Market Pulse - The week in review

THIS WEEK’S RECAP:

 

▪ US Thanksgiving celebrations have significantly reduced market volumes and the release of economic indicators. This week saw a further significant drop in bond yields, partly driven by the fall of crude oil to as low as $76, a level last seen in January of this year. US equity markets continued their recovery with the S&P 500 approaching the technically important 200-day moving average; surpassing it would result in buying pressure from trend following and systematic strategies.

 

▪ The most notable development this week was the release on Wednesday of the minutes of the most recent Federal Open Market Committee (FOMC) meeting. These highlighted the risks to financial market stability if rapid tightening was to continue. Staff forecasts outlined below-potential growth in 2024 and raised the risk of a recession over the next year to 50/50.

 

▪ Canadian Retail Sales for September dropped 0.5%, led by lower sales in gasoline and food.

 

▪ European natural gas reserves have been helped by a warmer than usual start to winter. They have filled storage capacity and continue to build LNG intake capabilities through floating terminals. The severity of the coming winter will be the main driver of Europe’s ability to respond to household and business demand. Of medium-term concern is how inventories can be restocked next spring/summer without Russian gas available this time around.

 

ON DECK FOR NEXT WEEK:

 

▪ With the start of December, we will get the manufacturing surveys as well as employment numbers in both Canada and the US. These will be the last major economic releases before the Bank of Canada’s rate decision on December 7th . We will also get updates on Black Friday sales, providing a view on US consumer spending.

 

▪ We also need to continue to closely watch the evolution of the COVID situation in China, which is seeing a rapid increase in cases. This is an important setback following hopes over the last few weeks that reopening could accelerate.

 

▪ We continue to think that markets can recover into year-end. The recent combined drop in energy prices, inflation indicators and bond yields have supported equity and credit markets and we believe they will continue to do so over the next month. Eventually the focus will move from inflation’s fall to the level where it will land but, in the meantime, what was a strong headwind for risky assets has now becoming a tailwind.