Sector Scopes Update January 2024 & United States Dollar Versus Canadian Dollar (USDCAD)
As we move further into January, the enthusiasm for equities and risk seen at the end of 2023 continues to fade fast. First, speculation about interest rate cuts coming as soon as March has turned out to perhaps to too optimistic. Speakers from the Fed, European Central Bank and elsewhere come out more hawkish than anticipated by some investors, downplaying immediate cuts, taking a neutral stance and even leaving the door open to more increases. In addition, recent economic data including increases in US and UK consumer prices (inflation) and positive economic news including strong US retail sales announced yesterday have weakened the case for near-term rate cuts.
These developments have sparked a rebound in traded interest rates, sending the 10-year US treasury note yield up from the 3.90s% to over 4.10% and the 10-year German bund yield up from near 2.00% toward 2.25%, sparking a rebound in the US Dollar and putting a headwind back in front of equities.
Nearly all equity indices are down in the last week, including a 1.0% drop for the S&P 500, a 1.4% decline for the S&P/TSX Composite, and a 3.75% plunge for the Hang Seng. The decline has been broadly based with all eleven major industry groups down in the last week and all groups are also down over the last month except for Health Care. Interest rate sensitive Utilities and Real Estate have declined the most in the last week, while over the last month, Consumer Staples, Energy and Materials have been leading markets downward.
Meanwhile, the second major factor impacting market sentiment has been increasing concern about the health of China’s economy and the negative impact a soft China may have on resource demand expectations. Earlier this month, Saudi Arabia cut its price for oil shipments to Asia (read China), and yesterday, the Middle Kingdom announced weaker than expected GDP and retail sales, putting pressure on energy and copper prices.
Earnings season has started with mixed results from US banks and investment companies. Just as we saw in December following reports from FedEx and Nike, investors so far appear to be looking more for reasons to take profits and head for the exits than looking for reasons to enter or add to long positions with Delta Air Lines and Morgan Stanley being particularly impacted.
Earnings season ramps up over the coming week and broadens out into more sectors including Consumer Products, Technology, Telcos, Industrials, Railroads and more. Headliners include Netflix on Tuesday, and Tesla on Wednesday.
Central bank meetings resume next week, led by the Bank of Canada (more on this below), the European Central Bank and the Bank of Japan with investors looking for hints on the future of monetary policy and when rate cuts may start. Other reports of note include Canada retail sales tomorrow, Flash PMI reports on Wednesday and US Q4 GDP next Thursday.
In this edition of Equity Leaders Weekly, we take out monthly look at Sector Scopes and consider what forces are driving trading in USDCAD along with their wider implications.
Sector Scopes Update January 2024
At the end of December, most of the sectors had piled up on the extreme right of the spectrum, a sign of a strong, broad-based rally with nearly all sectors running a high bullish percent. It also suggested that the market was getting overbought so the correction which has unfolded since the start of the year doesn’t really come as a surprise.
Over the last two weeks, bullish percent scores have been coming back down in a broad market pullback, and as a result, the sectors in the BPI chart have been sliding to the left to varying degrees. The weakest groups at the moment are a mixed group of cyclicals including Energy, Metals, Autos, Specialty Retailers, Computer Hardware, and Consumer Durables. Sectors holding up the best lately and still hanging around the right hand side are concentrated more in interest sensitives and defensives including: Real Estate, Insurance, Construction (homebuilders), Drugs, Health Services, and Manufacturing.
United States Dollar Versus Canadian Dollar (USDCAD)
Disclaimer: SIACharts Inc. specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment whatsoever. This information has been prepared without regard to any particular investors investment objectives, financial situation, and needs. None of the information contained in this document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. As such, advisors and their clients should not act on any recommendation (express or implied) or information in this report without obtaining specific advice in relation to their accounts and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. SIACharts Inc. nor its third party content providers make any representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein and shall not be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon. Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.