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Sector Scopes December 2022 Review & BMO Aggregate Bond index ETF* (ZAG.TO)

A week ago, equities staged a big rally in response to hints from Fed Chair Powell that the US central bank may slow the pace of interest rate increases. Since then, however, stocks have been steadily retreating, suggesting that may have been another bear market rally.

Economic data on both sides of the border, particularly last Friday’s employment numbers have been running better than expected suggesting that while central banks may slow the pace of tightening, between continued inflation pressures and a steady economy, they may not be in a hurry to start cutting rates. Even declines in US traded interest rates (like the 10-year treasury note yield) and the US Dollar, where previous gains had been headwinds for stocks, have been unable to keep last week’s equity party going.

We may get more clarity over the coming week about what central banks are thinking with the Federal Reserve Board, European Central Bank, Bank of England and Swiss National Bank all holding meetings next Wednesday-Thursday. In addition to the Fed decision, investors may look to the statement, member projections on the future path of interest rates and the press conference for insights. With all the focus on interest rates, Quantitative Tightening continues to run in the background. Yesterday, the Bank of Canada raised its benchmark rate by 0.50% as expected, but sent mixed signals in its statement, indicating it is “considering whether the policy interest rate needs to rise further”, while at the same time saying “inflation is still too high”. Meanwhile overseas economies continue to struggle with commodities and China-sensitive markets particularly vulnerable over the last week as investors weigh the prospects for reopening from COVID lockdowns against the economic disruption and damage that has already been done. Energy markets have had a particularly rough week, while metals have done better, particularly Gold.

The coming week is also busy for economic reports. Highlights include US producer prices tomorrow, US consumer prices on Tuesday and then a flurry of reports next Thursday including Flash PMI numbers from around the world and US retail sales.

In this edition of the Equity Leaders Weekly, we take our monthly look at sector scopes and at the impact of the recent trend change in traded interest rates on bonds.

Sector Scopes December 2022 Review

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