Market Update: November 13th, 2023

Interest Rates Level Off as Global Concerns Grow

Last week, we saw interest rates level off in Canada and the United States after they dropped off their high horse a week earlier on the back of lower inflation and lower employment data. Global tensions grew and Moody’s (Bond Rating agency) warned it’s losing faith in US politician's ability to settle their differences.

Topics

Interest Rates Flatten

Global Tensions Grow

Interest Rates Flatten

While rates were volatile during the week there was very little movement, as the10-year US treasury stuck to 4.6% after peaking around 5% a month before. This is the first period this year where the longer-term rates in the US have threatened to start a longer trend downwards, after their constant upward pressure higher. 

This sets up as a bit of a warning sign for the US market, rates are declining due to a weakening US economy. This is a different tone than the last six months where they continued to put up strong economic numbers despite an increase in rates.

In Canada, the 5-year Government Bond continues its descent lower but remained flat last week. The trend on the Canadian side broke last month, due to worse economic numbers than our friends to the south. We would expect this trend to continue, as our economy is not showing signs of improvement.

Sectors to Watch

The effects of rising rates have hurt many interest rate sectors such as Real Estate, Utilities, Telecom, and Consumer Discretionary. All these have not performed well in the last 6 months, lower rates even with a weak economy could drive outperformance in these sectors.

Mortgage Rates

Last week, mortgage rates followed suit as expected. In the US the 30-year average across the country fell 0.25% and in Canada, the 5-year rate fell about 0.10-0.30% depending on the lender. If bond rates continue to decline, mortgage rates will continue to fall. 

Global Tensions Grow

Global tensions continue to grow as the ongoing wars in Ukraine and Gaza continue. Also, Moody’s decided to issue a warning to the US government that they may cut the credit of the US Government from AAA to AA on the back of political divisiveness. To almost prove their point both Democrats and Republicans were quick to point the finger at the other side. Forcing uncertainty higher and providing support for rates dropping further.

This has not been a great environment as economies start to weaken around the world. Governments are starting to take notice as for the first time in almost 3 years Monetary Policy has shifted from increasing rates to decreasing rates.

This shows the weakness felt not only here but around the world, central banks are moving back into NET accommodators of the markets rather than NET detractors.

Gold and Bitcoin

This environment has driven up the price of “safe haven” assets. Gold has remained strong, hovering around $2,000 USD an oz. for the past 6 months. Bitcoin or “digital gold” has been on fire lately blowing past $30,000 USD.

Summary

Uncertainty is growing in the world, and this is giving less confidence in the future for the short term at the least. Central banks will need to be more accommodating as businesses tighten up on hiring and spending due to that uncertainty. At this time, we remain conservative in the areas where revenue is stickier, which also happens to be the more interest rate-sensitive sectors.

Justin, Konrad, and Merriel

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