Market Commentary for June 2020

Amidst continued political uncertainty and civil unrest, June proved to be another positive month for capital markets worldwide. A spike in COVID cases in North America, initially caused the markets to retreat mid-month, but the resolve of central banks to keep rates lower for longer helped renew investors’ faith in equities and the FOMO effect resumed. Developed world central banks, including the Bank of Canada, took a number of measures to calm fixed income markets with the result being that liquidity has improved and spreads have tightened meaningfully. The Bank of Canada’s overnight rate is currently 0.25%, and while officials here and in the US have stated their reluctance to impose negative rates, they have indicated that; if they deem it necessary, alternative monetary policy options will be made available. One such example which the Fed unveiled in June is a program aimed at stabilizing the credit markets and providing additional liquidity for investors and corporations alike by making direct purchases of a broad basket of corporate bonds. It would appear the old adage “don’t fight the Fed” is the consensus and the driving force behind the stock market’s recent momentum.

June saw a weaker US housing starts report and the unnerving rise in new COVID cases across much of the Southern and Western United States. Canada also saw a rise in cases in June, and an outbreak in Beijing cast some doubt on whether China has made a full recovery. Despite this, commodities continued to grind higher, which signals to us that a broader recovery in global activity is taking place. The Baltic Dry Index, which tracks the level of shipping worldwide, spiked dramatically to levels last seen in October 2019. WTI visited the $40 level, Western Canadian Select rose above $30 and Copper hit $2.60; a price we haven’t seen since last February.

The reopening phase provided a mixed picture of economic news with some meaningful bright spots. The US experienced another leap in the job market, adding 4.8 million jobs in June, lowering the unemployment rate to 11.1%; half what it was when it peaked in March. The single most impressive report was the whopping 17.7% snap-back in US retail sales in May, more than reversing April’s decline, but still down 6.6% y/y. Not surprisingly, other countries experienced similar rebounds as well. China’s sales are now only down 2.8% y/y, the UK popped 12% after an 18% plunge the previous month, and Canada rebounded by an impressive 19% after a massive 26.4% drop in April. Industrial production was higher as well, with China up 4.4% y/y in May, in contrast to the US, which is still down 15% y/y. We should mention that upbeat surveys from the Philly Fed and Empire Index seem to point to much better news for US production in June. We look forward to the results.

To receive our complete Market Commentary for June 2020 or to discuss further, please email us