North American and global equities suffered significant losses last week. The NASDAQ gave back nearly 4%, while the MSCI’s All Country World Index (ACWI), Dow and S&P 500 lost around 3%. The TSX performed better than most, but still lost 1½ percent.
Much of the losses in North America can be attributed to the Federal Reserve’s decision to cut its benchmark interest rate by ¼ of a point and its signal that additional cuts in coming quarters are not as likely as originally thought.
Since the cut had already been priced into the market, the delay or elimination of future cuts lessened corporate prospects and drove share prices downward. https://www.federalreserve.gov/newsevents/pressreleases/monetary20190731a.htm
Another, and perhaps more significant, contributor to the troubles with equities around the world and locally is the continued trade tensions between the world’s two largest economies, the U.S. and China.
President Trump issued additional threats and is planning to impose additional tariffs on Chinese imports. The restrictions in trade reduce overall economic activity, and not just for the two countries directly involved. For example, demand for raw materials and component parts is lowered if the end users require less of the finished products. Also, the tariffs increase costs to buyers (i.e. consumers) when the tariffs are sent to the Treasury. https://www.bloomberg.com/news/articles/2019-08-01/trump-ratchets-up-trade-war-with-new-tariffs-on-chinese-imports
What’s ahead for this week?
In Canada, the short trading week due to Ontario’s Civic Holiday closing of the TSX has a light economic announcement calendar with June’s building permits and July’s housing starts and employment report.
In the U.S., a similarly light week is planned with June’s wholesale inventory levels and July’s Producer Price Index (PPI).