by David Stonehouse & Regina Chi, AGF Investments
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team
Rate Debate
Interest rate markets have been caught between competing forces in recent months. On the one hand, decelerating inflation trends in many jurisdictions, including Canada and the Eurozone, have increased confidence in the prospects for imminent central bank rate cuts. On the other hand, signs of rebounding manufacturing activity and resilient consumption of services may have pushed out the timing of rate cuts, if not calling into question the potential for any cuts at all in countries like the United States and Australia. Compounding the upward pressure on bond yields has been the enormous amount of U.S. Treasury issuance.
The upcoming U.S. Personal Consumption Expenditures (PCE) inflation release on Friday looms large, followed by the Bank of Canada and European Central Bank announcements on June 5 and June 6, respectively. So far, global equity markets have shrugged off higher yields as earnings growth, particularly in sectors like Technology, Financials and Utilities, has supported stocks. However, under the surface, market breadth has slipped with the median stock lagging headline indexes. So, if bond yields were to rise much further, we believe that would likely present an unwelcome challenge for some investors.
Plenum Momentum
The MSCI China Index seems headed towards its first year of positive returns since 2020, having quietly surged more than 25% in U.S. dollar terms from its January lows. Bolstered by emerging signs of earnings growth for Chinese companies and policy support for the country’s property sector, the index is now up 11% year-to-date, significantly outperforming the S&P/TSX Composite Index, which is up around 4%, and nearly matching the S&P 500 Index’s nearly 12% return.
Going forward, we believe sentiment toward Chinese equities will remain positive as the long-delayed Third Plenum of China’s 20th Central Committee – a plenary session of senior Party officials – draws closer and finally takes place in July.
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of May 29, 2024. It is not intended to address the needs, circumstances, and objectives of any specific investor. The content of this commentary is not to be used or construed as investment advice, as an offer to buy or sell any securities, and is not intended to suggest taking or refraining from any course of action. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments Inc. accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein.
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