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MD Financial Management: Chief Investment Officer Message—Declining Commodity Prices weigh on Equities

MD’S MARKET UPDATE: Canadian and emerging market equities see biggest impact

Most global stock markets declined in September, with commodity-sensitive markets experiencing greater declines.

The MSCI Emerging Markets Index and the S&P TSX Composite Index were down 4.6% and 4.0% respectively in Canadian dollar (CAD) terms. The MSCI EAFE Index declined by 0.9%. The S&P 500 Index declined in local terms, but rose in CAD terms due to a decline in the Canadian dollar relative to the U.S. dollar. The Canadian dollar also declined against the Pound but appreciated relative to the Euro and Swiss Franc.

The FTSE TMX Bond Universe declined by 0.6% as bond yields moved higher.

Commodity prices moved lower in September as increased supply and lower demand caused a drop in oil prices with West Texas Intermediate (WTI)1 crude hitting a 17-month low of $91.16 USD/pb. Meanwhile the U.S. Federal Reserve’s more hawkish tone caused investors to reduce their holdings in gold and saw the price move down 6.2% to $1,208.

RESULTS ACROSS GLOBAL ECONOMIES: U.S. accommodative monetary policy continues as global growth slows

The U.S. Federal Open Markets Committee (FOMC)2 has maintained the pace of stimulus reduction as the economy shows signs of improvement with the five-month moving average for housing starts rising in September to an annual rate of approximately one million units and jobless claims hitting a multi-year low of 287,000.

The European Central bank surprised markets with a further cut of 10 basis points (bps) to take its deposit lending facility rate to -0.2%. It is expected to announce further stimulus measures as economic sentiment and Purchasing Managers’ Indexes (PMIs)3—a key benchmark for growth—continue to fall in Europe.

Concerns around Chinese growth resurfaced as industrial production has slowed recently and the country missed its official inflation target of 3.5% with the Consumer Price Index (CPI) 1.5% below expectations.

(in Canadian dollar terms, unless otherwise indicated)

Market Indicator Level 1-Month Return (%) 1-Year Return (%)
Canada (S&P TSX Composite Index) 14,961 -4.0 +20.3
U.S. (S&P 500 Index) 1,972 +1.6 +28.3
Europe, Australasia and Far East (MSCI EAFE Index) 1,846 -0.9 +17.7
Emerging Markets (MSCI EM Index) 1,005 -4.6 +16.7
Canadian Bonds (FTSE TMX Universe Bond Index*) - -0.6 +6.4
Exchange Rate: Canadian Dollar to U.S. Dollar 0.893 -2.8 -7.9
Gold Price (USD /oz) 1208 -6.2 -9.1
Oil Price (WTI, USD/pb) 91.2 -5.0 -10.9

*Formerly the DEX Universe Bond Index
Sources: StateStreet via StyleADVISOR, FTSE TMX Global Debt Capital Markets, and Bloomberg


At MD, we monitor global economic trends, integrating viewpoints from carefully selected managers who actively invest for the benefit of our clients.

If you would like to learn more about MD’s investment methodology and the impact of global economic trends on your investment portfolio, I encourage you to reach out directly to your MD Advisor.

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

1 West Texas Intermediate, also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing.

2 The FOMC is part of the Federal Reserve System and oversees the U.S.’s open market operations (i.e., the Fed's buying and selling of U.S.

3 Purchasing Managers' Indexes are economic indicators derived from monthly surveys of private sector companies. A PMI serves as an indicator of the economic health of the manufacturing sector. It is based on five major areas: new orders, inventory levels, production, supplier deliveries and the employment environment.