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Monthly Commentary

Financial markets were particularly serene in October, with the risk-on trade lingering on unabated amid persistent signs of global economic resilience and robust corporate profits. Encouragingly, global equity markets continued to forge higher even in the wake of ongoing political impasse in the US, escalating tensions in Spain, and as central banks began to remove excess liquidity from the financial system – reinforcing the sustainability and durability of the acceleration.

November 2017

Global equity markets were broadly higher in October.  The S&P 500 rounded out its strongest month since February on renewed hopes for tax reform, while solid third quarter growth results and healthy corporate earnings also boosted US stocks.  After lagging for most of 2017, Canadian equities staged a reversal and have been outperforming their global peers since September, with the S&P/TSX rising to record highs alongside the resurgence in crude prices.  Equity gains also extended to overseas markets, with both European and Japanese stocks roaring ahead amid solid earnings reports and some dovish undertones from central banks abroad.  Finally, momentum in emerging market equities prevailed, with developing market bourses outperforming their developed counterparts during the month.

North American fixed income markets diverged somewhat in October.  In the US, bond yields broke higher across the curve as the economy demonstrated signs of resilience in the aftermath of hurricane activity this fall, while inflation expectations resurfaced owing to the recovery in crude prices and speculation for fiscal expansion in the US – all of which bolstered the case for a rate hike in December.  In contrast, Canadian bond yields pulled back as the economy showed signs of moderating after a strong showing in the first half and as the Bank of Canada reigned-in expectations for additional rate hikes.  As a result, investors recalibrated and reduced their wagers for another rate hike from the Bank of Canada in 2017.

In currency markets, the greenback strengthened as speculation mounted regarding the Federal Reserve chairmanship and specifics on plans for tax reform.  The euro fell after inflation slowed unexpectedly, while the pledge for unprecedented support from the Bank of Japan underscored the divergence from its global peers and weighed on the yen.  Finally, the loonie fell to its lowest level since July after the Bank of Canada adopted a cautious approach given signs of moderating growth and downside uncertainties.

In commodity markets, oil prices staged an impressive rebound after Saudi Arabia and Russia signaled support for an extension of output curbs well into 2018, while US industry data indicated a decline in both crude and gasoline stockpiles.  Meanwhile, bullion declined as US dollar strength and fading geopolitical angst weighed on prices, while copper advanced on signs of economic stability in China, the number one producer of the red metal.

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