Weekly Global Market Update (May 29 – June 2, 2017)

June 4, 2017

Most stock markets advanced this week. A slew of economic data, much of it positive, helped share prices and drove key equity indexes to record highs.

Wall Street’s S&P 500 Composite, Dow Jones Industrial Average and NASDAQ Composite all reached new highs in a holiday-shortened trading week. The S&P 500 was led by the consumer, materials, utilities and health care sectors. Most U.S. economic news was encouraging, although employment numbers painted a mixed picture. The economy created a fewer-than-expected 138,000 jobs in May as the unemployment rate fell to 4.3%, the lowest since early 2001. The numbers suggest that employers are having difficulty filling positions in a tight labour market.Energy stocks also performed poorly as oil prices continued a decline that began the previous week. Thursday’s report of a larger-than-expected drawdown in U.S. oil reserves caused a short-lived bounce in energy shares, although it was unable to prevent a further decline in oil prices.

Canada’s S&P/TSX advanced slightly. Volatility in the energy sector was offset by strength in the information technology, consumer and industrials sectors. Energy stocks were dragged down by fluctuating oil prices and political tensions in British Columbia, where a potential change in government could affect the future of a federally-sanctioned pipeline expansion to Canada’s West Coast. Canada’s economy rebounded in the first quarter of 2017, growing 3.7% y-o-y as a result of strong consumer spending. It was the best-performing G7 economy in the first three months of the year. Canadian exports climbed to record levels in April, suggesting Canada is on the path to sustained economic growth despite low oil prices.

Eurozone stocks posted gains for the week. Britain’s FTSE 100 and Germany’s DAX reached fresh highs as investors turn toward Europe and other developed markets. European equities saw a 10th consecutive week of inflows according to data from Bank of America Merrill Lynch. Cyclical stocks led gains, while energy stocks, which include oil and gas and renewables, were laggards, weighed down in part by news of the U.S. announcement to withdraw from the Paris agreement on climate change. European political concerns resurfaced amid the growing possibility of early parliamentary elections in Italy, but news that Italy logged better-than-expected economic growth lifted Italian stocks late in the week.

Japanese stocks rose, with most of the gains occurring late in the week, as investors awaited Friday’s release of U.S. employment data for May that could influence the U.S. dollar’s strength versus the yen. While a stronger yen versus the dollar helps the performance of Japanese stocks in dollar terms, a stronger yen hurts the prospects for export-oriented Japanese companies. The yen was little changed versus the dollar for the week, ending Friday around ¥110.4 per dollar versus about ¥117 per dollar at the end of 2016. After the Japanese market closed on Friday, the dollar fell against the yen following the weaker-than-expected U.S. jobs report. On Thursday, the first trading day of June, the market moved decisively higher, helped by more favorable economic data. The Ministry of Finance reported that first-quarter corporate capital spending increased 4.5%, which was stronger than expected, and that corporate profits increased more than 26%. Separately, a private survey indicated that Japan’s manufacturing sector, as measured by a purchasing managers’ index, showed improvement in May versus April, which could bode well for the country’s second-quarter economic growth. On Friday, momentum from a strong U.S. equity session on Thursday carried over into the Japanese market.

Brazil emerged from its worst recession on record as the economy grew 1% in the first quarter—the first time the economy expanded after eight straight quarters of recession. A bumper soy harvest powered the increase. On Wednesday, the central bank cut the key interest rate by one percentage point to 10.25% after the annual rate of inflation fell to a near 10-year low of 4.08%

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