Early trading in September saw heavy profit-taking, the US S&P 500 index having just set a record high when it closed on 2 September, the same day it had marked a rise of nearly 11% since the start of the year.
Labouring under substantial profit-taking and certain technicalities, US tech stocks were hit particularly hard, with the Nasdaq composite index correcting by 10% between 2 and 8 September.
These swings brought with them a rise in implied volatility: The VIX index, calculated on S&P 500 options, rose in a few days from 22 to 34, its highest since the end of June.
However, there was only limited contagion to other major stock markets and other risky assets and so the ‘risk off’ phase failed to really take hold.
Firstly, volatility eased and eurozone indices held up well for most of the month; in Tokyo, the stock market even ended slightly higher.
Secondly, US equities rose at the end of the period, driven in particular by hopes of an agreement in Congress on new fiscal measures.
Over the month, global equities fell by 3.4% (MSCI AC World index in US dollar terms). Coming after five consecutive monthly gains, the drop reflected concerns about the resurgence of COVID-19. The rise in the number of infected cases and hospitalisation led many countries to beef up social distancing measures: There was a re-imposed lockdown in Israel, local lockdowns in Spain, restrictions on public gatherings and shorter bar and restaurant opening hours in France, the UK and Germany in particular.
The threat of a second wave and such responses reminded investors of the real uncertainties hanging over the global economy – something they had chosen to ignore mostly during the summer. Disappointing activity indicators, particularly in the eurozone, fuelled investor concerns by highlighting signs that the recovery was running out of steam after the mechanical (and rapid) catch-up since May.
Against this backdrop, the renewed commitments from the main central banks to maintain their highly accommodative monetary policies for a long time, or even to take additional measures if needed, failed to fully reassure equity investors.
Recent economic data has been encouraging. Activity is returning to pre-pandemic levels in many sectors of the Chinese economy and the pick-up in demand on Asian exporters is favourable. Moreover, the epidemic appears to be under better control than in major Western countries and other emerging markets. Emerging Asia’s better resilience helped the MSCI Emerging Markets index (-1.8% in USD terms) outperform developed markets.
US equities underperformed other major markets. The S&P 500 lost 3.9% and the Nasdaq composite 5.2%. This decline, however, still leaves the Nasdaq up by 24.5% year-to-date (+4.1% for the S&P 500).
European stock markets ended down: -2.4% for the EuroSTOXX 50, which has fallen by 14.7% so far in 2020, reflecting in particular by the weakness in financial stocks.
In Tokyo, the Topix ended up slightly (+0.5%), supported by the Bank of Japan’s asset purchases and by the recovery in demand in Asia. The Japanese government’s change of leadership, which was quick and smooth, was seen as ensuring continuity in economic policy.
At the global level, cyclical sectors, including some subsectors of technology, outperformed the rest of the market. Energy and banks saw the biggest monthly declines.
The EUR/USD exchange rate, having peered above 1.20 on 1 September, first stabilised at around 1.18 before heading towards 1.16. Market participants had expected comments from members of the ECB Governing Council to end the rapid appreciation of the euro since late May, when the exchange rate was below 1.10.
Market moves in September were a result of concerns over eurozone growth and the drop in equities that led investors to favour the US dollar.
EUR/USD finished the month at 1.1743, down by 1.7% compared to the end of August. Even so, the euro appreciated over the third quarter.
Exhibit 1: Changes in the EUR/USD exchange rate from January 2018 to September 2020
After the ECB’s policy meeting on 10 September, there were no changes in key rates, asset purchase programmes or forward guidance. While this had largely been expected, observers were disappointed on several points, and were left with the impression that the ECB’s stance was a little less dovish than expected.
This feeling was compounded by various rumours that some council members would have liked the upward revision of the GDP forecast to have been better highlighted. An 8% drop in eurozone GDP is now expected for 2020, while in June the ECB had forecast a drop of 8.7%. This was mainly due to a somewhat smaller decline in Q2.
The ECB’s reaction to the euro’s gains seemed low key. As is customary, the ECB has talked about the effects on inflation of a strong currency. However, its statements have remained muted and suggest the council is not too concerned about the euro hovering at around USD 1.18. Yet only the day after the meeting, several comments on this topic suggested dissensions among council members.
Against this background, expectations remain high for an announcement in December of a further increase in the asset purchase enveloppes, or a reallocation between programmes – and this despite some comments giving the impression that the envelope of the PEPP (Pandemic emergency purchase programme) may not be fully used.
The investor optimism that prevailed in July and August weakened in September. The difficulties encountered at the start of the month by US tech stocks spread to other risk assets, although without markets reaching for the panic button.
As signs of a second wave of COVID-19 mount, investors seem to have suddenly become aware of the fragility of the global economy. After the slump in activity in the spring and the rapid rebound from May onwards, momentum has recently flagged.
In addition, as the US election approaches and Brexit negotiations enter the final straight, political factors will come more to the fore in the coming weeks.
And among these health, economic and political
uncertainties, there are likely to be delays in the adoption of new fiscal
support measures in the US and Europe. Equity movements could be erratic in the
short term even if a still rather cautious investor positioning is likely to
limit the downside.
In the medium term, proactive economic policies should ensure a favourable environment. The message from central banks is clear: The monetary policies put in place will allow long-term rates to remain low for a long time.
Such an environment is supportive of equities and risk assets generally. In addition, advances in medical research should become more tangible over coming months and help boost economic agents’ confidence. This remains crucial for a sustainable recovery that can spread across all sectors.
Beyond possible short-term headwinds, we remain cautiously optimistic and, depending on the signals sent by our proprietary market ‘temperature’ indicators, we may look at bearish developments as opportunities to strengthen our equity position.
Any views expressed
here are those of the author as of the date of publication, are based on
available information, and are subject to change without notice. Individual
portfolio management teams may hold different views and may take different
investment decisions for different clients. This document does not constitute
investment advice.
The value of
investments and the income they generate may go down as well as up and it is
possible that investors will not recover their initial outlay. Past performance
is no guarantee for future returns.
Investing in
emerging markets, or specialised or restricted sectors is likely to be subject
to a higher-than-average volatility due to a high degree of concentration,
greater uncertainty because less information is available, there is less
liquidity or due to greater sensitivity to changes in market conditions
(social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
HALIFAX – Nova Scotia Premier Tim Houston says it’s “disgraceful and demeaning” that a Halifax-area school would request that service members not wear military uniforms to its Remembrance Day ceremony.
Houston’s comments were part of a chorus of criticism levelled at the school — Sackville Heights Elementary — whose administration decided to back away from the plan after the outcry.
A November newsletter from the school in Middle Sackville, N.S., invited Armed Forces members to attend its ceremony but asked that all attendees arrive in civilian attire to “maintain a welcoming environment for all.”
Houston, who is currently running for re-election, accused the school’s leaders of “disgracing themselves while demeaning the people who protect our country” in a post on the social media platform X Thursday night.
“If the people behind this decision had a shred of the courage that our veterans have, this cowardly and insulting idea would have been rejected immediately,” Houston’s post read. There were also several calls for resignations within the school’s administration attached to Houston’s post.
In an email to families Thursday night, the school’s principal, Rachael Webster, apologized and welcomed military family members to attend “in the attire that makes them most comfortable.”
“I recognize this request has caused harm and I am deeply sorry,” Webster’s email read, adding later that the school has the “utmost respect for what the uniform represents.”
Webster said the initial request was out of concern for some students who come from countries experiencing conflict and who she said expressed discomfort with images of war, including military uniforms.
Her email said any students who have concerns about seeing Armed Forces members in uniform can be accommodated in a way that makes them feel safe, but she provided no further details in the message.
Webster did not immediately respond to a request for comment.
At a news conference Friday, Houston said he’s glad the initial request was reversed but said he is still concerned.
“I can’t actually fathom how a decision like that was made,” Houston told reporters Friday, adding that he grew up moving between military bases around the country while his father was in the Armed Forces.
“My story of growing up in a military family is not unique in our province. The tradition of service is something so many of us share,” he said.
“Saying ‘lest we forget’ is a solemn promise to the fallen. It’s our commitment to those that continue to serve and our commitment that we will pass on our respects to the next generation.”
Liberal Leader Zach Churchill also said he’s happy with the school’s decision to allow uniformed Armed Forces members to attend the ceremony, but he said he didn’t think it was fair to question the intentions of those behind the original decision.
“We need to have them (uniforms) on display at Remembrance Day,” he said. “Not only are we celebrating (veterans) … we’re also commemorating our dead who gave the greatest sacrifice for our country and for the freedoms we have.”
NDP Leader Claudia Chender said that while Remembrance Day is an important occasion to honour veterans and current service members’ sacrifices, she said she hopes Houston wasn’t taking advantage of the decision to “play politics with this solemn occasion for his own political gain.”
“I hope Tim Houston reached out to the principal of the school before making a public statement,” she said in a statement.
This report by The Canadian Press was first published Nov. 8, 2024.
REGINA – Saskatchewan Opposition NDP Leader Carla Beck says she wants to prove to residents her party is the government in waiting as she heads into the incoming legislative session.
Beck held her first caucus meeting with 27 members, nearly double than what she had before the Oct. 28 election but short of the 31 required to form a majority in the 61-seat legislature.
She says her priorities will be health care and cost-of-living issues.
Beck says people need affordability help right now and will press Premier Scott Moe’s Saskatchewan Party government to cut the gas tax and the provincial sales tax on children’s clothing and some grocery items.
Beck’s NDP is Saskatchewan’s largest Opposition in nearly two decades after sweeping Regina and winning all but one seat in Saskatoon.
The Saskatchewan Party won 34 seats, retaining its hold on all of the rural ridings and smaller cities.
This report by The Canadian Press was first published Nov. 8, 2024.
HALIFAX – Nova Scotia‘s growing population was the subject of debate on Day 12 of the provincial election campaign, with Liberal Leader Zach Churchill arguing immigration levels must be reduced until the province can provide enough housing and health-care services.
Churchill said Thursday a plan by the incumbent Progressive Conservatives to double the province’s population to two million people by the year 2060 is unrealistic and unsustainable.
“That’s a big leap and it’s making life harder for people who live here, (including ) young people looking for a place to live and seniors looking to downsize,” he told a news conference at his campaign headquarters in Halifax.
Anticipating that his call for less immigration might provoke protests from the immigrant community, Churchill was careful to note that he is among the third generation of a family that moved to Nova Scotia from Lebanon.
“I know the value of immigration, the importance of it to our province. We have been built on the backs of an immigrant population. But we just need to do it in a responsible way.”
The Liberal leader said Tim Houston’s Tories, who are seeking a second term in office, have made a mistake by exceeding immigration targets set by the province’s Department of Labour and Immigration. Churchill said a Liberal government would abide by the department’s targets.
In the most recent fiscal year, the government welcomed almost 12,000 immigrants through its nominee program, exceeding the department’s limit by more than 4,000, he said. The numbers aren’t huge, but the increase won’t help ease the province’s shortages in housing and doctors, and the increased strain on its infrastructure, including roads, schools and cellphone networks, Churchill said.
“(The Immigration Department) has done the hard work on this,” he said. “They know where the labour gaps are, and they know what growth is sustainable.”
In response, Houston said his commitment to double the population was a “stretch goal.” And he said the province had long struggled with a declining population before that trend was recently reversed.
“The only immigration that can come into this province at this time is if they are a skilled trade worker or a health-care worker,” Houston said. “The population has grown by two per cent a year, actually quite similar growth to what we experienced under the Liberal government before us.”
Still, Houston said he’s heard Nova Scotians’ concerns about population growth, and he then pivoted to criticize Prime Minister Justin Trudeau for trying to send 6,000 asylum seekers to Nova Scotia, an assertion the federal government has denied.
Churchill said Houston’s claim about asylum seekers was shameful.
“It’s smoke and mirrors,” the Liberal leader said. “He is overshooting his own department’s numbers for sustainable population growth and yet he is trying to blame this on asylum seekers … who aren’t even here.”
In September, federal Immigration Minister Marc Miller said there is no plan to send any asylum seekers to the province without compensation or the consent of the premier. He said the 6,000 number was an “aspirational” figure based on models that reflect each province’s population.
In Halifax, NDP Leader Claudia Chender said it’s clear Nova Scotia needs more doctors, nurses and skilled trades people.
“Immigration has been and always will be a part of the Nova Scotia story, but we need to build as we grow,” Chender said. “This is why we have been pushing the Houston government to build more affordable housing.”
Chender was in a Halifax cafe on Thursday when she promised her party would remove the province’s portion of the harmonized sales tax from all grocery, cellphone and internet bills if elected to govern on Nov. 26. The tax would also be removed from the sale and installation of heat pumps.
“Our focus is on helping people to afford their lives,” Chender told reporters. “We know there are certain things that you can’t live without: food, internet and a phone …. So we know this will have the single biggest impact.”
The party estimates the measure would save the average Nova Scotia family about $1,300 a year.
“That’s a lot more than a one or two per cent HST cut,” Chender said, referring to the Progressive Conservative pledge to reduce the tax by one percentage point and the Liberal promise to trim it by two percentage points.
Elsewhere on the campaign trail, Houston announced that a Progressive Conservative government would make parking free at all Nova Scotia hospitals and health-care centres. The promise was also made by the Liberals in their election platform released Monday.
“Free parking may not seem like a big deal to some, but … the parking, especially for people working at the facilities, can add up to hundreds of dollars,” the premier told a news conference at his campaign headquarters in Halifax.
This report by The Canadian Press was first published Nov. 7, 2024.
