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Monthly Commentary

In January, investors gauged the recent wave of healthy economic and corporate earnings results, which was at odds with ongoing unease regarding which of Trump’s campaign proposals would see the light of day following his inauguration on January 20th. In his first order of business, Trump tackled his “America First” agenda and formally withdrew from the Trans Pacific Partnership, put NAFTA up for renegotiation, and submitted an executive order to place a halt on immigration. However, he also acted on some of his pro-growth proposals as well, approving the Keystone XL pipeline and putting forth some potential infrastructure spending plans. Nonetheless, volatility remained extremely subdued as investors chose to err on the side of optimism, with risky assets soaring higher throughout the month.

February 2017 

The reflationary trade gained some traction in January, owing to improving global growth prospects, higher commodity prices, and stronger-than-expected corporate earnings results. As a result, investor appetite for risk prevailed and global equity markets climbed higher, with all major regions contributing to the advance. In the US, the S&P 500 hit record highs and posted its third consecutive monthly gain. Similarly, the S&P/TSX came within striking distance of record highs even despite the monthly retreat in energy stocks, thanks to some notable strength in the financials and materials sectors. Finally, international equities also participated in the market upswing, while emerging market bourses led the performance charge and extended their outperformance in 2017.

The global ascent in sovereign bond yields continued throughout January, with 10-year government bond yields in both Canada and the US rising following Chair Yellen’s constructive outlook on the US economy, reinforcing the FOMC median forecast for three rate hikes in 2017. Similar themes also emerged abroad, with both European and Japanese government bond yields backing-up alongside the ongoing revival in inflation expectations. Finally, credit spreads narrowed to their lowest levels since 2014 in the reflationary, risk-on environment.

After a strong finish to 2016, the US dollar reversed course in January and declined versus its major peers as the Trump administration reiterated its preference for a weaker currency and began its pursuit of some isolationist policies. Meanwhile, despite some dovish rhetoric from the Bank of Canada, the loonie strengthened versus the greenback following the approval of the Keystone XL pipeline, providing Canadian oil companies with better access to the US market.

Finally in commodity markets, the recovery in oil prices stalled-out and crude posted a monthly decline as signs of a strong recovery in US drilling activity offset news that OPEC and non-OPEC producers were on track to meet output reduction goals set in December. In contrast, gold prices soared higher as investors assessed the uncertain political backdrop, while copper prices rallied alongside the weaker US dollar and ongoing signs of global economic momentum, particularly in China (the largest consumer of the red metal).

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