09/18/2023
What happened this week,
Courtesy IA Asset Mgmt.
September 15, 2023
Financial markets continued to monitor the latest economic data
releases. In Canada, wholesale sales rose in July, albeit much
less than expected. The growth was driven by sales in motor
vehicles and vehicle parts, as well as building materials. That
being said, most wholesale segments saw reduced sales,
signaling a potential slowdown in activity. Manufacturing sales
also rose in July, buoyed by sales in food, petroleum, and coal
products.
In the United States, the CPI report for August showed the
largest monthly increase since the beginning of the year, led by
higher gasoline prices. Food and shelter prices also climbed
during the month, contributing to the overall increase. Still,
market reaction was muted as investors remained optimistic
that the Federal Reserve will keep rates unchanged later this
month. The August retail sales released on Thursday showed
an acceleration and exceeded expectations, while the PPI report
for the month revealed that inflation remained sticky despite the
Fed’s efforts to ease pressures.
In Europe, concerns over an impending recession did not
prevent the European Central Bank from hiking its interest rate
for the 10th consecutive time by 25 bps, with inflation still far
above target. Nonetheless, officials hinted that rates may have
peaked.
Bond market
Bond yields edged a few basis points higher this week with the
U.S. 10-year piercing 4.3% again, partly because U.S. CPI data
were a touch stronger than expected, while economic numbers
showed the consumer is still chugging along. As noted, the ECB
raised rates 25 basis points. Next up, we have the U.S. Fed
meeting on Wednesday, with the market pricing in close to a
zero chance of another increase. Nonetheless, the higher-forlonger
mantra has gripped the market of late, and yields are still
near the upper end of their recent range. In credit product, levels
were roughly unchanged, which is fairly impressive, given the
tremendous amount of supply delivered in the first two weeks
of September, but is also indicative of the fact that investors
were obviously well prepared. Spreads continue to be decently
anchored toward the lower end of their ranges as the market
seems comfortable with the notion that a soft landing can be
achieved. Whether that sentiment is justified remains to be
seen.
Stock market
The S&P 500 Index was up slightly this week, with the CPI data
for August proving to be mostly in line with expectations. As for
earnings announcements this week, Oracle was in the spotlight
after delivering results slightly below expectations; investors
were expecting more upside potential for the data centre
segment, driven by AI opportunities. Adobe also reported
excellent earnings and forecasts, showcasing strength in its
core business as well as a continued ramp-up of AI offerings
with their Firefly products. Both companies saw negative stock
price reactions driven by heightened expectations because of
their strong performances since the start of the year.
Conference season is also back in full force this month, with the
biggest industrials conference of the year taking place this
week. Generally speaking, commentary was a bit more cautious
than expected, driving some profit-taking in crowded names
that are benefiting from strong secular tailwinds. This response
indicates that investors lack conviction about where the
economy will go next.
Highlights
• U.S.CPI for August posted its largest monthly
increase in 2023.
• The European Central Bank raised its rate for the
10th consecutive time despite recession concerns.
On our radar
• Canada: Retail sales for July and housing starts,
PPI and CPI for August
• United States: Housing starts and existing home
sales for August, Fed interest rate decision
