Market week: Rate jitters weigh on stock markets

Market week: Rate jitters weigh on stock markets

Central banks find themselves behind the inflation curve


Toronto’s benchmark stock index, the S&P/TSX Composite Index, shook of the interest rate jitters that plagued the big U.S. indexes last week and advanced 1.3% on the week, propelled by a 6.8% gain in the price of crude oil, which in turn bolstered the energy sector (up 4.3% on the week), materials (up 3.6%), and by strength in the big bank sector (up 3.0%). Gold rallied this week, gaining 1.2%, as interest in inflation hedges is being stimulated.

Those interest rate jitters in the U.S. kept the major U.S. stock indexes just slightly down on the week. And for good reason. The annual headline all-items rate of inflation rose to 7.0% in December, while the core rate (which excludes food and energy prices), jumped to an annual rate of 5.5%, its highest level since 1991. With the word “transitory” now swept under the rug by central banks and fellow-travelling mainstream analysts, talk is all about when interest rate hikes will begin and how soon the U.S. Federal Reserve Board will reduce its balance sheet.

While rate hikes are generally a positive for the banking sector, which tend to benefit from higher rates, they are decidedly a negative for growth stocks, as seen in the retreat of technology issues. It’s these latter stocks which have weighed on U.S. stock markets since the beginning of the year, especially the tech-weighted Nasdaq Composite Index , which put in another flat performance last week, down 0.3%, for a loss of 4.8% since the beginning of the month. The blue-chip S&P 500 Composite Index also felt the drag of retreating tech shares, and ticked down 0.3% on the week.  

Fund news

* Franklin Templeton launches new global bond fund. Franklin Templeton Canada on Jan. 11 debuted its Franklin Western Asset Core Plus Bond, with exposure to global fixed income and a tilt towards U.S. markets. The fund uses multiple diversified strategies that benefit returns and dampen volatility in different market environments. The fund shares a similar investment strategy and the same portfolio management team as the U.S.-based Western Asset Core Plus Bond Fund – Class I, which has a 10-year track record in the U.S. It is also available as an exchange traded fund, the Franklin Western Asset Core Plus Bond Active ETF (TSX: FWCP).

“By looking to identify inefficiencies in the fixed income markets, we can capitalize on undervalued securities and sectors,” said Ken Leech, chief investment officer of Western Asset, the fund’s sub-advisor. Mr. Leech added, “The key component of our portfolio construction is our reliance on a substantial yield advantage over our benchmarks or targets.” Western Asset portfolio managers use a top-down macro view to drive decisions on value, credit sectors, credit quality, and duration, while using bottom-up analysis to make security selections.

* Scotia launches series of RI ETFs. Scotia Global Asset Management on Jan. 13 debuted its Scotia Responsible Investing ETFs, which will be listed on the NEO Exchange.

Scotia Responsible Investing Canadian Bond Index ETF (NEO: SRIB) tracks the Solactive Responsible Canadian Bond Universe Liquid ex MPL TR Index.

Scotia Responsible Investing Canadian Equity Index ETF (NEO: SRIC) tracks the Solactive Responsible Canadian Equity Index.

Scotia Responsible Investing U.S. Equity Index ETF (NEO: SRIU) tracks the Solactive Responsible U.S. Equity Index.

Scotia Responsible Investing International Equity Index ETF (NEO: SRII) tracks the Solactive Responsible International Equity Index.

According to a Scotia Global Asset Management release, the indexes “apply responsible investing screens to exclude issuers if they, among other things, do not comply with established norms, are materially involved in controversial business activities, have material exposure to fossil fuels and/or a relatively high carbon intensity profile compared to the majority of their sector peers.

* RBC shuts down BlueBay global ETF. RBC Global Asset Management Inc. on Jan. 11 announced the termination of RBC BlueBay Global Diversified Income (CAD Hedged) ETF (TSX: RBDI) effective on or about April 8, with units delisted from the TSX following market close on or about April 5.

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