October in Review

Despite a slow start to October that saw a sell-off in equity markets, most Canadian and U.S. indices posted positive returns for the month. Meanwhile, the U.S. Federal Reserve Board (the Fed) announcement produced a surge in the U.S. dollar and a notable selloff in U.S. Treasuries. After pulling back 5% to 7% in the first half of October, most major indices in North America rebounded strongly in the latter half to end the month in positive territory, illustrating that the October Effect is simply a theory.

Declining oil prices ground the loonie, affecting short-term growth?

The loonie fell to a five-year low in October on weakened oil prices. It is expected that Canada’s currency and short-term growth will continue to decline without a sustained turnaround in the commodity. In the long-term however, the Canadian economy remains on track for growth as the Bank of Canada projects the country’s gross domestic product (GDP) growth to average close to 2.5% in 2015 before slowing gradually to 2% by the end of 2016.

Federal Open Market Committee (FOMC) announcement; the hawks strike back.

The Fed stuck to its script of announcing the end of its stimulus program in October. In addition, they indicated they were optimistic about the job market and less worried about inflation running below their 2% target. On employment, the Fed believes that the labour market is reaching its full potential, stating the “underutilization of labour resources is gradually diminishing”. Despite conceding that lower energy prices could hold down inflation over the short-term, the Fed still thinks that it will begin to increase towards its 2% target, stating that “inflation running persistently below 2% has diminished somewhat since early this year.”

China: to grow, or not to grow?

China posted GDP growth of 7.3% in the third quarter, beating the consensus estimate of 7.2%. From a longer-term perspective, the country recorded its slowest expansion since 2009, leaving investors with mixed feelings. While it’s a positive sign that the latest GDP numbers beat expectations, the country is still considered at risk of missing its official target for the first time in 15 years.

European banks ease loan standards as the European Central Bank (ECB) begins stimulus program.

Eurozone banks have recently eased lending standards to the private sector. This news indicates the banks are becoming more willing to offer funds to credit-starved firms and households – a positive sign for growth. The primary driver of this easing is the ECB’s promise of delivering its stimulus package to try to get the eurozone back on its feet, which officially started last month.