Insights and Market Perspectives
Author: The editor’s desk
November 3, 2023
Members of AGF’s Investment Management Team weigh in on the week that was in global financial markets.
Maple Syrup!
The S&P/TSX Composite Index climbed significantly this week and registered its best one-day move of 2023 by rising more than 2.5% on Thursday alone.
Interest rate-sensitive sectors, including Utilities and Telecommunications, and long-duration assets found in sectors such as Information Technology have been hit hard by the move up in yields over the past nine months, but rallied sharply on the expectation that the U.S. Federal Reserve (Fed) and the Bank of Canada are finished their rate hiking cycle. Both North American central banks have indicated they are seeing tighter financial conditions, and the effects of tighter monetary policy have yet to be fully felt in the economy.
We continue to expect elevated levels of volatility into year-end, with the typical pattern of seasonal strength into early January.
Positive Rea(u)ction
It was another busy week for fixed income investors, highlighted by the Fed’s latest – and much awaited – interest rate decision and details of the U.S. Treasury Department’s quarterly refunding auctions. Over the past few months, much focus has been on the Treasury’s funding plan amid a widening fiscal deficit and the recent downgrade of the U.S Federal Government by Fitch, the rating agency.
The last time the Treasury announced the breakdown of its funding needs, it resulted in a sell-off of U.S. government bonds and a significant increase in rates at the long-end of the yield curve. In contrast, this week’s announcement came as a positive surprise after the Treasury said it will sell US$112 billion of longer-term securities, less than the US$114 billion expected by the market; however, we believe the market should remain cautious as the U.S. Treasury likely only postponed its plan to increase the supply of long-term bonds over time.
Climbing EM’s Wall of Worry
This week’s relief rally in emerging markets (EM) followed the Fed’s decision to keep interest rates unchanged in the United States on Wednesday. Hints that the central bank is edging closer to the end of its rate-hiking cycle led growth stocks in the developing world to outperform their value counterparts, while the benchmark MSCI Emerging Markets Index jumped 1.7% on Thursday, its best trading session since late July.
While the EM Index is still slightly in negative territory for the year, a weaker U.S. dollar and retreat in U.S. yields also improved the backdrop for EM stocks this week, as developing currencies climbed higher too.
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and company reports unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of November 2, 2023 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
This document may contain forward-looking information that reflects our current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein.
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