MD Financial Management: Chief Investment Officer Message—Canadian markets rebound

September 9, 2013

MD’s Market Update: Canadian markets rebound while Canadian dollar falls

The month of August saw Canadian and EAFE (Europe, Australasia and the Far East) markets outperform, while in the U.S., the S&P 500 delivered a negative return despite a strengthening dollar. Here at home, the Canadian dollar fell relative to global currencies. Investment market struggles continued in emerging markets, particularly in Brazil and India. Across the globe, year over year returns remain strongly positive.

Weakness in bond markets also continued, with the DEX Universe Bond Index—a measure of the performance of marketable government and corporate bonds outstanding in the Canadian market—delivering a return of 0.8% over the month.

Finally, commodity prices rose globally, as gold and oil prices rallied over previous months.

Results Across Global Economies: Global economic output improves going into the second half of 2013

In Canada, the inflation rate hit 1.3% in July, which is towards the lower bound of the Bank of Canada’s inflation control targets.

Meanwhile, August saw continued slow economic growth in the U.S, with modest gains in employment and housing. Markets are now focused on the actions of the Federal Reserve, the U.S. central bank. Looking forward, it appears likely that the process of "tapering", reducing the rate of quantitative easing, will begin in September, after a scheduled announcement from the Federal Reserve about interest rates and the growth of the United States money supply. (Quantitative easing increases the money supply domestically by providing capital to financial institutions, in order to promote increased lending and liquidity, and, ultimately, increased economic growth.) The U.S. debt ceiling, or the amount of debt that can be issued by the Treasury may be reached (again) in October, renewing policymakers’ attention to this issue.

European output is rebounding with preliminary Gross Domestic Product figures for the second quarter of 2013 at 0.3%—the first expansion following six quarters of contraction. Growth in China also appears to have picked up, with an uptick towards the end of the second quarter.

Capital Market Indicators at End August 2013

Market Indicator 1-month Return (%) 1-Year Return (%)
Canada (S&P TSX Composite Index) +1.5 +9.3
U.S. (S&P 500 Index) -0.4 +26.9
Europe, Australasia and Far East (MSCI EAFE Index) +1.3 +27.4
Emerging Markets (MSCI EM Index) +0.9 +7.8
Canadian Bonds (DEX Universe Bond Index) -0.6 -1.1
Exchange Rate: Canadian Dollar to U.S. Dollar -2.5 -6.4
Gold Price (USD/oz.) +5.3 -17.5
Oil Price (WTI, crude oil, USD per barrel) +2.5 +11.6

What This Means for You

At MD, we synthesize views from across the globe so investors can benefit from the understanding of global economic and market developments. As always, your MD Advisor is available to help you understand the advantages of MD’s approach and the impact on your investment portfolio. I encourage you to contact your advisor if you would like to learn more.

William R. Horton, Jr., CFA
Chief Investment Officer
MD Financial Management Inc.

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