Short week this week. I wasn’t going to fill in but I was told people have been clamouring in the streets to read this commentary. I’m not one to incite any riots, especially on a Friday, so I’ll try to cover as much of the market news as possible.
The word this week was volatility. North Korea - USA saber rattling continued throughout the long weekend and into this week. Rhetoric of hostilities between the two nations is at a high, which has happened before, although this time it seems a tad more serious. For example, hot off the press this morning the Commander and Chief Donald J. Trump noted the USA military is, “locked and loaded, should North Korea act unwisely”.OoooH boy. As an aside, I am also locked and loaded this morning. I added an espresso shot to my coffee and with my new 20”+ computer screens, I feel like I am in a cockpit. Let’s do this.
Risky assets have taken a beating this week and despite of what you may have heard from that guy at the gym, stocks are not a sure thing and many are considered "risky". Global stock markets are down as investors move capital to "risk free" assets, as they become more "risk adverse". The TSX is down 1.2% since last Friday and the S&P 500 is down 1.56%. The VIX, a measure of future volatility in equity markets, is up 48% this past week. Maybe the word of the week should’ve been risk.
Coupled with the fall in equities is the rally in the so-called safe haven assets. Gold is up almost 2% since Friday, to $1,284 USD/oz. which is a 2-month high. US treasury yields traded lower throughout the week as investors bid up the “safer” guaranteed return notes. One note of economic news out of the USA this morning, as their CPI or core inflation number, missed by 0.1%. As we all know by now, when inflation is lower than expected, central banks are less keen to raise interest rates.
Back home, beaver bonds continued to rally alongside their US counterparts. The Government of Canada 5 year is yielding 1.47% this A.M and the GoC 10 year is yielding 1.85%. The 5 and 10 year CMB’s are yielding 1.84% and 2.32% respectively. Those rates are about 5 bps lower than last Friday. I'm no commercial real estate expert, but if I was borrowing money, it would be a good time to get a mortgage quote.
Only minor economic news for Canada this week as housing starts and building permits came out on Wednesday. They both beat consensus and the “house only” component of the housing index was up 0.4% month over month. The “house only” component has a 5% weight in CPI, which is important to our friends at the Bank of Canada for when they look to raise interest rates.
Finally, I walked into a dollar store the other day and noticed something absolutely frightening. I was searching for some rain ponchos, as for the 10th weekend in a row this summer has brought us rain. Right across from the 2 dollar beach towels and next to the fidget spinners, sat an entire shelf of…Halloween candy. It’s August!!!
Have a good weekend,
Andrew Masliwec, Analyst, Capital Markets