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Stubbornly high U.S. inflation and declining consumer sentiment weighed on markets last week, with across-the-board weekly losses for the major North American indexes.
The U.S. consumer price index rose to an annual 8.6% in May, up from 8.3% in April, posting its highest reading since late 1981. In tandem, the University of Michigan’s consumer sentiment index sank to 50.2 in the preliminary June survey, down from 58.4 n May, its lowest-ever reading since the inception of the survey in the mid-1970s.
As investor expectations for an early end to inflation were dampened, and the probability of 50-basis-point rate hikes by the Federal Reserve Board increased, U.S. 2-year Treasury note yields rose to 3.07%, and the yield on 5-year notes rose above the yield on 30-year notes, an inversion that has often signalled a slowdown in economic activity leading to recession.
The souring investor sentiment sent the big indexes on a steep slide for the week, with the S&P 500 Composite Index dropping 5.1%, while the Nasdaq Composite Index retreated 5.6%.
In Canada, the dollar fell 1.3% on the week against the U.S. dollar as investors expect both the Bank of Canada and the Federal Reserve to continue aggressively raising rates and tightening monetary policy (that is, quantitative tightening) in an effort to get inflation back under control. The yield on Canadian 2-year government bonds rose above the 30-year yield for the first time since February 2020 when pandemic lockdowns sent markets into a tailspin. The S&P/TSX Composite Index lost 2.5% on the week, with all the major subindexes in the red. The heavily-weighted energy sector helped dampen losses, holding relatively flat on the week with a 0.1% loss as crude oil edged back 0.2% on the week. Gold rose 1.1% on the week, but that wasn’t enough to boost the materials sector out of a 1.2% retreat on the week.
* Ninepoint announces new income fund. Ninepoint Partners LP on June 6 announced plans to launch its Ninepoint Target Income Fund, a mutual fund aiming to deliver a target yield to investors. An ETF series is expected to be listed on the NEO Exchange, trading under the symbol TIF, following the fund launch.
The fund aims to provide unitholders with stable, monthly distributions and lower volatility than a direct investment in the broad equity markets by investing primarily in a diversified portfolio of equity index based investments that generates income and using derivatives strategies to moderate the market volatility of those investments.
The fund seeks to generate income by primarily selling put options on broad equity indexes, including exchange traded funds (ETFs). In addition, the manager enters into, or obtains exposure to, systematic put selling strategies through the use of instruments such as swaps. The fund aims to have exposure of at least 70% to North American equities.
The Fund is expected to be available for purchase on or about June 28, 2022, and the ETF series units are expected to be available for trading on June 30.
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