Global equity markets ended the month higher. The S&P 500 eked out a modest (+1.1%) gain. All sectors were positive with the exception of technology and communications. That rotation saw the equal-weighted index jump 4.4%. Meanwhile, the S&P/TSX (+5.6%) outperformed by a wide margin after a second rate cut from the Bank of Canada sent equities soaring. Elsewhere, the MSCI EAFE rose 2.9%, while emerging market stocks posted a small (-0.1%) loss amid weak performance out of China (-2.3%).
Fixed income markets also generated positive results and have erased this year’s declines. Traders have fully priced-in the first Federal Reserve rate cut occurring in September, with an additional 2-3 cuts expected by year-end. Treasury yields pushed lower across the curve, with the policy sensitive two-year yield seeing the biggest downward move. Similar bull-steepening moves were seen in Canada after the Bank of Canada signaled its willingness to ease much further amid evidence of a slowing economy and disinflation pressure. Traders are pricing-in another 50 basis points of rate cuts by year-end. For the month, the Barclays US Aggregate Bond Index rose 2.3%, while the FTSE Canada Bond Universe gained 2.4%.
The US dollar (DXY) edged lower (-1.7%) as investors ramped-up their bets on imminent policy easing from the Federal Reserve. The yen saw some notable (+7.3%) strength after the Bank of Japan raised its benchmark interest rate and unveiled plans to halve bond purchases, which saw rate differentials narrow between the US and Japan. The euro (+1.0%) and pound (+1.7%) also strengthened. By contrast, the Canadian dollar retreated, with a dovish-leaning Bank of Canada and the monthly decline in oil prices weighing on the loonie last month.
Finally, both oil (-4.5%) and copper (-4.9%) declined on the back of lackluster economic data out of top-consumer China that was met with an underwhelming policy response – while gold (+3.7%) rallied to a fresh all-time high after the Federal Reserve signaled its inching closer to cutting rates.
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