ClearWater Market Commentary as of December 17th, 2021

Here is the ClearWater Market Commentary as of December 17th, 2021:

In this issue:
– Performance of Major Indices
– Market Commentary

Market Performance: 

Equity MarketsLevelYTD1 Year
S&P/TSX Composite Index C$20,739.1918.96%18.28%
S&P 500 Index US$ 4,620.6423.02%24.13%
Dow Jones Industrial Average US$35,365.4415.55%16.70%
MSCI EAFE Index US$2,278.886.12%6.43%
MSCI Emerging Markets Index US$1,216.30-5.81%-4.45%
Fixed Income MarketLevelYTD1 Year
FTSE Canada Universe Bond Index C$1,192.85-2.32%-1.54%
FTSE World Broad Investment Grade Bond Index US$245.17-4.98%-4.71%
CurrencyLevelYTD1 Year
CommoditiesLevelYTD1 Year
West Texas Intermediate (US$/bbl)70.8646.04%46.53%
Gold (US$/oz)1,798.11-5.28%-4.63%

Market Performance – as of December 17, 2021

Market Commentary

Global equity markets declined over the week ended December 17. Equities were dragged down as central banks announced their shift to tighten monetary policy, which soured investor sentiment. In Canada, the S&P/TSX Composite Index fell over the week, dragged down by the Information Technology and Energy sectors. The S&P 500 Index also finished lower, hurt by weakness in the Energy sector. Oil prices fell over the week, while the price of gold-finished higher. Yields on 10-year government bonds in Canada and the U.S. both dropped over the week.

Final meetings of the year

  • Given significant inflationary pressures building in the U.S. economy, the U.S. Federal Reserve Board (“Fed”) announced it would speed up the pace of its bond tapering to end the program by March 2022.
  • The Fed held the target range of its federal funds rate at 0.00% to 0.25%, but most officials expect three interest rate increases in 2022 as inflation is likely to remain at elevated levels, and the labour market is improving.
  • The Bank of England (“BoE”) raised its Bank Rate by 15 basis points to 0.25%, citing strong inflationary pressures building in the economy. This surprised economists who were expecting the BoE to hold steady amid uncertainty of the economic impact from the Omicron variant.
  • The European Central Bank left its main refinancing rate at 0.00%, but said it would begin reducing its bond purchases in January to end the Pandemic Emergency Purchase Programme in March, in response to the improving European economy.
  • The Bank of Japan also decided to reduce its corporate bond buying program, while leaving its short-term interest rate unchanged at -0.10%.

Canada’s inflation remained elevated

  • Canada’s inflation rate was 4.7% year-over-year in November, matching October’s rate, and the highest since 2003.
  • Prices for gasoline, food and furniture all contributed to rising consumer prices.
  • This adds more pressure to the Bank of Canada (“BoC”) to consider an interest rate increase, potentially before its current mid-2022 expectations.
  • The Government of Canada and BoC renewed the monetary policy framework for another five years.
  • The inflation target will remain at 2%, with the flexibility to allow prices to move between the control range of 1% to 3% to maximize employment.
Inflation weighing on sales
  • Retail sales in the U.S. rose 0.3% in November, missing the 0.8% increase economists had expected.
  • It was also a slowdown from the 1.8% increase in October, largely in response to a change in shopping habits amid product shortages and rising inflation.
  • The slowdown was due in part to many Americans’ shopping early for the holidays, amid concern about product shortages, which helped propel the October figure higher.
  • The significant slowdown in November may also suggest higher inflation is weighing on consumers, bringing down demand and spending levels.

Easing pressures raise production

  • Industrial production in China increased 3.8% year-over-year in November, rising at a sharper pace than the 3.5% increase in the previous month. It also exceeded the 3.7% increase expected by economists.
  • This was the second consecutive increase in year-over-year industrial production, largely in response to easing price growth for raw materials and a moderation in power supply issues.
  • Contributing to the increase was a rise in production for electrical machinery and equipment, along with communication equipment.
  • Industrial production in China slowed in recent months but appears to be picking up steam, which should be beneficial for China’s economy.

Source: Canada Life Investment Management Ltd.

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