Weekly Market Update (January 29 – Fed 2, 2018)

February 5, 2018

American stock markets fell sharply this week, leading both the DJIA and S&P 500 to fall more than 3.9% at close. This was the worst week for US markets since early 2016, and its first weekly loss of the New Year. US equity markets have only declined four times in the previous 21 trading weeks. Markets experienced increased volatility this week, following business activity and comments made by the fed, causing the VIX index to jump from 12 to over 17. (VIX is an American index that tracks relative volatility in the markets) Energy stocks stumbled after a crash in oil prices, alongside poor earnings results from the oil giants Chevron and ExxonMobil. Talks that Berkshire Hathaway, Amazon.com, and JPMorgan Chase is pursing a joint venture sent healthcare and insurance stocks falling. The three companies are in talks of forming an independent health care company, for all three of the companies US employees – to provide more affordable health care. The tech sector also performed poorly, after a few major tech companies posted mixed results: Apple dropped 6.50% over the week, and Alphabet (Google’s parents) fell over 5% in share value after its earning release on Friday. An increase in payroll in January helped lessen early week losses. The strong labour market data, led equity traders to believe the Fed would soon increase interest rats – as the increase in wages would lead to higher labour costs. During Janet Yellen’s last meeting as the chair of the Federal Reserve, the Fed agreed to keep interest rates steady at 1.5%, reassuring that US economics have been incredibly positive so a raise in the future is possible. These comments pushed yields on 10-year treasuries to jump to its highest rate (2.80%) in the last four years.

Equity markets in Canada followed US markets, closing lower for the week on Friday. Canada’s major index the TSX fell over 3.9% this past week, as Canadian bond yields increased mirroring US treasuries. Increasing bond yields make equities less attractive and “riskier”, causing a slight equity sell off. Canada is currently the only developed country, whose market index has a loss year-to-date. Similar to American markets, the energy sector performed very poorly this week after a dramatic decrease in oil prices. Oil prices continued to retreat after reports show that oil inventories had increased, and the US’s crude production hit above 10M barrels per day – the first it’s been this high in 48 years. The sixth round of NAFTA talks in Montreal concluded, with associates close to the negotiations mentioning that significant progress has been made between the three parties – with no signs that the US would withdraw anytime soon.

EU stocks markets also pushed back this week, similar to other global markets. UK’s FTSE 100 traded down roughly 3% for the week. A slight bond sell off occurred, causing Eurozone bond yields to jump. GDP results were release this week in the EU, annualizing to a 2.5% growth in the region for 2017 – beating both the US and UK in GDP growth. The ECB mentioned that inflation is still widely below the 2% target rate, as it is currently sitting at around 1%. Japan’s PMI (Purchasing Managers’ Index) reached 54.8, rising from 54.0 in December, marking its highest level in the past four years. The BoJ confirmed inflation is slowly climbing to their 2% goal, leading many analysts to agree that interest rate hikes are likely. Japan also increased their exports, rising 9.3% YoY to roughly 66.3B USD.

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