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The week in the markets –
August 9, 2024
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The crisis that wasn’t
- Stocks crashed on Monday on Japanese trading; markets then wound back the clock.
- The story of the week wasn’t much of a story after all.
- So, what happened? And where are we going next?
By now, you may have heard what happened in Japan on Monday; the stock market crashed 12% in a single day over a drama about the now infamous carry trade. For those who missed it, what is a carry trade?
The concept is simple: borrow money from a country with low interest rates, like Japan, and invest it in a country with higher interest rates, often in very low-risk assets. The goal is not to speculate on risk assets but to profit from the difference in interest rates. So, what's the risk? At worst, can't you just sell your investments and pay back the loan?
Alas, there’s no such thing as a free lunch.
The risk comes from currency fluctuations; if the currency of the borrowed money appreciates while you’re executing your carry trade, you may face significant losses when converting your investments back when you close the loan.
Let’s say you borrowed 160 million yen to invest US$1 million in the U.S. You need to close that debt today, but your US$1 million now only gets you 140 million yen. You’d be short by 20 million yen.
What could you do in this situation? You might have to sell investments to cover that debt, which in turn could trigger the kind of sell-off we saw on Monday.
On Tuesday however, Japanese stocks were back up by 10%. The Nasdaq and the S&P 500 (which were also hit hard on Monday) rallied through the week, and by Thursday afternoon the clock had mostly been wound back to last Friday.
This whole situation highlights the importance of staying diversified. Those who panicked on Monday morning are now in a tough spot, while diversified investors barely noticed any impact. Being diversified often means underperforming when stocks surge for no apparent reason, but eventually, there has to be a reward. This week was a prime example of that.
Listen to this week’s podcast for further insights.
This week's market closing value - week ending August 9, 2024
(As of 4:00 PM ET.*)
| EQUITY INDICES | Level | Change | WTD | YTD | 1-year | 5-year |
| CAD | CAD | CAD | CAD | |||
| S&P/TSX | 22,276.39 | 123.81 | 0.56% | 6.28% | 9.87% | 6.39% |
| S&P 500 | 5,344.15 | 10.27 | -0.80% | 16.00% | 22.38% | 13.71% |
| DJIA | 39,497.54 | -239.00 | -1.58% | 8.55% | 15.05% | 9.30% |
| FTSE 100 | 8,168.10 | -6.61 | -1.44% | 9.55% | 10.52% | 4.40% |
| CAC 40 | 7,269.71 | 17.91 | -0.69% | -1.26% | 1.05% | 6.67% |
| DAX | 17,722.88 | 61.66 | -0.59% | 8.40% | 13.78% | 8.93% |
| Nikkei | 35,025.00 | -884.70 | -3.47% | 4.27% | 9.02% | 4.85% |
| Hang Seng | 17,090.23 | 144.72 | -0.05% | 3.98% | -8.91% | -7.21% |
| CURRENCY RETURNS |
CAD | Change | WTD | YTD | 1-year | 5-year |
| US$ | 1.3729 | -0.0137 | -0.99% | 3.58% | 2.31% | 0.76% |
| Euro | 1.4990 | -0.0142 | -0.94% | 2.46% | 1.77% | 0.24% |
| Yen | 0.0094 | -0.0001 | -1.03% | -0.37% | 0.24% | -5.63% |
| CANADIAN TREASURIES | Yield | Change | COMMODITIES | USD | Change |
|---|---|---|---|---|---|
| 3-month | 4.27 | -0.08 | Oil | $77.05 | $3.17 |
| 5-year | 3.02 | 0.12 | Gold | $2,430.65 | -$6.20 |
| 10-year | 3.11 | 0.11 | Natural Gas | $2.16 | $0.18 |
| CANADIAN PRIME RATE |
|---|
| 6.70% |
*The data contained in the charts above is provided by Bloomberg as of 4:00 PM ET. Please note that the final closing market values may vary due to data delays and market settlement.
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