August 24-28, 2020
What happened last week
Stock markets reached record levels as investor optimism ran high
Global equity markets continued to rally, with the Dow Jones Industrial Average returning to positive territory on a year-to-date basis, and the S&P 500 and Nasdaq reaching all-time highs. Canada’s TSX was within sight of a positive year-to-date return, gaining over 1% on the week.
Investor sentiment rose early in the week on news that the U.S. government was attempting to accelerate the availability of coronavirus vaccines and treatments, and reports of a productive trade meeting between U.S. and Chinese officials.
Oil prices were up mid-week, as supply concerns had investors watching the U.S. Gulf Coast closely, where the heart of America’s energy production was shut down due to approaching Hurricane Laura. But after Laura made landfall on Thursday, prices dipped as production quickly resumed after the major refineries avoided the worst of the devastating storm, which left billions of dollars in damage in its wake as it moved inland.
Canada’s major banks delivered earnings reports that beat expectations
The financial sector helped lead the TSX higher through the week, as five of Canada’s six major banks turned in quarterly earnings reports that beat expectations. Money set aside for loan defaults in the previous quarter, and a jump in trading revenues, helped cushion the blow from the pandemic. Still, the reports indicated uncertainty lies ahead as government assistance and loan deferral programs are due to end in the fourth quarter.
The chair of the U.S. central bank outlined a new policy on inflation
On Thursday, in a speech delivered virtually for the U.S. central bank’s annual policy symposium, Federal Reserve Chair Jerome Powell unveiled a new approach to setting U.S. monetary policy. The approach gives the bank more flexibility to allow inflation to run above target through periods of economic weakness, which may help keep interest rates low and employment levels strong. Powell said the bank will seek inflation that averages 2% over time and highlighted that the new approach “…emphasizes that maximum employment is a broad-based and inclusive goal. This change reflects our appreciation for the benefits of a strong labour market, particularly for many in low- and moderate-income communities.” The U.S. dollar weakened and gold rose early Friday, as the news helped reinforce investor expectations for a prolonged period of low interest-rates.
Statistics Canada reported that gross domestic product plunged in Q2
On Friday, Statistics Canada reported the economy posted its steepest decline on record in the second quarter as gross domestic product (GDP) contracted at an annualized rate of 38.7%. However, monthly GDP data showed a sharp recovery since the height of the pandemic lockdowns in Q2, with the economy growing of 3% in July and 6.5% in June.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
|S&P Global 1200 Index
| 10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending August 28, 2020. Source: Bloomberg.
Economic reports: Expect markets to react to various reports released this week covering manufacturing, housing, oil production, trade and employment, as investors gain deeper insight into the state of economic recovery in Canada and the U.S.
Circle these dates
- Sept. 9: Bank of Canada interest-rate announcement
- Sept. 15-16: U.S. Federal Reserve meetings and statement
- Nov. 3: U.S. presidential election
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