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Market and Investment Insights

September 2022 Commentary & Performance Review

Equity markets reversed course in September, following the longstanding pattern of weak returns at the start of the ‘fall’ season. Comments from central bankers left little doubt about their commitment to achieving price stability by returning inflation to their 2% target. Inflation across the globe appears to be stickier than anticipated, even as input costs relating to commodities have fallen. If inflation persists, central banks will be forced to engineer a dramatic economic slowdown to avoid a wage-price spiral, where workers demand higher wages to compensate for inflation, which in itself reinforces inflation as labour costs rise.

Global energy markets remain tight, with demand for crude oil and natural gas exceeding production. While producers have brought more rigs back into operation after a prolonged shutdown due to COVID, the US has continued to release and export inventory from their Strategic Petroleum Reserve. This has relieved some of the pressure on oil prices but has left fewer supplies available for the heating season, leading to some estimates of US$118 per barrel or more, significantly higher than where the price ended September at ~US$85.

The Organization for Economic Co-Operation and Development (OECD) revised their global growth targets for 2023. They maintained global growth for the current year at 3% although they are now anticipating growth will decelerate faster in 2023, adjusting their target to 2.2% from 2.8%. In particular, the OECD is forecasting a contraction in the Eurozone, with energy supply disruptions harming economic activity. Financial markets are already reflecting a very poor outcome and could improve rapidly as Europe emerges from the winter.

The UK Pound has likely seen its lows for the next few years, trading nearly at par with the US Dollar. The new UK government formed under Prime Minister Truss released plans for a massive debt-financed package focused on tax cuts and energy support. Investors worried that adding debt and reducing tax revenue during a period of rising rates could cause repayment issues, leading to a substantial liquidation of UK government bonds, called Gilts. This wreaked havoc on investment strategies implemented by UK pension plans, which culminated in the Bank of England stepping into the market to provide stability. 
 

Portfolio Contributors

  • Units of Ninepoint Gold Bullion (NPP226) gained 2.01% when the US dollar temporarily weakened, and investors moved into the precious metal.
  • Johnson & Johnson (JNJ) rose 1.25% after signing a deal to provide vaccines to South Africa through partner Aspen Pharmacare.

Portfolio Detractors

  • Nucor Corp. (NUE) dropped 19.14% as a slowing global economy weakened demand for steel. We trimmed this position, taking profits, a few months ago.
  • Shares of Tourmaline Oil (TOU) fell 15.49% along with other renewable energy stocks due to a risk-off sentiment and rising costs of servicing debt.

All returns are for the reported month and in local‐currency.
All data sourced from SIACharts and FACTSET.

CrossPoint Financial september2022_chart

Proxy funds used for benchmark indexes:

  • Canadian Universe Bond Index: iShares Canadian Universe Bond Index EFT (XBB.TO)
  • MSCI World Index (CAD): iShares MSCI World Index EFT (XWD.TO)