Invesco Canada blog

Insights, commentary and investing expertise

Recent data reveal the economic impact of coronavirus


February 24, 2020
Subject | Coronavirus impact | Macro views

Last week both the S&P 500 and Nasdaq Composite indexes hit all-time highs mid-week before falling significantly at the end of the week on fears about the novel coronavirus (also known as COVID-19) impacting economic growth. Concerns about the contagion were amplified by the release of U.S. Purchasing Managers’ Index (PMI) flash data for February.1 The Composite PMI dropped to 49.6 – its first time in contraction territory since the 2013 government shutdown. Manufacturing PMI fell to 50.8 from 51.5 in January, with the coronavirus outbreak being blamed. Services PMI was especially hard hit (falling to 49.4 from 53.4) and is now technically in contraction territory.
 
As of today, Feb. 24, we are seeing a global sell-off in equities and a rush to “risk off” asset classes such as gold and U.S. Treasuries. Bond yields have dropped like a lead balloon on coronavirus fears. As of this writing, the 10-year U.S. Treasury yield is at its lowest level since 2016, and the 30-year is at its lowest level ever.2 The 10-year/3-month yield curve has inverted, and the 10-year/2-year yield curve is close to inverting. I have found that, historically, the 10-year U.S. Treasury yield has been a far better gauge of fear than the VIX – and the 10-year is telling us that there are serious concerns that this contagion will impact global growth.

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The market impact of coronavirus has begun to spread


February 18, 2020
Subject | Coronavirus impact | Macro views

The floodgates are opening. Companies are beginning to warn that the coronavirus outbreak will impact earnings, and stocks have begun to react negatively. Yesterday, Apple announced that the contagion will cause it to miss revenue forecasts for the quarter. The problems are on both the sales and production ends: Most Apple stores in China remain closed, and while Apple factories there have reopened, they are not operating at full capacity but instead are slowly ramping up production. In addition, Tesla and Alibaba have recently provided coronavirus-related earnings warnings. Alibaba has gone so far as to label the coronavirus outbreak a “black swan event.”

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Three key takeaways from the Fed’s Monetary Policy Report


February 10, 2020
Subject | Macro views

In last week’s blog, I noted that what I would be following most closely that week was the release of the Federal Reserve’s Monetary Policy Report, because it provides insight on what the Fed is thinking. On Friday, the Fed released this semi-annual report in advance of Fed Chair Jay Powell’s Humphrey-Hawkins testimony before Congress on Feb. 11 and 12. As is customary, several special topics were covered in the report. Below, we focus on three key takeaways: U.S. manufacturing, the role of monetary policy rules in times of uncertainty, and the coronavirus epidemic.

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Three issues that could keep global markets reeling


February 3, 2020
Subject | Macro views

Last week was a momentous one for markets, with coronavirus fears gripping markets and creating a risk-off environment. Stocks sold off while yields on government bonds also fell. Over the course of less than two weeks, the yield on the 10-year U.S. Treasury fell from over 1.8% to 1.51%, and the yield on the 10-year German bund dropped from -0.22% to -0.44%.1
 
This week, I see potential for continued market volatility, both to the upside and the downside. Here are three key issues I’m watching:
 

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Assessing the market impact of the Wuhan coronavirus


January 27, 2020
Subject | Coronavirus impact | Macro views

The outbreak of novel coronavirus in Wuhan, China, and in pockets around the world has garnered significant public concern, and the global financial market is on edge. We have received numerous questions about the potential impact to investors and how the economic effects of the coronavirus might compare to past outbreaks such as the spread of SARS (Severe Acute Respiratory Syndrome) in 2003. Below, we seek to answer those questions, given the best information that we have at this time.

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The U.S.-China trade deal presents a paradox for markets


January 21, 2020
Subject | Macro views

Last week, the U.S. and China signed their Phase 1 trade agreement. This trade deal is a paradox – in my view, it is both inconsequential and yet extremely important.
 
It is inconsequential for two reasons: Tariffs will remain in place on a large amount of goods traded between the U.S. and China, and the deal doesn’t tackle many of the most important trade issues between the two countries. However, it is extremely important because of what it symbolizes: This trade deal suggests that friction between the two countries has peaked and is moving lower. The psychological effect is very significant, as it means that economic policy uncertainty has fallen. And, when companies believe economic policy is more certain, they typically spend more, especially on capex.

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What could the U.S.-Iran conflict mean for investors?


January 14, 2020
Subject | Invesco | Macro views

After the U.S. killing of Qassim Suleimani on Jan. 3 and Iran’s retaliatory, non-lethal missile strike against two U.S. military facilities in Iraq on Jan. 7, the situation appears to have de-escalated. However, investors continue to worry about the potential for this conflict between the U.S. and Iran to worsen. We do not believe that a war is likely at this juncture, but it is important to understand the potential effects that such a worst-case scenario could have on the markets.

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Five issues for investors to watch in January


January 7, 2020
Subject | Invesco | Macro views

2019 was a great year for markets, and equities delivered strong returns for the year. U.S. stocks led the way at 29.07%, Chinese stocks returned 20.94%, European stocks returned 20.03%, and emerging markets delivered 15.42%.1 But the ride wasn’t always smooth, with ongoing geopolitical sagas (like Brexit) and short-term market events (like the inverted yield curve) rattling markets – and investors’ resolve – along the way.

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A holiday gift for markets: Increased economic policy certainty


December 17, 2019
Subject | Institutional | Macro views

Two developments last week suggest that we have entered a period of improved economic policy certainty. Both the UK election and the US-China Phase 1 trade deal promise to bring far more clarity for businesses as they plan for 2020 and beyond. If so, this could be a welcome gift for the economy and the stock market as we enter the holiday season.

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Is global trade entering an era of ‘vigilante protectionism’?


December 11, 2019
Subject | Institutional | Macro views

I grew up in the New York City area in the 1980s. My dad always read the tabloids, and so I started to do so as well. That’s where I first learned about a fascinating phenomenon – the Guardian Angels. This was a large group of concerned citizens who wore distinctive uniforms, most notably red berets, and patrolled subways and other public areas in an attempt to prevent crimes from occurring during what was perceived to be a lawless time for New York City. In the beginning, the Guardian Angels were labeled by the tabloids as “vigilantes” who were “taking the law into their own hands.” Today, they are a reminder of how chaotic New York City was at that time.

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2020 outlook: An optimistic view of capital markets


December 3, 2019
Subject | Institutional | Macro views

Welcome to December – just one more month until a new year begins (and, depending on how you do the math, a new decade as well). Naturally, this is the time when market-watchers issue their forecasts for what may lie ahead, and my team is no exception. Simply put, we expect continued monetary policy accommodation with little fiscal stimulus. Therefore, we are more optimistic about capital markets than we are about the overall economy, and we favor risk assets over non-risk assets for 2020. Below, I highlight some of the reasons why. An in-depth analysis is available here.

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Amid a host of central bank developments, one constant remains: global market pressure


November 26, 2019
Subject | Institutional | Macro views

Last week brought a number of key developments from central banks around the world, from the release of the Federal Reserve’s (Fed) latest meeting minutes, to a reaffirmation of the Bank of Canada’s (BOC) monetary policy, to the first speech from European Central Bank (ECB) President Christine Lagarde. These underscored the key differences between each central bank, but I see one constant: the continued pressure imposed by trade war tensions and a slowing global growth outlook.

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What could the upcoming U.K. election mean for Brexit?


November 19, 2019
Subject | Macro views

On Dec. 12, the U.K. is holding a general election, and the outcome is difficult to gauge. While the Conservative and Labour parties try to broaden the debate, the dominant theme remains Brexit. To give us a preview of this important election, I’m turning over today’s Weekly Market Compass blog to my colleague Paul Jackson. Paul is based in our London office and has been tracking the election news and polls closely.

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Will this week’s data confirm last week’s optimism for stocks?


October 29, 2019
Subject | Macro views

Last week was a “risk on” week for the markets, with stocks rising. The MSCI All Country World Index rose during the course of the week, the S&P 500 Index came close to its all-time high, and the tech-heavy Nasdaq Composite Index surged a robust 1.9%.1 U.S. Treasury yields also rose as fear dissipated – the 10-year Treasury yield rose to 1.8% and the 30-year finished at 2.29%.1 By the end of last week, there was a relatively comfortable 18-point spread between the 2-year and the 10-year Treasury yield.1

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Should investors be scared of a Halloween sell-off?


October 22, 2019
Subject | Macro views

Many people around the world observe Halloween in the month of October, celebrating all that is spooky and macabre. My kids have all been enthralled with Halloween, choosing their costumes several months in advance (one year, my older son insisted on wearing his costume every single day of the month of October). And plenty of adults who have outgrown trick-or-treat still believe that October would not be complete without horror movies running non-stop throughout the month. But no matter if you celebrate with cute kids’ costumes or elaborate haunted houses – what makes Halloween fun is the knowledge that the scares aren’t real.

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News versus noise: Assessing the market impact of three major headlines


September 30, 2019
Subject | Macro views

One of the key themes I have been discussing in the last several years is geopolitical disruption – and we got a heavy dose of it last week. However, one of my main points over the past few years is that investors should try to identify the geopolitical disruption that really matters for the economy and markets, and ignore the events that are just background noise (most fall into this category, in my view). In particular, issues that can increase economic policy uncertainty are what we need to be sensitive to, as they can have significant consequences for economies and markets. Below, I assess today’s three major headlines and where they fall on the spectrum of “news versus noise” in relation to their potential longer-term impact on the markets.

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Markets shake off a series of unusual events


September 23, 2019
Subject | Macro views

I am the mother of three, including a 13-year-old girl and a 12-year-old boy. Like many American children their age, they spent the last several months obsessed with an urban myth surrounding Area 51. Many conspiracy theorists believe that Area 51, a secretive Air Force base in Nevada, is being used by the U.S. military to house aliens. One creative guy thought it would be funny to start an online movement to storm Area 51 this past weekend. What began as a joke gathered steam quickly, and 2 million people signed up to force entry into Area 51. That huge response created great excitement and anticipation about what the event would bring.

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Could ‘helicopter money’ help Europe’s economy take flight?


September 16, 2019
Subject | Macro views

Last week, the European Central Bank (ECB) decided to take a significant step away from normalization and toward more accommodation. It cut the deposit facility rate by 0.1% to a level of -0.5% (the first time the deposit rate has changed since 2016) and announced a re-ignition of quantitative easing (QE).1

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