Weekly Market Update (February 5 – February 9, 2018)

February 13, 2018

Equity markets in the US continued to decline into this past week. Investors and market speculators are suggesting that market declines are a much-needed correction – because of overvaluations and rising interest rates. This past week was one the worst performing weeks in the past two years, regardless of strong corporate earnings and economic strength. The S&P declined 5.16%, closing at 2,619; the DJIA similarly declined 5.21%, to end at 24,190 on Friday. These are the largest percent declines in the DJIA’s history. Increasing market volatility began moving back into the daily market movements this week, leading the VIX index to hit 29.06, levels unseen since late 2011. The VIX index quantifies the markets “perceived” volatility in trading. Market declines in America were broadly caused by inflation worries, following the steep rise in average hourly earnings. Investors worried that this would increase price levels (inflation), after the US Bureau of Labour Statistics commented on a tightening labour market. Additionally, weekly jobless claims fell to their lowest level since January 1973. A rise in treasury yields could be seen, after a major sell-off in stocks led to an increase in the demand for “safer” bonds.

Canadian markets followed their close American counterparts, bringing the TSX down to levels similar to mid-September. The TSX lost 33 points (0.2%) on Friday, closing at 15,034 – bringing it to lose 4% for the entire week. The Canadian market was hit less hard than other equity markets, dropping less that most. Confidence in equities quickly dropped after last weeks steep retreat. Financials, energy and materials (sectors which constitute two-thirds of the TSX’s weighting) all ended in the red. Retreating oil prices and the lowering of commodities (i.e. gold & silver), led both the energy and material sector to losses. The previously volatile health care sector posted gains this week, after the closely watched cannabis stocks rose despite previous week’s losses. Unlike the US, employment in Canada had a staggering drop – with unemployment hitting 5.9%, a 0.2% decline from December’s release. The net change in employment for December lost 88,000 jobs, due to the minimum wage increases in Ontario. Weaker oil prices and the poor employment release led the loonie to lose over one cent USD.

European markets followed American market closely, lowering again this week. The STOXX 600 recorded its largest one-day drop since last June. Similarly, the FTSE 100 dropped considerably, following a weaker pound and other global concerns. The ECB improved its estimates on Europe’s GDP estimates, from 2.1% in November to 2.3%. Increasing demands for European imports (i.e. China), and a strong inflation rate encouraged the official revision. The BoE (Bank of England) voted this week to keep interest rates at 0.5%, with the central bank mentioning that future rate hikes are necessary to bring inflation down to targeted levels. Currently inflation in the UK is around 3%, with the BoE targeting inflation around 2%. Japan also followed other global markets, declining this week. Japan’s Nikkei 225 dropped 8.1% this past week, closing Friday at 21,382. So far this year, Japan’s markets are all lower than what they closed at in 2017. The BoJ (Bank of Japan) increased it’s economic outlook on the country, raising GDP growth from the range of 1.2%-1.4% to 1.3%-1.5%.

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