April 2015 Market Update
Following March’s volatile market performance, April finished the month slightly up. Global markets did experience a shock mid-month, however, with some markets seeing their biggest single-day losses of 2015. This was triggered by a number of factors including a change in securities regulation in China, continued worries over Greece and, somewhat comically, a Bloomberg terminal outage creating added confusion. Nonetheless, the markets have rebounded. However, concerns of slowing economic growth in both Canada and the US have given central banks pause as they reevaluate their outlook on the economy.
When the Bank of Canada (“BoC”) met this month it chose to hold the target overnight rate at 0.75%. The BoC observed lower growth in Q1 2015 due to the oil price shock but expects growth to increase as oil prices stabilize. Indeed we’ve seen prices rise by 20% to $60/bbl. Obviously, BoC wants to see a quick return to full capacity and stable inflation, however, there is a need to balance lower borrowing rates which promote economic growth against financial stability risks. An emphasis on economic growth is a cornerstone of the Conservative’s plan to keep a balanced budget in 2015 and beyond (infographic: The 2015 Federal Budget Budget)
South of the border the Federal Reserve (“Fed”) met on Wednesday and also cited weaker growth in Q1 2015 at 0.2%, well below expectations of around 1%, but continues to believe that growth will catch up through the remainder of 2015. The Fed continues to wait for a return to maximum employment and price stability before making any changes to monetary policy. Many analysts share the view that a rate increase is now unlikely to be announced in June.
Overseas, a Greek tragedy continues to take center stage. Many are skeptical they can meet their debt obligations due in May. However, there are some positive signs, as Tsipras has made changes to his negotiating team and is proposing a new list of reforms. In China, exchanges and regulators intend to crack down on over-the-counter margin trading and have increased the ability for investors to engage in short selling. This move will likely reduce the flow of capital into Chinese stock markets and create price instability.
As usual, speculation around the Fed’s policy decisions increased volatility on yield bearing investments. On Wednesday the US 10Y treasury jumped to 2.02% and prices of REITs plummeted. The US REIT market, although positive for the last 12 months, was down 5.5% in April. Here in Canada, REITs remained positive and continued their solid performance this year. A boost to Canadian REITs was Calloway’s purchase of SmartCentres, resulting in the creation of one of Canada’s largest retail landlords. Part of the deal involved $200 million dollars of new issuance that was oversubscribed, affirming the continued demand and interest in Canadian real estate.
Steady and increasing oil prices rewarded Canadian equities with the S&P/TSX Composite up 2.4%. Global quantitative easing outside of North America not only boosted foreign stock markets but US markets as well. The S&P500 was up 1.0% while the MSCI EAFE was flat due to recent speculation around Greece. Overall, our balanced portfolios held steady this month as equity gains outweighed losses from interest rate sensitive securities.
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