Currency exchange rates joined the ongoing themes of inflation, central bank policy and oil prices preoccupying investors during September. Here’s a summary of the events that steered the markets.
COVID-19 and market developments
- It was another tough month for equities after the Fed reiterated it would continue on its monetary tightening path for as long as it takes to get inflation back under control.
- U.S. and Canadian bond yields rose on the outlook for interest rates, and inflation and the pound falling to a record low after the U.K. government announced huge tax cuts funded by increased borrowing.
- The price of oil continued to decline, falling under US$80 a barrel, its lowest level so far this year on anticipation the Fed’s rate hiking plans and a strengthening US dollar will slow demand and inflation.
- There were a number of positive U.S. and Canadian economic indicators during September. U.S. job creation remained solid and jobless claims fell. In Canada, job vacancies grew, house prices continued cooling and the CEOs of two major grocery chains said food prices have started stabilizing.
- The loonie, due to its close ties with the oil sector, weakened against the greenback, but not as much as the pound, euro, yen and yuan. The US dollar has been seen as a buffer against rising interest rates.
- Many central banks followed the Fed in hiking rates, including the Bank of England, European Central Bank, the Nordic central banks and the Swiss bank which ended its negative rate policy.
- The Canadian federal government lifted its COVID-19 travel restrictions including mandatory vaccinations, testing and quarantine of international travelers and masking on planes and trains.
- U.S. inflation eased for the second month in a row, from 8.5% to 8.3%, although this was considered disappointing by investors as forecasts were for a drop to 8.1%. Food and housing costs continued to be the main inflationary drivers. The Fed’s response was a third straight 0.75% rate hike, lifting its benchmark rate into the 3-3.25% range. Fed chair Powell signaled more increases were coming. “We have got to get inflation behind us, he said. “I wish there were a painless way to do it, but there isn’t.”
- In Canada, inflation also moderated for the second consecutive month, from 7.6% to 7%, which was much lower than expected. This was again largely due to falling gasoline prices which mitigated the cost of groceries remaining high. Aligning with the Fed, the Bank of Canada increased its benchmark rate 0.75% to 3.25%. Its official statement also made clear more hikes are required to curb inflation.
How does this affect my investments?
The focus continues to be on central bank policy and the impact this has on markets and the broader economy. While volatile, the current investment climate does offer buying opportunities for active fund managers and investors. Economic fundamentals also remain healthy and supply chains are normalizing. In time, a sustained recovery will occur and history has proven investors are rewarded over the long-term.
Regardless of where we are in the market cycle, it’s important to take a disciplined approach to investing and stay focused on your long-term goals. This strategy helps you keep your emotions out of investing, typically buying high and selling low like many investors do. Ongoing monitoring and reviewing of your portfolio also ensures it remains on track. Diversifying investments reduces risk as well.
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The information in this letter is derived from various sources, including CI Global Asset Management, CI Financial, Statistics Canada, Bank of Canada, Bloomberg, Reuters, National Post, Investment Executive, Advisor.ca, Wall Street Journal, Daily Mail, Toronto Sun, TNC News, The Post Millennial, and MSN.com as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.
Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada.