Market Update - September 9, 2019Submitted by Jodi Vleck , Beta Wealth Group on September 9th, 2019
For the week ended September 6th, market action was driven largely by news reports surrounding the U.S.-China trade scenarios, with the week beginning on a sour note with China reporting U.S.-imposed tariffs to the World Trade Organization as a proposed violation; this was offset by positive mid-week sentiment flowing from reports of a proposed October U.S.-China meeting in Washington. Further, news of withdrawal of the Hong Kong extradition treaty which was a catalyst for recent protests there, helped diminish concern around a potential geopolitical flashpoint. Broadly, US equities rose, with virtually every sector ending up in the green led by communications services/consumer discretionary/energy/technology; defensive sectors such as Utilities and Healthcare lagged. On the economic front, an upbeat ISM service index was somewhat offset by contraction in the ISM Manufacturing Index and a tepid nonfarm payroll report.
Foreign stocks in developed markets gained ground alongside U.S. equities, aided by a weaker U.S. dollar, helped partly by receding fears of a ‘no deal’ Brexit which helped ease fickle U.K. sentiment. Emerging market equities outperformed all other groups on the back of improved trade sentiment, which was demonstrated by widespread gains among most key EM markets. Further, the Chinese central bank also decided to cut bank reserve requirements by 0.50-1.00%, effectively easing monetary policy, which typically acts as a positive catalyst to markets hoping for relief from the strains of U.S. tariffs.
U.S. bonds pulled back last week as interest rates stabilized and rose only slightly across the yield curve with treasuries faring a bit better than investment-grade corporates, while high yield and floating rate bank loans outperformed. Despite the tailwind of a falling dollar, developed market sovereign bonds lost ground as interest rates edged up from more negative levels, while risk-taking pushed emerging market bonds to the highest gains of the week across most asset classes.
Real estate markets gained, in keeping with broader equity sentiment in the U.S., while international Real Estate Investment Trusts (REITs) rose to a lesser degree outside of Europe. Commodities as a group gained last week helped by the slight weakening in the dollar and more optimistic economic prospects, with the price of crude oil gaining by over 2% to around $56.50/barrel.