Third Quarter 2012 Review

The Canadian equity market as measured by the S&P/TSX Composite Index increased 7.0% during the third quarter after a rough second quarter. Gains were led by the materials, energy, and health care sectors with 13.1%, 8.5% and 8.1% returns respectively. All ten sectors posted positive returns for the quarter.

Global equity markets were also positive (with the exception of Japan) with the MSCI World Index returning 3.1% in CAD. Emerging markets rebounded from last quarter with a 4.1% return. Markets were propped up on news of several global central banks' plans for significant easing. ECB President Mario Draghi, stated that they would do whatever it takes to save the euro hinting at unlimited sovereign bond buying. U.S. equities increased 2.7%, following the U.S. Federal Reserve's announcement that they will purchase mortgage-backed securities every month until the labour market improves substantially.

Fixed income posted positive returns with the DEX Universe Bond Index increasing by 1.2%. Provincial issues as well as municipal and corporate bonds outperformed the overall Index while federal bonds lagged. Long-term bonds outpaced shorter-term maturities. The short-end of the Canadian yield curve flattened as the one-year and five-year yields increased. The spread between Canadian and U.S. long bonds increased during the quarter as the U.S. yield curve continues to react to operation twist. The Bank of Canada maintained its overnight rate at 1.0%, while the U.S. Federal Reserve left the Fed Funds Rate target unchanged at 0-0.25% and extended its interest rate outlook to mid-2015.