the economy isn’t the only factor at play. Despite the large issuance of bonds in 2024, these new issues have been easily absorbed.  Why?  Money flows are a critical piece of the puzzle, and they’ve been a major driver in fixed income markets this year. We have seen substantial inflows into bonds, as investors who parked money in cash and GICs are now moving back into fixed income. This has been reflected in significant client flows and, the trend shows no signs of reversing in the near term. The more money flows into an asset class - the better it does (generally). The Bottom Line: Markets are facing two conflicting forces. On one hand, reasonable economic conditions suggest we could see some retracement in US bond prices, particularly in the medium to long end of the curve. On the other hand, the gravitational pull of inflows into bonds – with no sign of slowing down – continues to push yields lower. As investors, it’s crucial to stay aware of both the fundamentals and the flows driving the fixed income market. The economy may be gaining some ground, but the persistent demand for bonds could still keep yields from rising meaningfully higher. The US bond market typically sets the tone for all fixed income markets - yet there will be divergence. I continue to strongly prefer Canadian Bonds over US Treasuries. #bonds #fixedincome #US #Fed #Canada

August 2024 Market Update: Key Highlights As August concluded, global equity markets showed volatility early in the month, driven by a weak U.S. labor market report. However, a recovery followed as expectations grew for potential U.S. Federal Reserve rate cuts. Here’s a summary of the key developments: 1️⃣ Canada’s Economic Outlook: Rate Cuts Expected: The Bank of Canada (“BoC”) is anticipated to continue cutting rates following signs of a cooling labor market and moderate economic growth. Job losses and declining consumer spending reflect the need for monetary policy easing to stimulate the economy. Inflation Trends: Canada’s inflation rate fell to 2.5% in July, the lowest since March 2021, supporting the case for further rate cuts to bolster economic activity. 2️⃣ U.S. Economic Conditions: Labor Market Weakness: The U.S. experienced weaker-than-expected job growth in July, with only 114,000 jobs added compared to forecasts. The unemployment rate rose to 4.3%, its highest since October 2021. This labor market cooling and slowing inflation have led to expectations of the Fed lowering interest rates soon. Market Response: U.S. equities and global markets initially dropped but rebounded as investors anticipated Fed rate cuts. 3️⃣ European Central Banks: Bank of England (“BoE”): The BoE cut its policy rate by 25 basis points to 5.00%, the first reduction since 2020. With inflation down to 2.2%, the BoE aims to support economic recovery while remaining cautious about future inflationary pressures. Bank of Japan (“BoJ”): The BoJ raised its key interest rate by 15 basis points to 0.25%, marking its second hike in 2024. This move aimed to counteract yen depreciation and support the yen but led to initial declines in Japanese equity markets due to unwind in yen carry trades. The BoJ remains cautious about further rate hikes to avoid market volatility. 4️⃣ Commodity Prices: Oil: The price of oil declined over the month, reflecting adjustments in supply and demand dynamics. Gold: The price of gold increased, continuing its role as a safe-haven asset amidst market uncertainty. Summary August saw a complex interplay of economic signals, with central banks across the globe adjusting their policies in response to evolving conditions. In Canada, the BoC is poised for additional rate cuts to address economic softening. In the U.S., weaker labor market data and slowing inflation are setting the stage for potential Fed rate cuts. In Europe, the BoE's cautious rate cut aims to balance economic support with inflation risks, while the BoJ’s rate increase has stirred volatility in Japanese markets. Investors should stay attuned to these developments as they navigate the evolving economic landscape.

The Tipping Point Robert Kavcic, Senior Economist, robert.kavcic@bmo.com, Equity markets rose alongside Fed Chair Powell's testimony to Congress, and encouraging U.S. inflation data. The S&P 500 gained 0.9%, with rate sensitives leading, while telecom services and the Nasdaq lagged. Meantime, the TSX jumped 2.8%, with all sectors posting gains. In every tightening cycle, there comes a point when the risk of restrictive policy weighing too heavily on the economy outweighs the inflation pressure that policy first sought to correct—that point appears to be now. In testimony to Congress this week, Fed Chair Powell argued that risks around inflation and growth are now more two-sided. His prepared remarks said that “in light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment.” In a world where the transmission of monetary policy lags the data on the ground, policymakers have to act with some anticipation. U.S. real GDP growth has ebbed to a below-potential clip, the unemployment rate is up 0.7 ppts from the cycle low, and this week’s CPI report flashed a green light. Both headline and core inflation printed better than expected, leaving the 3-month annualized core rate at just 2.1%. If the Fed believed that policy was restrictive enough at this time last year when it paused its tightening campaign, real rates have only since pushed higher as inflation has cooled. Treasuries rallied this week with the 10-year yield down 8 bps and the 2-year falling 12 bps. The market has now fully priced in a 25 bp rate cut in September, coming full circle back to where it was early in the year. Meantime, good news on U.S. inflation is good news for Canada, with the market now pricing about an 80% chance of a follow-up rate cut by the BoC later this month. Canada’s growth backdrop has been slower for longer than in the U.S., the job market has clearly loosened with vacancies down and the unemployment rate up 1.6 ppts from the cycle low, and if the U.S. has just seen its first one or two ‘good’ CPI reports, Canada has already seen four. Unfortunately the latest edition for May was a truly bad one, so that will leave next week’s June inflation report as the key piece of data to dictate if the Bank of Canada cuts rates again, or not, later this month. One bad print set amid five good ones could be deemed an anomaly, but two bad prints in a row might be considered a worrying trend.

Despite the U.S. Federal Reserve’s holding rate steady, markets advanced on news that inflation had cooled, moving from 3.6% year-over-year (YoY) in April to 3.4% YoY in May. Markets did, however, give up some of their gains later in the week after the University of Michigan’s Consumer Sentiment Index declined in June. The latest market news from Scotia Wealth Management has been posted to our blog page. https://lnkd.in/guPaKUJi #ldnont #londonontario #investing

Understanding the Impact of Fed Rate Cuts on Different Markets The U.S. Federal Reserve's decision to cut interest rates is a significant event with far-reaching implications for global and domestic markets. While its primary goal is to stimulate the U.S. economy by making borrowing cheaper, its ripple effects are felt across various markets around the world. Here’s a breakdown of how different sectors and markets respond to a Fed rate cut: 1. Stock Markets: Short-Term Rally, Long-Term Uncertainty A Fed rate cut typically benefits stock markets in the short term. Lower interest rates reduce the cost of borrowing for companies, increasing capital availability for expansion and investment. This leads to positive investor sentiment, often resulting in a stock market rally, particularly in growth sectors like technology, real estate, and consumer discretionary stocks. 2. Bond Markets: Lower Yields, Rising Prices In the bond market, a Fed rate cut typically lowers yields on government and corporate bonds. This is because interest rates and bond prices move inversely—when rates fall, existing bonds with higher coupon rates become more attractive, driving up their prices. However, lower yields may also push investors to seek higher returns in riskier assets like equities, leading to a rebalancing of portfolios. 3. Currency Markets: Dollar Depreciation Fed rate cuts often lead to a depreciation of the U.S. dollar. Lower interest rates reduce the returns on dollar-denominated assets, making the currency less attractive to foreign investors. As the dollar weakens, currencies like the euro, yen, and emerging market currencies may strengthen. 4. Commodities: Boost for Gold, Volatility in Oil Commodities tend to react in diverse ways to Fed rate cuts. Gold, for instance, often benefits from lower rates. As yields on bonds fall and the dollar weakens, gold becomes a more attractive store of value, driving up its price. On the other hand, oil prices can experience volatility. While lower interest rates might stimulate economic activity (and thus demand for oil), they also signal concerns about economic growth, which can depress demand expectations. 5. Real Estate: Increased Affordability, Potential Overheating Lower interest rates make mortgages cheaper, boosting demand for real estate. This benefits homebuyers and real estate investors, as they can borrow more at lower costs. It can also fuel a housing market boom, leading to rising home prices. 6. Emerging Markets: Mixed Impact For emerging markets, a Fed rate cut can be a double-edged sword. On one hand, cheaper borrowing costs can benefit economies with large dollar-denominated debts, as their interest payments decrease. This can provide fiscal relief and stimulate growth in emerging economies. #FederalReserve #InterestRates #MarketImpact #Investing #StockMarket #Bonds #Currencies #EmergingMarkets #RealEstate #Commodities #Finance #GlobalEconomy

Despite the U.S. Federal Reserve’s holding rate steady, markets advanced on news that inflation had cooled, moving from 3.6% year-over-year (YoY) in April to 3.4% YoY in May. Markets did, however, give up some of their gains later in the week after the University of Michigan’s Consumer Sentiment Index declined in June. Read the latest market news from Scotia Wealth Management - it’s on our website now. https://lnkd.in/gy5RWKUh #sidneyBC #victoriaBC #investing

Title: Understanding the Factors Influencing the Rise or Fall of 30-Year and 10-Year Yields Introduction Government bond yields, such as the 30-year and 10-year yields, play a crucial role in the financial markets and are closely monitored by investors, policymakers, and economists. The fluctuations in these yields can have significant implications for various sectors of the economy, including housing, lending rates, and overall economic growth. In this essay, we will explore the reasons in detail for the rise or fall of 30-year and 10-year yields, examining the key factors that influence these important indicators. Factors Influencing the Rise or Fall of 30-Year and 10-Year Yields 1. Economic Growth: One of the primary factors influencing the rise or fall of bond yields is the overall state of the economy. In times of strong economic growth, investors may demand higher yields on longer-term bonds to compensate for the potential risk of inflation eroding their purchasing power. This increased demand for longer-term bonds can lead to a rise in 30-year yields. Conversely, during periods of economic downturn or uncertainty, investors may seek the safety of government bonds, leading to lower yields as bond prices rise. 2. Inflation Expectations: Inflation expectations play a significant role in determining bond yields. If investors anticipate higher inflation in the future, they may demand higher yields to offset the erosion of their returns. This can lead to an increase in both 30-year and 10-year yields. On the other hand, if inflation expectations are low, bond yields may decrease as investors are willing to accept lower returns. 3. Monetary Policy: Central bank policies, such as interest rate decisions and quantitative easing measures, can also impact bond yields. When central banks raise interest rates to combat inflation or stimulate economic growth, bond yields tend to rise as investors demand higher returns. Conversely, when central banks lower interest rates or engage in asset purchases to support the economy, bond yields may fall as bond prices increase. 4. Market Sentiment and Risk Appetite: Investor sentiment and risk appetite can influence bond yields, especially in times of market volatility. During periods of uncertainty or financial distress, investors may flock to the safety of government bonds, leading to lower yields as prices rise. Conversely, in times of optimism and risk-taking behavior, investors may seek higher returns, resulting in higher bond yields. 5. Global Economic Conditions: Global economic conditions, including geopolitical events, trade tensions, and currency fluctuations, can also impact bond yields. Changes in global economic outlooks can lead to shifts in investor preferences for different asset classes, affecting bond yields in the process.

Despite the U.S. Federal Reserve’s holding rate steady, markets advanced on news that inflation had cooled, moving from 3.6% year-over-year (YoY) in April to 3.4% YoY in May. Markets did, however, give up some of their gains later in the week after the University of Michigan’s Consumer Sentiment Index declined in June. Read the latest market news from Scotia Wealth Management - it’s on our website now. https://lnkd.in/gUSgypJw #calgary #yyc #investing

ICM – June 18, 2024 The shifting stance of major investment houses and the FED on rate cuts has been notable this year. The Fed's credibility has been tarnished, highlighting the frequent unreliability of economic forecasts. This is not due to incompetence but rather a failure to acknowledge the limitations of both human judgment and predictive models - lacking a crystal ball. The issue largely stems from ineffective communication. Interest rate expectations in the US have reverted to last autumn's levels, and the US stock market has surged by 30% since then. Attempting to justify this rise solely based on quarterly earnings seems illogical, given that, excluding the five leading growth stocks, earnings were lackluster. Yet, why has the market not corrected itself? Two factors are at play: heightened demand for the five leading growth stocks, significantly boosting their index weight, and a broader economic environment where mounting government debts seem inconsequential while consumer spending remained buoyant post-Covid. Recently, several US economic indicators have shown negative trends. Particularly concerning are signs of increasing financial difficulties among lower-income groups. Rising default rates on consumer loans signal a deteriorating financial situation for many households. The Wall Street Journal reports that more price-sensitive consumers are switching from branded products to store brands, highlighting economic strain. In this context, the debate arises over the best strategy for the stock market: gradual tapering of the economy and inflation with slow rate cuts, or rapid rate cuts in response to worsening signals and a potential recession. Historically, stock markets have performed worse during rapid rate cuts ahead of recessions, while gradual rate cuts have generally led to market rises. Despite persistent inflation, we do not foresee an excessively restrictive monetary policy. The interest rate cut cycle may be delayed but is inevitable and will be gradual. China faces significant economic changes with the upcoming third plenum of the 20th Central Committee of the Communist Party in July, likely to bring substantial policy shifts. The real estate crisis has shaken confidence, critical since real estate comprises over half of Chinese households' net wealth. Despite high savings rates, we expect confidence to recover slowly, with the real estate market unlikely to benefit. However, other sectors could see positive impacts through potential policy measures promoting innovation and sustainable growth. We anticipate market consolidation without deeper lows than April, followed by a further upward trajectory. We are increasing our equity allocation and favoring emerging markets, particularly China. The recent performance of Chinese stock markets has been promising, and investor positioning remains cautious. These factors, coupled with the third plenum announcement, boost our optimism about Chinese stocks.