balanced fund quarterly report

March 31, 2020

Economic Commentary

The COVID19 virus quickly became a global pandemic and had a devastating impact on financial markets during the first quarter. As the number of infections escalated, governments around the world began implementing economic shut-down measures to varying degrees. Although Q1 economic growth will no doubt slow, the brunt of the impact will not be felt until Q2, when GDP is expected to show the largest decline on record.

The U.S. Federal Reserve was quick off the mark and led major central banks by cutting interest rates by 50 b.p. in early March. They followed that up with another 100 b.p. cut shortly thereafter, taking the lower band of its target rate to 0%. Canada matched the 150 b.p. cut in rates, with three moves of 50 b.p. each. Governments were a little slower to respond, however, the U.S. announced a $2.2 trillion stimulus package and the Canadian government announced an initial package of $82 billion. These totals will no doubt increase in the future. The Bank of Canada has also embarked on a quantitative easing program for the first time. Similar stimulative measures were put in place in other countries around the world.

Global markets were hit by another blow in early March as the price of oil collapsed 30% as Saudi Arabia launched a price war by increasing production despite the fact that global demand for oil has declined significantly. The actions taken by Saudi Arabia followed attempts to secure a trade deal with OPEC and Russia to reduce the production of oil.

The swiftness and magnitude of the sell-off in global equity markets during the first quarter was unprecedented. Equities did rebound during the last week of the quarter, however, they were still down in the range of 25% from their recent highs. There was a corresponding flight-to-quality in the bond market, with yields on federal government bonds dropping massively in early March, backing off slightly from historic lows to end the quarter.

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