____Posted Tuesday July 11 2017 ____

Chart of the Week

Score for the First Half

by Mike Hayhoe

For those keeping score (count me in that camp) below is a chart showing Year-to-Date (YTD) returns for major global financial assets.

Chart and commentary courtesy of Deutsche Bank

Comentary: "32 out of 39 assets in our sample have delivered a positive total return while 35 assets have done similar in USD terms. In summary, equity markets have led the way with 9 out of the top 10 positions in our leaderboard. The peripherals stand out the most with the Greek Athex (+40%), Spanish IBEX (+24%) and Portugal General (+22%) all delivering decent double digit returns. European Banks (+20%) have extended a rally which started this time a year ago following a torrid start to 2016. EM equities (+19%), Stoxx 600 (+17%) and the S&P 500 (+9%) have also seen a more than solid start to the year. For bonds, in USD terms returns sit in the +2% to +9% range with the peripherals outperforming."

A couple of point of interest:

1. Canada doesn't even make the list! Hmmm. The TSX is down slightly on a YTD basis making us the worst performing major stock market in the world so far (compliments of our heavy energy weighting).

2. The best performing indices are all in Europe as capital has flowed into the continent on the back of continued ECB (European Central Bank) stimulus and positive election results in France.

3. Oil is by far the worst performing major commodity down almost 20%. This on the back of continued US Shale production growth (see WSJ article referenced further down).

Arguably a good portion of this continued rise in most assets has been driven by continued Central Bank stimulus.

YTD Central Banks have bought $1.5 Trillion of assets (mostly European Bonds and JGBs but also some stocks and ETFs). The big, big question is what will happen when this ends??

It is hard not to see some sort of correlation between Central Bank balance sheets and global equity markets.

That said, as it stands right now, Central Banks, led by the Fed (and now Poloz here in Canada) are signaling it is going to end. The Fed has raised rates 3 times so far this year, and is now talking about starting to shrink its massive balance sheet. This is sending tremors through all markets and investors try to determine how this will play out. So far, bonds are gold are taking the biggest hit but cracks are starting to show in the equity market. It should make for a very interesting second half.

Mike Hayhoe, BSc, CIM® is Branch Manager & Senior Investment Advisor at Independent Wealth Management Canaccord Genuity Wealth Management, Kitchener

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