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Market Update. Investors eye rate cuts, but markets remain lukewarm as US-China trade dispute continues

September 11, 2019

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Market Update. Investors eye rate cuts, but markets remain lukewarm as US-China trade dispute continues

Market Insights

Global equity markets have rallied off their mid-August lows that were driven by US-China trade tensions. 

Sentiment looks to be improving as investors speculate that the US Federal Reserve and the European Central Bank may cut interest rates in September to address the prospect of slowing global trade. That’s significant: the two economic regions combined make up approximately 45.8% of global gross domestic product (GDP) according to the International Monetary Fund. Equity markets would likely embrace any stimulus. 

Expect that some market volatility will continue as the US-China trade dispute drags on. On September 1, both countries implemented new tariffs on the other’s goods. Just when the dispute was looking dire, the US and China announced they would meet in October to resume trade talks, easing some investor concerns.

Meanwhile, Asian markets have started September on a positive note. China’s Shanghai Composite and the Hong Kong Hang Seng equity indices saw some gains from their recent lows. The Hang Seng jumped almost 4% after Carrie Lam Chief Executive of Hong Kong unexpectedly announced a formal withdrawal of the extradition bill that sparked three months of protests. China’s services sector also sped up for the first time in three months, further lifting investor sentiment. 

Here’s what else you need to know:

  • As far as potential rate cuts go, the European Central Bank(ECB) will be first to announce any decisions on September 12. 
  • The US Federal Reserve may provide another rate cut on September 18, following a July rate cut of 0.25%. 
  • US July retail sales were better than expected as consumer spending remained strong despite the tariffs, suggesting the impact of the US tariffs on goods from China to the US consumer may not be as severe as some feared.  
  • Germany’s manufacturing activity appears weak, contracting for eight straight months. 
  • Other key events that could impact the global equity and currency markets in the coming weeks include the Brexit uncertainty and the Argentina currency crisis.
  • We expect volatility to continue in September, but to a lesser extent than August as peak fear regarding the US-China trade dispute could have hit in early August.

 See how these events impacted your investments below:

ETF Portfolios

ETF Safety Portfolio was down 0.05% in August and up 2.50% in the past year. The portfolio’s gains from the fixed income and Canadian REITs assets classes were offset by negative returns from the Canadian Preferred Shares and international equity asset classes.

We improved the credit quality of the bonds held in the portfolio and reduce the volatility by switching Canadian Short-Term Corporate Bond Index ETF (VSC) to Canadian Short-Term Bond Index ETF (VSB).

ETF Conservative Portfolio was down 0.25% in August and up 2.35% in the past year. The Canadian Preferred Shares and international equity asset classes were a drag on the portfolio, which saw gains in fixed income, Canadian REITs, and Canadian domestic stocks.

We improved the credit quality of the bonds held in the portfolio and reduce the volatility by switching Canadian Short-Term Corporate Bond Index ETF (VSC) to Canadian Short-Term Bond Index ETF (VSB).

ETF Balanced Portfolio was down 0.17% in August and up 2.96% in the past year. The portfolio’s 24% allocation in US equities and 12.5% exposure to international equities were a drag on the portfolio. The fixed income, Canadian REITs, and Canadian equities asset classes all finished the month higher.

ETF Growth Portfolio was down 0.32% in August and up 2.85% in the past year. A 30% allocation in US equities and a 15% exposure to international markets were a drag on the portfolio, but outperformed the US and Europe, Australasia and Far East (EAFE) indices.

 ETF Aggressive Portfolio was down 0.20% in August and up 3.48% in the past year. With a 35% allocation in US stocks and a 17.5% exposure to international markets, the portfolio’s aggressive mandate was able to outperform the US and Europe, Australasia and Far East (EAFE) indices.  

Private Investment Portfolios 

Safety Private Portfolio was up 0.22% in August and up 4.29% in the past year. As a safety mandate with a majority of its assets allocated in fixed income, real estate and mortgage asset classes, the portfolio was not impacted by a negative month for global equities.

We improved the credit quality of the bonds held in the portfolio and reduce the volatility by switching Canadian Short-Term Corporate Bond Index ETF (VSC) to Canadian Short-Term Bond Index ETF (VSB).

Balanced Private Portfolio was up 0.02% in August and up 4.28% in the past year. With about 20% exposure to the equity class that was non-domestic, and a diversified basket of bonds, mortgages, real estate, private equity and private debt, the portfolio’s returns were not too impacted by weakness in global equities in August.

Aggressive Private Portfolio was down 0.71% in August and up 4.17% in the past year. The aggressive mandate finished lower during August, due to a 25% exposure to the Nicola Wealth Management US Tactical High Income Fund (CAD), which had a negative return.

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