Aligned
                    Logo
Discover

Growing Your Wealth Your Way

We are able to provide a wide variety of investment choices including mutual funds, ETFs, stocks, and bonds.

We are an independent investment service. The investment decisions we develop with you are not tied to any directive or incentive to promote specific products. We assist you to design a portfolio that aligns with your objectives.

Market Updates

Market Updates Source: Advisor Research Group
The following content is offered to clients of Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) provided by Advisor Research Group Inc. The information in this commentary is for informational purposes only, from sources believed to be accurate, and is not meant to be personalized investment advice. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

Last Week in the Markets – September 12 – 16, 2022

2022-09-16 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Inflation news dominated markets again. After holding steady in July, the U.S. Consumer Price Index (CPI) rose 0.1% in August and 8.3% over the last 12 months according to the Bureau of Labor Statistics. For comparison, the Canadian CPI for the last reported period of July from StatsCan rose 7.6% year-over-year. Canadian consumer inflation data for August will be released during the coming week to allow a more compelling comparison between the two neighbouring countries.

The widely held belief that U.S. consumer inflation has peaked has been shown as inaccurate. Markets had expected inflation to have levelled off, or even declined. Since Monday’s closing levels the major North American indexes have fallen an additional 1 to 2% more than their performance for the week. These most recent losses have erased the gains made since September 6th, but not much more than that.

It is expected that the Federal Reserve must now deliver a large interest rate increase next week. The economic headwinds of rising interest rates are increasing fears of recession and lowering corporate profit predictions in the longer-term, while lowering stock prices in the short-term, like last week.

The downturn for equities reflects the belief that interest rates will be raised significantly at the next opportunity by the Fed, and that rates will remain higher longer than previously expected to counteract heightened inflation. The expected economic slowing from higher interest rates also negatively affected the price of gold and oil as the demand for these commodities is predicted to fall. https://www.bloomberg.com/markets/commodities

What’s ahead for this week and beyond?

In Canada, consumer inflation for August will be announced on Tuesday morning. The new housing price index and retail and wholesale sales will be released by the end of the week.

In the U.S., the National Association of Home Builders will release their market index, and building permits, housing starts, and existing home sales will also be announced. The Federal Reserve will issue its economic projects and a statement on Wednesday along with its interest rate announcement.

 

Last Week in the Markets – September 5 – 9, 2022

2022-09-09 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Equities rebounded this past week in an almost equal amount to the ground lost during the week that preceded it (August 29 to September 2). The predictions for inflation, economic growth, employment, and monetary policy responses will continue, and the effect on markets from all these factors will also continue.

The Bank of Canada increased its policy interest rate, the overnight rate, by ¾% (75 basis points) on September 7th, one day before the European Central Bank (ECB) delivered an identically sized increase.  “The Canadian economy continues to operate in excess demand and labour markets remain tight” according to the Bank of Canada’s press release.  In both geographies, interest rate increases are intended to temper inflation by reducing demand.  ECB Press Release

On Friday morning StatsCan released the latest employment data. In August, the Canadian economy lost 40,000 jobs, the fourth consecutive month with declining employment levels. The unemployment rate increased 0.5% to 5.4% in August, up from the record lows of June and July. Despite the recent downturn in employment, the number of employees exceeds pre-pandemic levels.  StatsCan source

Map illustrating global interest rates

The heavily influential Federal Reserve will release a new monetary policy on September 21st.

What’s ahead for this week and beyond?

In Canada, manufacturing and wholesale sales, and housing starts are scheduled to be announced.

In the U.S., Tuesday will bring the consumer and producer inflation numbers and import and export price indexes, which may foreshadow the Federal Reserve’s next monetary policy move.

Globally, industrial production, wages, trade balance, and consumer inflation (particularly Germany, France, and Italy) for the Eurozone will be released. China’s retail sales for August will be announced.

 

Last Month in the Markets – August 1 – 31, 2022

2022-08 Monthly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened in August?

Last month was tumultuous for equity investors. Much of the volatility has been and will be, based on inflation, the reaction by central banks, and the anticipated actions of central banks. Equities, represented by the major North American indexes peaked in the middle of the month. It had been a series of stepped gains for the first half of the month before beginning a gradual decline that accelerated near the end of the month. From their mid-month peak until the end of the month, the TSX dipped 4.6%, the S&P500 fell 8.1%, the Dow dropped 7.7% and the NASDAQ plummeted 10.0%. The All-Country World Index (ACWI) lost 6.5% of its value by month’s end from its August peak.  Bloomberg & ARG calculations

2022-08-Indices

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis) 

The quickening decline began near the end of the month and immediately followed the address delivered by Jerome Powell, Federal Reserve Chair, on August 26th.  Speaking at the Fed’s Jackson Hole Symposium, Powell outlined three lessons of the past that will be applied to the current high inflation situation:

  1. Central banks can and should take responsibility for low and stable inflation. Although the Fed’s actions only address the demand-side of the supply/demand imbalance that is driving current inflation, their responsibility is not reduced.
  2. The public’s expectations about future inflation can play an important role in setting the path of inflation over time. The anticipation of high inflation can become entrenched in decision-making for businesses and households, because “inflation feeds, in part, on itself”.
  3. The Federal Reserve “must keep at it until the job is done”. The Fed must act with resolve now by taking forceful and rapid steps to moderate demand, align it with supply, and lower expectations of high inflation.

At this closely watched meeting, which is also attended by international central bankers, Powell laid out the Federal Reserve’s relatively aggressive stance to tame inflation. The rapid, negative reaction by equity markets suggests that a gentler approach than Powell outlined was anticipated. It appears that analysts had hoped that the Fed would scale back its inflation-fighting measures and provide less resistance to economic growth and corporate profitability. No measures were announced, but prior, unfounded speculation that a less restrictive approach could be implemented led to the drop in equity values. Chair Powell’s full remarks can be found at https://www.youtube.com/watch?v=zJ3sEeArWlw

The last economic news of August was released on the 31st.  The Canadian economy grew by 0.1% in June, 0.8% in the second quarter, and an annualized rate of 3.3% during the second quarter. Household spending grew for services and semi-durable goods, business increased inventories, machinery and equipment, and structures, while housing investment and durable goods orders declined. This was the fourth consecutive increase in quarterly GDP. StatsCan source

U.S. payrolls grew by just 132,000 in August according to ADP Research, the smallest gain since February 2021. Gains were made in leisure, hospitality, trade, transportation, utilities, and construction with cuts in finance, information, business services, education, and health services. The U.S. government will release its official jobs data for August through the Bureau of Labor Statistics on September 2nd. https://adpemploymentreport.com/

What’s ahead for September and beyond?

The investing path will be defined by inflation, and the actual and predicted monetary policy that reacts to it. With inflation high and rising in developed economies it is necessary for several countries and regions to act in concert with similar actions occurring at a similar timing.

The Governing Council of the European Central Bank (ECB) meets on September 8th to set monetary policy. The anticipated interest rate increase is 50 or 75 basis points. The Euro has lost ground against other currencies (12% down against USD) pushing the cost of imports higher, worsening inflation further. The ECB’s action may foreshadow Fed and Bank of Canada moves later in September. https://www.bloomberg.com/news/articles/2022-08-29/ecb-sets-stage-for-another-big-hike-with-jumbo-move-possible

One of the next actions from the Federal Reserve will be the full implementation of its Quantitative Tightening program to reduce its bond portfolio. In September, the Fed will lower its bond holdings by $16 Billion, and another $13 Billion in October. These amounts represent the first time in the last three years that the total balance of the bond portfolio will be reduced. The reduction of supply will tighten the availability of funds and raise longer-term interest rates.  Quantitative Tightening source

The Bank of Canada will announce its next interest rate decision on September 7th, just prior to the ECB and two weeks before the Federal Reserve’s next monetary policy meeting. Consumer inflation data for Canada, the U.S., and Eurozone will be released on September 20th, 13th, and 16th, respectively. Each of the central banks will address its own inflation situation, and similar reactions are expected. The magnitude of the response may vary at these next meetings, but all three institutions are committed to returning inflation to target levels of 2%.

 

Last Week in the Markets – August 29 – September 2, 2022

2022-09-02 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The reality of the inflation environment and central bank positioning continued to control equity markets last week. When Federal Reserve Chair, Jerome Powell, stated his resolve to tame inflation in his August 26th speech at the Jackson Hole Symposium, markets took notice, and continue to do so. He stated that the negative effects of long-term inflation, the accompanying instability, and the inclusion of inflationary considerations into economic decision-making by individuals and firms, will deliver far more damage than measured monetary policy. His stance to stop inflation with his central bank’s actions is firm.

The Bank of Canada, European Central Bank, and Federal Reserve will announce interest rate decisions within the next three weeks (September 7, 8, and 21, respectively), and equity markets seem to have taken Powell at his word. North American indexes have reacted with an uptick in volatility and sizeable overall losses. Last week was the second consecutive week that American stocks lost 4%, while the TSX has dropped less by 1 and 3 % for the last two weeks.

The U.S. labour market continued its strong performance as 315,000 jobs were added in August. The unemployment rate rose 0.2% to 3.7%, which is still below February 2020 levels. The rise in the unemployment rate was partially driven by an increase in the Labour Force Participation Rate.   BLS Release

Canada’s economy’s health represented by Gross Domestic Product (GDP) rose 0.1% in July, 0.8% during the second quarter, and at an annual rate of 3.3%.  This was the fourth consecutive quarter of increasing domestic economic output as the pandemic recovery continues.   StatsCan Release

The robust U.S. jobs market and the health of the Canadian economy support the tightening of monetary policy that Powell stated, which has resulted in losses for equity investors.   BNN source

What’s ahead for this week and beyond?

In Canada, following Labour Day on Monday and a quiet Tuesday, the economic news shifted into high gear with the Bank of Canada announcing its interest rate decision at 10 am Eastern on Wednesday.  Employment numbers for August will also be released.

In the U.S., Purchasing Managers Indexes from ISM for services, manufacturing, and non-manufacturing industries, July’s imports, exports, and trade balance are scheduled for release after Labor Day.

Globally, the European Central Bank will announce its latest interest rate decision on Thursday, one day after second-quarter employment and GDP data for the Eurozone is released. China’s consumer and producer inflation, imports, exports, and trade balance for August are scheduled.

 

Last Week in the Markets – August 22 – 26, 2022

2022-08-26 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

After a short rally on Wednesday and Thursday, equity markets tumbled on Friday. At 10 am Eastern, Jerome Powell, Chair of the U.S. Federal Reserve Bank delivered brief remarks at the annual Jackson Hole Symposium. He believes that the benchmark “federal funds” rate has reached its long-run neutral level, and further rate increases will be required to return consumer inflation to the Fed’s long-term target of 2%. In a shorter, more narrowly focused, and direct message, he stated that three lessons from previous periods apply to the current situation:

  1. Central banks can and should take responsibility for low and stable inflation. Although the Fed’s actions only address the demand-side of the supply/demand imbalance that is driving current inflation, their responsibility is not reduced.
  2. The public’s expectations about future inflation can play a key role in setting the path of inflation over time. The anticipation of high inflation can become entrenched in decision-making for businesses and households, because “inflation feeds, in part, on itself”.
  3. The Federal Reserve “must keep at it until the job is done”. The Fed must act with resolve now by taking forceful and rapid steps to moderate demand, align it with supply, and lower expectations of high inflation.

Powell’s full remarks can be found at https://www.youtube.com/watch?v=zJ3sEeArWlw

The remarks, which indicated that interest rates will go higher and remain high until inflation is tamed, caused equity markets to drop. The S&P 500 tumbled 3.4%, the Dow fell 3%, the NASDAQ lost 3.9%, while the TSX dropped 1.5% on Friday following Powell’s speech.  Post-Powell source

What’s ahead for this week and beyond?

In Canada, Gross Domestic Product for June and for the second quarter will be released with July’s building permits, manufacturing Purchasing Managers Index (PMI), and labour productivity.

In the U.S., following the Fed’s Jackson Hole meeting several members of the FOMC (Brainard, Barkin, Bostic, Williams) will deliver speeches this week. The JOLTs job opening, housing price index, mortgage marketing, mortgage refinance indexes, PMIs, factory orders, and August non-farm payroll numbers will be released.

Globally, the Eurozone business climate, consumer confidence, and consumer inflation expectation will be announced along with their consumer inflation figures. Also, Japan’s unemployment, industrial production, retail sales, housing starts, and construction orders will be released along with China’s industrial profit, manufacturing, and non-manufacturing PMIs

 

Last Week in the Markets – August 15 – 19, 2022

2022-08-19 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Canadian consumer inflation data was released last week, and it continued the trend of tempering which is also occurring in the U.S. Falling gasoline prices offset rising food costs to drop July’s year-over-year inflation rate to 7.6%, down from 8.1% in June. For the seventh consecutive month, prices rose on a month-to-month basis, but only slightly at 0.1% over the course of July. Gasoline prices dropped 9.2% in July while groceries (food bought at stores) rose by 9.4%. Both food and energy are volatile, and the all-items inflation excluding food and energy was 5.5% year-over-year. https://www150.statcan.gc.ca/n1/daily-quotidien/220816/dq220816a-eng.htm?HPA=1

The pressure on the Bank of Canada to rapidly raise interest rates is easing, but it has not abated as inflation is well above the 2% target.

Rising interest rates resulting from monetary policy actions already undertaken by the Bank of Canada and the Federal Reserve have contributed to a slowdown in the U.S. housing market. In July, residential building permits fell by 1.3% overall and 4.3% for single-family homes. Housing starts dropped 9.6% in July and have fallen by 8.1% compared to July 2021. Similar effects are expected to occur across Canada when comprehensive housing data is released here. https://www.census.gov/construction/nrc/pdf/newresconst.pdf

The higher interest rates, which will increase further despite slowing inflation, are expected to negatively affect corporate earnings. The highly resilient corporate profits are predicted to fall as the second half of 2022 is reported. The equity markets reflected that sentiment last week. https://www.bloomberg.com/news/articles/2022-08-21/recession-fears-set-to-split-stocks-and-bonds-after-summer-rally?srnd=markets-vp

What’s ahead for this week and beyond?

In Canada, after several busy weeks of economic announcements, a light week is planned with the new housing price index, wholesale sales, and the federal government’s budget balance scheduled.

In the U.S., Purchasing Managers Indexes from PMI will be announced and accompany pending home sales, new home sales, durable goods orders, personal income and spending, and Gross Domestic Product for the second quarter. The Federal Reserve will hold its annual Jackson Hole Symposium.

Globally, Japan’s Consumer Price Index and China’s industrial profit will be released. The European Central Bank will publish its monetary policy meeting minutes. Consumer confidence numbers will be announced by Italy, France, and Germany.

 

Last Week in the Markets – August 8 – 12, 2022

2022-08-12 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

Markets reacted swiftly to the better-than-expected and declining U.S. consumer and producer inflation news released last week. The year-over-year rates of inflation represented by the Consumer Price Index (CPI) and Producer Price Index (PPI) fell slightly. Inflation was expected to have risen last month. Prices for consumers were unchanged in July compared to June and the year-over-year inflation rate dropped from 9.1% to 8.5%. Prices for producers rose 9.8% in July on an annualized basis, which is below the reading in June of 11.3%. The response from equities was overwhelmingly positive, and our grid, above, delivered an “all green” week.

Even at this lowered level, inflation remains historically high and well beyond the Bank of Canada and Federal Reserve’s 2% target level and 1 to 3% range. The Fed is expected to continue to raise interest rates, but the lessening of inflation suggests that interest rates may not be raised as quickly or as high.

The market has priced in a 50-basis point (0.50%) increase by the Federal Reserve to its federal funds rate at its next monetary policy meeting on September 21st.  The Bank of Canada will provide its next interest rate and monetary policy update on September 7th.

The policy rates are expected to rise to about 3½ or 3¾% before pausing in 2023, allowing time for the interest rates to affect the economy. The Federal Reserve is also ending its bond-purchasing program, which had provided additional liquidity to capital markets. This “quantitative tightening” will also work to slow the growth of the economy and in turn inflation.

Corporate returns are expected to follow the path of the economy and inflation and have profits pressured downward by the economic slowdown.
https://www.reuters.com/markets/us/us-consumer-price-growth-expected-slow-due-lower-gasoline-costs-2022-08-10/

What’s ahead for this week and beyond?

In Canada, manufacturing, wholesale, and retail sales will be announced. July’s consumer inflation will be released on August 16th.

In the U.S., building permits, housing starts, existing home sales, industrial production, capacity utilization, manufacturing production, business inventories, and retail sales will be released, and form a wide representation of economic health.

Globally, Japan’s Gross Domestic Product (GDP), capacity utilization, industrial production, machine orders, and consumer inflation will be announced. China’s house prices, industrial production, retail sales, and unemployment figures are scheduled for release. The Eurozone’s GDP and consumer inflation, two very important economic indicators will be announced this week.

 

Last Week in the Markets – August 1 – 5, 2022

2022-08-05 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

The news last week centered around jobs reports and quarterly earnings for the S&P 500, and their implications for upcoming monetary policy balanced against current corporate performance.

“Employment in Canada was little changed (-31,000) in July, and the unemployment rate was unchanged at 4.9%” according to July’s Labour Force Survey released by StatsCan. The services sector lost jobs, while the goods-producing sector added employment. The unemployment rate maintained its record low, and long-term unemployment fell by 23,000 as average hourly wages rose 5.2% on a year-over-year basis.

In the U.S., “total non-farm payroll employment rose by 528,000 in July, and the unemployment rate edged down to 3.5 percent” the Bureau of Labor Statistics reported in their Employment Situation Summary. Long-term unemployment is below February 2020 levels, and temporarily laid-off workers have returned to pre-pandemic levels at 791,000. The American economy has now regained the 22 million jobs that were lost in early 2020 when the pandemic was beginning.

Additionally, second-quarter earnings of the S&P 500 companies that have reported so far show profits are up nearly 7% over last year according to FactSet Insights.

The robust U.S. jobs market and strong earnings show that central bank actions have not taken effect yet. The continued strength in U.S. jobs and the indication that employment is growing rapidly could spur the Federal Reserve to continue to act aggressively at its next monetary policy meeting in September.

Consequently, markets were mixed with strong performance providing some positive influence while the threat of tightening monetary policy delivers a negative tone. This positive/negative teeter-totter will likely continue for the next few months, and until the nature of a recession is well understood.

What’s ahead for this week and beyond?

In Canada, the next major economic announcement will occur on August 16th with the release of July’s consumer inflation. The next scheduled opportunity for the Bank of Canada to adjust monetary policy in response to inflation is September 7th.

In the U.S., another week of important economic news follows as the latest Consumer Price Index (CPI) with month-to-month and year-to-year inflation numbers being released on Wednesday. The Producer Price Index (PPI) and Import and Export price indices will also be released.

 

Last Month in the Markets – July 1 – 29, 2022

2022-07 Monthly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened in July?  

Inflation and central bank actions continued to dominate the news and heavily influence capital markets. Inflation is beginning to be tempered as economic growth slows directly and indirectly from interest rate increases from the Bank of Canada, the Federal Reserve in North America, and the European Central Bank.

2022-07 Indices

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)                                                            

U.S. consumer inflation reached 9.1% as prices rose by 8.1% in Canada on an annualized basis. Canadian monthly price increases over the latest reporting period were halved to 0.7% from 1.4% a month earlier. In the U.S., monthly inflation is continuing to increase. The latest month had 1.3% inflation versus 1% one month earlier. The reporting period for all this inflation information was June and year-over-year to June. U.S. Bureau of Labor Statistics   StatsCan

While June’s data was being collected and analyzed, July provided some respite from price increases. Commodity prices have slowed their growth and, in some cases, reached lower levels. From recent highs near $120 per barrel, oil was trading near $90 in July. Since transportation costs based on fuel prices affect the prices of almost every other good or service, this was welcome anti-inflationary news.

The cost of oil has been heavily influenced by geopolitical matters since the invasion of Ukraine. Although no diplomatic solution has been reached, it appears that Europe’s ability to curtail demand could also be contributing to lower energy prices.

In the current environment of high inflation, the goal of monetary policy is also to reduce excess demand. The European Central Bank (ECB), the Bank of Canada, and the Federal Reserve all raised their benchmark interest rates in July. The ECB, BoC, and Fed moved their rates ½ percent, 1 percent, and ¾ percent higher, respectively. Although each of these major financial regulatory institutions deployed increases of varying amounts, their objective was identical. Inflation is running far outside the target range in each geography and country and increasing the cost of borrowing is the primary method to slow economic growth by slowing demand; which will slow inflation.  ECB Statement   Boc Release    Fed Announcement

These three central banks have indicated that they are “front-loading” interest rate increases. That is, employing larger increases now and then tapering the size of future increases. The markets interpreted that prediction and positioning positively. The promise of smaller, future increases suggests that avoiding recession (or minimizing it) is a major concern. Larger interest rate increases earlier could lead to a shorter economic slowdown/recession.

The Banks’ objective is to slow inflation and not enter a recession by slowing the economy and demand.  The market’s positive response is indicating that central banks are acting appropriately and that the damaging effects of higher interest rates have already been priced into the market.

What’s ahead for August and beyond?

Central bank actions and inflation will continue to dominate investment implications. Since the target rate of inflation is 2%, or a range centered on 2%, a significant amount of time will need to pass to allow current and future interest rate increases to take effect.

 

Last Week in the Markets – July 25 – 29, 2022

2022-07-29 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The ending of July provided positive results for all the indicators in our grid. The year-over-year performance is much closer to neutral than seemed possible only a short time ago. Year-to-date the equity indexes still have losses, but they have been roughly halved lately. As always, several factors are working together to deliver these positive results:

  • After raising benchmark interest rates by ¾ percent (75 basis points) last Wednesday the Federal Reserve indicated that interest rates would rise more gradually with smaller future rate hikes
  • The economy in both Canada and the U.S. is slowing, which permits the slowing of interest rate increases as the slowdown reduces inflationary pressure
    • Canadian Gross Domestic Product (GDP) remained unchanged in May as transportation, agriculture, accommodation, and food services expanded while manufacturing, construction, and mining contracted. Statscan
    • U.S. Q1 GDP decreased (for the second consecutive quarter) at an annual rate of 1.6% according to the Bureau of Economic Analysis after real GDP increased by 6.9% in the last quarter of 2021. Two consecutive quarters of economic contraction meet the technical and traditional definition of a recession. Bureau of Economic Analysis
    • Quarterly earnings reports from S&P 500 firms have been reduced, and several have missed predictions, most firms have exceeded lower expectations. More than 50% of S&P 500 firms have reported and nearly three-quarters of them have beaten estimates. Current earnings do not yet reflect increased interest rates.

In both countries, equity markets performed well on less than stellar news exemplifying the relativity between results and expectations, not results alone. It appears that last week’s news was better than expected and resulted in positive returns for most investors.

What’s ahead for this week and beyond?

In Canada, markets will be closed for the Civic Holiday on Monday. Imports, exports, and trade balance will precede July’s employment report, which will signal the Canadian economy’s growth.

In the U.S., several purchasing managers indexes (PMI) that signify corporate buying optimism for expansion will be released. Friday will include the announcement of the non-farm payroll report for July.

Globally, the Eurozone will also announce imports, exports and trade balance, PMIs and June’s unemployment rate, retail sales, and producer price index.

 

Last Week in the Markets – July 18 – 22, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

Equities regained recent losses, but the major North American indexes remain 8-19% below their levels of one year ago, and 12-24% below their values year-to-date.  Last week’s rally echoes small periods of gain that have occurred several times in 2022 (late January/early February, mid-March, second half of May), and perhaps again now.  The recent positive results can be attributed to:

  • Reasonably strong corporate earnings for the second quarter. The earnings season has only just begun with about 20% of companies on the S&P 500 reporting.  Thus far profit has exceeded expectations according to Bloomberg.  Inflation for inputs is squeezing margins, but top-line revenue continues to grow to deliver solid results.  Some notable technology and social media companies (Snap, Alphabet (Google) and Meta (Facebook)) are experiencing declines in advertising revenue, and their share prices reflect this disappointment.
  • Inflation, which likely has not peaked, is seeing its growth rate lessen, and wage growth, which contributes to inflation, has also slowed. Canadian consumer inflation hit a 39-year high at 8.1%, lower than expected.
  • Commodity prices are continuing to fall (oil, metals, lumber, corn, wheat, soybeans), which broadly lowers inflationary pressure for end consumers as well as companies.
  • The European Central Bank (ECB) raised its key interest rate for the first time in more than a decade by ½ percent (50 basis points). Inflation woes are being exacerbated by the weakening Euro, and this increase is the first step in the “further normalization of interest rates” (i.e., rising back to more typical and traditional levels) at upcoming ECB meetings.  ECB Statement

Volatility has increased recently, as evidenced by the rapid swing from declines to gains in equity markets.  Year-to-date volatility is 39% higher.  Goal-based planning and discipline remain paramount. VIX Index

What’s ahead for this week and beyond?

In Canada, Gross Domestic Product (GDP) figures for May will be announced along with the federal government’s budget balance for April.

In the U.S., the most important announcement will arrive from the Federal Reserve’s FOMC on Wednesday when the latest monetary policy statement and interest rate decision is released.

Globally, French, German, and Spanish GDP for the second quarter will be released.  German and Italian CPI for July will also be announced.

 

Last Week in the Markets – July 11 – 15, 2022

2022-07-15 Weekly Market Update Chart

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The two most significant economic events last week for Canadian investors were the near-simultaneous announcements of U.S. inflation and the Bank of Canada’s monetary policy.

Overall, prices in the U.S. have risen 9.1% since last year according to the Consumer Price Index (CPI). The drivers of price increases continue to be food and energy as prices rose 1.3% in June. Food rose 10.4% year over year with restaurant and at-home meals rising 7.7% and 12.2%, respectively. Energy rose 41.6% with gasoline (59.9%), electricity (13.7%), and natural gas (38.4%) being eclipsed by the increase in fuel oil prices at 98.5%.   Bureau of Labor Statistics release

In response to domestic and international inflation, the Bank of Canada increased its interest rates by a full percentage point (100 basis points). This move followed the two previous interest rate meetings in April and June that each increased rates by 50 basis points, and March’s announcement of a 25 basis-point increase. It appears that Canada’s central bank is “playing catch up” to inflation especially when further increases are articulated in Governor Macklem’s announcement as “interest rates will need to rise further”. Bank of Canada press release

The implication for investors is straightforward. Inflation will drive interest rate increases that in turn slow the economy. It will be increasingly difficult for firms to generate profits as the price of inputs rise and revenue growth decreases. Weathering the storm with equities in defensive industries that also possess strong balance sheets has been a long-employed strategy during inflationary times.

What’s ahead for this week and beyond?

In Canada, consumer inflation numbers (June, year-over-year, overall, and core) will be released on Wednesday. Additionally, housing starts new housing price index for June will be announced along with May’s retail sales.

In the U.S., the National Association of Home Builders will release its housing price index, and existing home sales, building permits, and housing starts will accompany it. Energy-related indicators, like oil imports, gasoline inventories and production, and refinery utilization could gain more attention than usual when announced this week.

Globally, the Bank of Japan will announce its interest rate decision and its CPI. The United Kingdom and the Eurozone will also announce their CPIs, along with British and German Producer Price Indexes. On Thursday morning (8:15 am Eastern) the European Central Bank will issue its interest rate decision.

 

Last Week in the Markets – July 4 – 8, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a minor turnaround for equity investors. After major losses year-to-date and year-over-year, some positivity returned to North American indexes as they delivered modest gains. The increases were 1 – 2% for the TSX, Dow, and S&P 500 and nearly 5% for the NASDAQ for a 4-day week in the U.S. that followed Monday’s Independence Day.

The week concluded with Friday’s announcement that 372,000 jobs had been added to the U.S. economy in June.  That number is just slightly below the 3-month rolling average of 375,000 and was welcome news for markets. U.S. unemployment sits at a 50-year low of 3.6%. In Canada, the unemployment rate reached a new record low of 4.9% after the addition of 43,000 jobs and a reduction in labour force participation. The fear is that recent central bank actions will push the economy into recession, but the robust jobs market suggests that a recession, if it is coming, has not arrived, yet.

Inflation remains high and interest rates will continue to be raised to battle it. The trade-offs between inflation, jobs, and economic growth will continue for the next few months and quarters. If the tightening by central banks like the Federal Reserve pushes the American and global economy into recession, sentiment is growing that it could be shallow and short-lived. Should a recession occur equity markets will suffer again, but a smaller and less persistent recession would not affect markets as deeply as first predicted.

What’s ahead for this week and beyond?

In Canada, the week does not really begin until Wednesday when the Bank of Canada will release its interest rate decision at 10 am. Analysts expect an increase, but the size of the increase at 50 or 75 basis points is being debated.

In the U.S., the major news will be the release of the Consumer Price Index (CPI) on Wednesday morning followed by the Producer Price Index (PPI) the following day. The consumer inflation levels will provide additional insight into coming Federal Reserve actions regarding inflation control. The next scheduled opportunity to adjust the interest rate is set for July 27th.

Globally, Japan’s machine tool and machinery orders and Producer Price Index, China’s imports, exports, and trade balance, and U.K.’s Gross Domestic Product, industrial and manufacturing production will be announced. Consumer inflation in France, Germany, and Spain will be released.

 

Last Month in the Markets – June 1 – 30, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened in June?

There is no denying that June 2022 was one of the most negative one-month periods in North American history for equities. The broad-based S&P 500 lost more than 8.4% of its value, the small-market and broad-based TSX lost 9%, the technology-heavy NASDAQ split the difference at 8.7%, while the Dow dropped by 6.7%. Investors who have solely Canadian-denominated securities lost 1¾% in foreign exchange losses as the Canadian dollar fell after holding its year-to-date value steady against the American dollar after the first five months of 2022.

Gold has held its value compared to one year ago even after losing more than 2% in June. Oil, like most other commodities, has given back some of its value but remains well ahead of the start of this year and year-over-year.

(source: Bloomberg https://www.bloomberg.com/markets, and ARG Inc. analysis)

At the end of the first week of June, it was announced that the U.S. economy had added 390,000 jobs in May, a month where 330,000 people rejoined the labour force. Additional job seekers are an indicator of a strong jobs market suggesting that wages are rising above expectations and job finding is becoming easier. The elimination of pandemic restrictions and government support is also contributing to the return of workers to the labour force. Lastly, the U.S. unemployment rate remained unchanged at 3.6%, a historically low level.      BLS Announcement

In May, the unemployment rate in Canada fell 0.1% to a record low of 5.1%. Employment rose by 40,000 when full-time work increased by 135,000 and part-time fell by 96,000. Wages have risen 3.9% over the past year. Increasing wages and the transition from part to full-time employment is encouraging news for workers as the number of jobs and labour force participants exceed February 2020 levels.   StatsCan release

The U.S. Consumer Price Index (CPI) rose 1.0% in May and the annual inflation rate sits at 8.6%. Again, the sub-indexes for food and energy were major contributors to the overall inflation rate, rising 1.2% and 3.9%, respectively, during May. The rise of these two categories is significantly higher than the increases experienced in April. The inflation rate for “all items less food and energy” rose 0.6% in April and again in May, and this flattening was a small measure of positive (or at least not negative) news. BLS release

Consumer inflation in Canada rose in May to 7.7% year-over-year (YOY), an increase from the April YOY level of 6.8%. On a monthly basis, inflation rose 1.4% in May, more than double the monthly increase of 0.6% experienced during April.  StatsCan inflation

Inflation is not just a North American problem. In 16 of 44 advanced economies, the rate of inflation in the first quarter of 2022 has quadrupled compared to Q1 2020. In stark contrast is China’s CPI of 2.1% for May, which has been heavily influenced by strict Covid-19 controls. “The modest price pressures also allow China’s central bank to release more stimulus to prop up the economy even as monetary authorities in most other countries scramble to hose down inflation with aggressive interest rate hikes”. For example, the European Central Bank left its interest rates unchanged last week but intends to raise them by ¼ percent (25 basis points) in July.   China inflation article     ECB   Pew Research

The Federal Reserve raised the federal funds rate by 75 basis points1 on June 15th. An increase of this magnitude had not occurred since 1994, signifying the severity of the situation. The rate now lies in a range from 1.5 to 1.75%. At the press conference to announce the increase, Federal Reserve Chair, Jerome Powell, stated that the Fed, “anticipates that ongoing increases in that rate will be appropriate”.  To date in 2022, the Fed has increased the rate by 1½%.

In eras of volatility, and when volatility is low, disciplined investing has been proven to be the best long-term strategy. To avoid overreacting in the face of dramatic world events, investors need to cut through the noise. And today the noise is deafening. Making Investment Decisions in Volatile Markets

The first half of 2022 has mercifully concluded, especially for those who are heavily invested in North American equities after the major indices have lost 11% to 29% of their value this year.

The S&P 500 is in a bear market2 having lost 20%. This index provides a more balanced view of the broad issues facing American equity prices than the tech-heavy NASDAQ or the major corporates of the Dow.

What’s ahead for July and beyond?

The second half of 2022 should provide more promise than the first half delivered for North American-focused equity investors even as the factors contributing to pessimism for corporate performance and declining share values remain. Inflation will continue for several quarters, at least, until monetary policy and quantitative tightening work their way into the economy. Global supply chain issues continue, exacerbated by the ongoing war in Ukraine, which has also fueled inflation. Although new threats will emerge current concern has already been priced into the markets.

The non-farm payrolls data, which will be announced near the beginning of July, along with any progress against inflation will heavily influence markets and central bank actions to control it.

 

1Basis points (BPS) are a unit of measure commonly used to describe a percent change in finance such as interest rates and the cost of mutual funds and ETFs. A 1% change equals a change of 100 basis points. A 0.01% change equals one basis point.

2A bear market is defined as a decline of 20% or more from peak to trough and it typically occurs every 8 or 10 years. The average length of a bear market is 6 to 9 months.

 

Last Week in the Markets – June 27 – July 1, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The first half of 2022 has concluded, and not soon enough for most investors, especially those who are heavily invested in North American equities. The major indices have lost 11% to 29% of their value over the past six months, and 6% to 23% over the past full year.

The S&P 500 is in a bear market1 having lost 20%. This broad-based index provides a more balanced view of American equity prices than the tech-heavy NASDAQ or the 30 major corporates of the Dow.

Gold has held its value as a safe-haven investment with a loss of 1½% this year and a gain of almost as much year-over-year. Energy prices (i.e., oil) have rebounded this year and over the past year from about $75 per barrel to $108. Unfortunately, the prices of oil, gas, and gasoline are major contributors to the high rates of inflation continuing to be felt around the world. The war in Ukraine, struggling supply chains, and high employment levels with rising wages have pushed consumer inflation to levels not seen in four decades.

Visit Making Investment Decisions in Volatile Markets for additional perspective.

What’s ahead for this week and beyond?

In Canada, the Bank of Canada will release its Business Outlook. May building permits, imports, exports, and trade balance will be announced along with June employment, unemployment, and labour force participation rates.

In the U.S., markets will be closed on Monday to observe Independence Day. The week’s announcements will include durable and factory goods orders, mortgage market data, imports, exports and trade balance, purchasing managers indexes (PMIs), and non-farm payrolls and wages.

Globally, a broad range of indicators will be released in Europe including German imports, exports and trade balance, French current account and industrial production, and Italian and German goods and services PMIs. The head of the European Central Bank will make an announcement and release its monetary policy meeting minutes.

 

1bear market is defined as a decline of 20% or more from peak to trough and it typically occurs every 8 or 10 years. The average length of a bear market is 6 to 9 months.

 

Last Week in the Markets – June 20 – 24, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

Overall equity indices in North America reversed the losses of two weeks ago with a strong showing as the end of the month approaches. The TSX regained less than 1%, while the U.S. indexes rebounded with increases of 5.4% to 7.5%. For Canadian investors who hold assets in U.S. funds, those powerful gains south of the border were trimmed by a 1% decline in the U.S. dollar. Nonetheless, a reversal and movement to the positive was a welcome respite for equity investors regardless of their location.

The light economic news last week was overshadowed by U.S. Supreme Court decisions and Congress actions. House prices across the U.S. moved upward, which was not expected, and crude oil declined. It appears that recession fears have ebbed, and the previous negative view may have been too pessimistic. The sentiment was that bargains existed after the preceding weeks of losses (the S&P 500 had 10 weekly losses in the last 11 weeks), and share prices were bid upward as value was gathered.

Consumer inflation in Canada rose in May to 7.7% year-over-year (YOY), an increase from the April YOY level of 6.8%. The price increases, as most Canadians would know, were driven by the price of gasoline, which rose 12% last month, and has risen by 48% over the past year. Groceries rose 9.7% in May, equalling the increase in April.  On a monthly basis, inflation rose 1.4% in May, more than double the monthly increase of 0.6% experienced during April.  StatsCan inflation

In eras of volatility, and when volatility is low, disciplined investing has been proven to be the best long-term strategy. The equity markets have been volatile, and negative, for 2022, and retirement portfolios deserve discipline.  Making Investment Decisions in Volatile Markets – Fraser & Partners Investment Services (fpinvest.ca)

What’s ahead for this week and beyond?

In Canada, prior to the celebration of Canada on Friday, July 1st, the major economic release is on a relatively quiet week with April’s Gross Domestic Product update.

In the U.S., May’s durable goods orders, pending home sales, house price index, goods trade balance, wholesale inventories, and personal spending will be released. June’s purchasing managers indexes from ISM and Markit are scheduled. First-quarter consumer spending and GDP will also be announced.

Globally, OPEC will conduct a meeting to agree on short-term production levels. China will release its industrial profits for YTD and YOY. Japan will announce its latest consumer inflation level. Eurozone inflation and GDP will be announced along with Germany’s retail sales and employment figures.

 

Last Week in the Markets – June 13 – 17, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

Equities, the Canadian dollar, gold, and oil had a difficult week as negative news and economic indicators continued. The market performance was dominated by three intertwined elements: inflation, interest rates, and fear of recession. The continued rise of inflation demanded a response from the U.S. Federal Reserve to raise the interest rate. There is concern that the delayed maneuver is an over-correction.

  • U.S. consumer inflation, which was announced on June 10th, rose 1% in May and sits at 8.6% year-over-year. The strong jobs market focuses monetary policy on inflation-fighting. BLS release
  • Inflation is not a North American problem. In 16 of 44 advanced economies, the rate of inflation in the first quarter of 2022 has quadrupled compared to Q1 2020. Pew Research
  • The Federal Reserve raised the federal funds rate by three-quarters of a percent (75 basis points) on Wednesday. An increase of this magnitude had not occurred since 1994, signifying the severity of the situation. The rate now lies in a range from 1.5 to 1.75%. At the press conference to announce the increase, Federal Reserve Chair, Jerome Powell, stated that the Fed, “anticipates that ongoing increases in that rate will be appropriate”. To date in 2022, the Fed has increased the rate by 1½%. The median projection by Fed Governors predicts that the federal funds rate could be 3.4% by the end of this year. The first 80 seconds of the hour-long press conference provide a succinct summary of the Fed Announcement and Press Conf
  • According to the Financial Post, the S&P 500 has priced in an 85% likelihood that a recession will occur with interest rates rising and expected to rise further. A recession is two consecutive quarters or several months of declining economic activity in a region, which would negatively affect corporate profitability and have caused share prices to fall. FP article

What’s ahead for this week and beyond?

In Canada, monthly manufacturing, wholesale, and retail sales figures for last month will be released throughout the week. On Wednesday, the consumer inflation data (Consumer Price Index and Core) will be announced for May.

In the U.S., markets will be closed on Monday for the observance of the federal holiday, Juneteenth National Independence Day. Starting on Tuesday, housing information for May will be released, which includes new home sales, existing home sales, and mortgage applications.

Globally, the U.K. and Japan will release their consumer inflation data for the month of May. Purchasing Manager Indexes (PMIs), which represent the optimism of professionals who buy for corporations, across most of Europe will be announced.

 

Last Week in the Markets – June 6 – 10, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

North American equities were flat on Monday, moved higher and peaked for the week on Tuesday, and then declined for three consecutive days. The week culminated with losses on Thursday and Friday of 1½ to 3½ percent on both Thursday and Friday.

These declines, for the most part, anticipated and preceded major economic releases last week. On Friday the latest Canadian Labour Force Survey and U.S. consumer inflation data were released.

In May, the unemployment rate in Canada fell 0.1% reaching a new record low of 5.1%. Employment rose by 40,000 when full-time work increased by 135,000 and part-time fell by 96,000.  Wages have risen 3.9% over the past year.   StatsCan release

The U.S. Consumer Price Index (CPI) rose 1.0% in May and the annual inflation rate sits at 8.6%. Again, the sub-indexes for food and energy were major contributors to the overall inflation rate, rising 1.2% and 3.9%, respectively, during May. The rise of these two categories is significantly higher than the increases experienced in April. The inflation rate for “all items less food and energy” rose 0.6% in April and again in May, and this flattening was a small measure of positive (or at least not negative) news. BLS release

In stark contrast is China’s CPI of 2.1% for May, which has been heavily influenced by strict Covid-19 controls. “The modest price pressures also allow China’s central bank to release more stimulus to prop up the economy even as monetary authorities in most other countries scramble to hose down inflation with aggressive interest rate hikes”. For example, the European Central Bank left its interest rates unchanged last week but intends to raise them by ¼ percent (25 basis points) in July.   China inflation article  ECB

What’s ahead for this week and beyond?

In Canada, April’s construction investment, manufacturing sales and new orders, new vehicle sales, and wholesale trade will be announced along with May’s housing starts, home price index and industrial product and raw materials price indexes.

In the U.S., after last week’s CPI announcement the Producer Price Index and the Import and Export Price Indexes for May will be released. The Federal Reserve’s Open Market Committee meets on Tuesday and Wednesday and will release a monetary policy update and economic projections on June 15th at 2 pm.

Globally, inflation numbers will be announced across Europe with major economies like Germany and France reporting as well as the data for the Eurozone. The Banks of England and Japan will announce interest rate decisions.

 

Last Week in the Markets – May 30 – June 3, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Canadian equities outperformed their American peers last week as the TSX finished just slightly ahead of the previous week’s close. The S&P 500, Dow, and NASDAQ each dropped about 1% during last week’s shortened session following Memorial Day observances. Global equities represented by the All-Country World Index fared better than American indices but still lost ½ percentage point.

Canadian equities correlated positively to the rise in the price of oil, which buoyed the value of our dollar. The belief that these three indicators (the TSX, CDN$, and oil) are becoming more independent from one another was disproved last week, if only temporarily.

Despite the negative results in the U.S. and positive results in Canada, it was positive news in the U.S. that dominated economic releases last week. The U.S. economy added 390,000 jobs in May, a month when 330,000 people rejoined the labour force. Additional job seekers are an indicator of a strong jobs market suggesting that wages are rising above expectations and job finding is becoming easier. The slowing and elimination of pandemic restrictions and government support are also contributing workers to the labour force. The U.S. unemployment rate remained unchanged at 3.6%, a historically low level.

The implications of the rising wage may have contributed to last week’s U.S. equity losses. Average hourly earnings have risen 5.2% over the past 12 months. This eases the effect of inflation on households and supports ongoing economic growth. However, growing wages contribute to inflation, and continued inflation suggests further interest rate increases from the Federal Reserve and other central banks will occur, especially where the same strong labour market and inflation exist.   BLS Announcement

What’s ahead for this week and beyond?

In Canada, the merchandise trade balance for April will be released during a slower than usual week for economic announcements. Employment numbers for May will be announced on Friday.

In the U.S., the goods and services trade balance and consumer credit for April are scheduled. The Consumer Price Index (CPI) for May is scheduled for Friday morning, and its results (slowing, steady, or increasing) will provide insight into the last and next Federal Reserve monetary policy action.

 

Last Month in the Markets – May 2 – 31, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened in May?

Despite significant volatility during May by the end of the month the major North American indices had settled almost where they had begun.  The NASDAQ, more heavily weighted to technology, lost 2%, and the broad-based TSX and S&P 500, and the large corporates of the Dow, were flat for May.

(source: Bloomberg https://www.bloomberg.com/markets, and ARG Inc. analysis)

The month really began on Wednesday, May 4th, when the U.S. Federal Reserve increased short-term interest rates. The 50-basis point increase (+0.50%) to the federal funds rate was the largest increase since 2000. Immediately after the Fed’s announcement, equity markets reacted positively, but the gains achieved on Wednesday were reversed the next day. The Dow rose 932 points before losing 1,063, the S&P 500 gained 125 points, then lost 154. The TSX gained 473 points on Tuesday and Wednesday before dropping 489 on Thursday. The NASDAQ gained 402 points on Wednesday before dropping 764 by week’s end. Fed Press

The Federal Reserve’s increase in interest rates was further justified on May 6th when April’s non-farm payrolls showed that employment had increased by 428,000. With the unemployment rate (3.6%) and the number of employed (5.9 million) holding steady, the Bureau of Labor Statistics indicated the similarity of these numbers to pre-pandemic data in February 2020. The labor force participation rate is 1.2 percentage points below the February 2020 level of 63.4%.  https://www.bls.gov/news.release/empsit.nr0.htm

In Canada, the number of jobs remained unchanged in April, as did the employment rate (61.9%) and the unemployment rate edged downward by 0.1% to 5.2%. Average hourly wages rose at an annualized rate of 3.3%, also unchanged from March. StatsCan

The release of the U.S. Consumer Price Index (CPI) on May 11th was a significant contributor to equity volatility and losses during the second full week of last month. Thankfully, price increases during April were less than March, but the annual and monthly inflation rate remains at a historically high level. Inflation of 8.3% over the past year was led by shelter, food, airline fares and new vehicles in April.  Ongoing inflation at this high-rate signals that the Federal Reserve will remain aggressive on monetary policy, especially for short-term interest rates.  U.S. Bureau of Labor Statistics

Canada’s Consumer Price Index (CPI) rose in April slightly to 6.8% compared to March’s 6.7%. Food and shelter were two categories that drove the increase.

“With the unemployment rate falling to a record low in April, strong employment figures tend to put upward pressure on prices. In April, average hourly wages for employees rose 3.3% on a year-over-year basis, meaning that, on average, prices rose faster than wages, and Canadians experienced a decline in purchasing power.” StatsCan link

Inflation was not limited to North America as China’s CPI and PPI (Producer Price Index) in April arrived above estimates at annualized rates of 2.1% and 8%, respectively. These prices were driven by increasing demand due to panic buying as another pandemic wave hits, continuing supply chain issues, and rising commodity prices driven by the invasion of Ukraine.  China CPI PPI

The supply chain and commodity price issues affecting China are global, and until they are resolved, inflation will persist. Central banks will seek to temper inflation by increasing interest rates. The Federal Reserve has telegraphed ½% increases at its next two monetary policy meetings on June 15th and July 27th.

The economic news in the popular press was not much improved during the last full week of May, but equity results were. Upon close examination, some detail provided some glimmer for equity investors.  The price of gasoline, which is a bellwether for many consumers, continues to rise this month, but the overall inflation rate is moderating. Prices continue to climb, but at a lower rate in the U.S. Inflation is at a 30-year high, and central banks, like the Federal Reserve, have indicated that their strongest action will be in early 2022. CPI source  FOMC Minutes

What’s ahead for June and beyond?

On June 1st, the Bank of Canada increased short-term interest rates by the same 50 basis points that were incurred in April. The effects of higher interest rates in Canada and in the U.S. will begin to be felt in the coming months. The goal is to temper economic growth while maximizing employment without falling into recession or stagflation. The indications from the Bank of Canada and the Federal Reserve are that interest rate increases will begin to lessen as the year proceeds. The fear of recession at the central bank level is producing some positive influence on equity markets.    WSJ Article

 

Last Week in the Markets – May 23 – 27, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was the first all-green week for our grid since the third week of March, and only the second since last year. Although the TSX is negative for 2022, it remains the best performing, broad-based index in North America. The TSX may have been outperformed by American and the All-Country World Index (ACWI) last week, but it is the clear leader for year-to-date and year-over-year results.

The economic news in the popular press was not much improved last week, so the positive equity results could seem unpredictable, but not if you examine the details more closely:

  • Most major Canadian banks beat quarterly earnings expectations and remain upbeat with their forward guidance, particularly with their retail banking operations. RBC, TD, Scotiabank, BMO, and National Bank beat expectations, while CIBC had growing expenses undermine their performance. The Finance sector comprises about one-third of the TSX, so the banks’ good news dominated. https://www.theglobeandmail.com/business/article-canadian-banks-benefit-from-consumer-spending-rebound/
    • The second-largest sector is Energy, which is also benefiting from higher oil prices.
  • Inflation is slowing slightly. The price of gasoline, which is a bellwether for many consumers, continues to rise this month, but the overall inflation rate is moderating. Prices continue to climb, but at a lower rate in the U.S. CPI source
  • As inflation slows the need to trim economic growth with higher interest rates also slows. Inflation is at a 30-year high, and central banks, like the Federal Reserve, have indicated that their strongest action will be in early 2022.  As the year progresses the size of interest rate increases are expected to reduce.  FOMC Minutes

The continuing inflation/interest rate condition has been in place for some time, and perhaps some overly enthusiastic pessimism has been beaten back by the better and no-worse than expected results.

What’s ahead for this week and beyond?

In Canada, real Gross Domestic Product (GDP) and current account balance for the first quarter will be released. The Bank of Canada will release its latest monetary policy response on Wednesday.

In the U.S., after Monday’s market closure for Memorial Day. April’s construction spending, manufacturing indexes, and factory orders will be released along with the non-farm payroll report for May.

Globally, Japan’s machine tool orders, jobless rate, retail sales, industrial production and consumer confidence, Eurozone’s Consumer Price Index (CPI), economic and consumer confidence, Germany’s CPI, unemployment, France’s CPI, and GDP will be released.  OPEC+ will conduct a meeting.

 

Last Week in the Markets – May 16 – 20, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was another difficult week for individuals invested in equities unless their portfolio mirrored the TSX, which gained ½ point while the American indices lost 3-4%. The S&P 500 achieved its seventh consecutive weekly loss and is approaching a 20% drop in a Bear Market. The Dow has had eight weeks since it last gained on a week-to-week basis. It has been nine weeks since all indexes in our grid gained ground. All the indexes have lost ground in 2022, and the TSX is the only index in our grid that is higher now than one year ago.

The economic news that predicated the U.S. stock losses last week was mixed. Walmart and Target disappointed on the earnings front but indicated that foot traffic and spending remains positive as consumers moved away from pandemic necessities. Demand is strong while supply-chain issues remain.  Further, consumer spending which comprises about two-thirds of U.S. Gross Domestic Product (GDP) is healthy, a tight labour market with rising wages and low unemployment, and moderating, yet historically strong, corporate earnings.

Canada’s Consumer Price Index (CPI) rose in April slightly to 6.8% compared to March’s 6.7%. Food and shelter were two categories that drove the increase. “With the unemployment rate falling to a record low in April, strong employment figures tend to put upward pressure on prices. In April, average hourly wages for employees rose 3.3% on a year-over-year basis, meaning that, on average, prices rose faster than wages, and Canadians experienced a decline in purchasing power.” StatsCan link

Both the Bank of Canada and the Federal Reserve have mandates to fight inflation, and both have indicated their intention to combat rapidly rising prices with higher interest rates.  BoC   Fed Res

What’s ahead for this week and beyond?

In Canada, markets will be closed on Monday to observe Victoria Day. The four-day week will include announcements of April’s manufacturing sales, wholesale trade, and March’s retail sales and employment survey. Also, the major Canadian banks will release their latest quarterly earnings.

In the U.S., April’s new home sales, pending home sales, durable goods orders and core orders, personal income and spending and goods trade deficit will be announced. The minutes from the Federal Reserve’s FOMC meeting that raised interest rates ½ point will be released.

Globally, Germany’s business climate, Gross Domestic Product and consumer confidence will be released along with the Eurozone’s Purchasing Managers Indices in a light week for economic announcements.

 

Last Week in the Markets – May 9 – 13, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Despite a very strong Friday where North American equity indices rose between 1½% and nearly 4%, it was not a positive week overall when full-week losses exceeded 2%.

The release of the U.S. Consumer Price Index (CPI) on Wednesday morning was a significant contributor to equity volatility and losses last week. Thankfully, price increases during April were less than in March, but the annual and monthly inflation rate remains at a historically high level. Inflation of 8.3% over the past year was led by shelter, food, airline fares, and new vehicles in April. Ongoing inflation at this high rate indicates that the Federal Reserve will remain aggressive on monetary policy, especially for short-term interest rates. With the monthly rate dropping to 0.3% in March from 1.2% in April, it appears that inflation may have peaked, which is a small measure of positive news.   U.S. Bureau of Labor Statistics

The Producer Price Index (PPI), which is the measure of inflation at the wholesale level, is beginning to slow as well. In April the PPI fell to 0.5% after February’s 1.1% and March’s 1.6% rise in prices. Interestingly the price increase for goods was 1.3% as services prices remained unchanged.  BLS PPI

China’s CPI and PPI in April arrived above estimates at annualized rates of 2.1% and 8%, respectively. These prices were driven by increasing demand due to panic buying as another pandemic wave hits, continuing supply chain issues, and rising commodity prices driven by the invasion of Ukraine.  China CPI PPI

The supply chain and commodity price issues affecting China are global, and until they are resolved inflation will persist in North America and globally. Central banks will seek to temper inflation by increasing interest rates. The Federal Reserve has telegraphed ½% increases at its next two monetary policy meetings on June 15th and July 27th. While interest rates rise and the fear of stagflation or recession looms, capital markets will continue to deliver volatile results.  Fed Release  WSJ Article

What’s ahead for this week and beyond?

In Canada, March’s manufacturing sales and new orders, construction investment, and April’s housing starts, existing home sales, MLS Home Price Index, and new housing price index will be announced. CPI will also be released and will be next week’s most influential indicator for Canadian investors.

In the U.S., April’s retail sales, industrial production, business inventories, housing starts, building permits, and existing home sales are scheduled for release as the earnings season winds down.

Globally, China’s retail sales and industrial production, Japan’s machine tool orders, CPI, and Gross Domestic Product (GDP), Eurozone’s trade deficit, GDP, CPI, and PPI will be released.

 

Last Week in the Markets – May 2 – 6, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

At 2 pm Eastern on Wednesday, the U.S. Federal Reserve increased short-term interest rates. The 50-basis point increase (+0.50%) to the federal funds rate was the largest increase since 2000.  Fed Press

Immediately after the Fed’s announcement, equity markets reacted positively, but the gains achieved on Wednesday were reversed on Thursday. The Dow rose 932 points before losing 1,063, the S&P 500 gained 125 points, then lost 154. The TSX gained 473 points on Tuesday and Wednesday before dropping 489 on Thursday. The NASDAQ gained 402 points on Wednesday before dropping 764 by week’s end.

The VIX Volatility Index rose during the second half of last week and now sits near its highest level since March 2020 when the pandemic was in its early, most unpredictable stages. Until inflation is tempered, supply chain issues are resolved, and energy costs are more stable, volatility will likely remain above average.

The Federal Reserve’s increase in interest rates was further justified on Friday when April’s non-farm payrolls showed that employment had increased by 428,000. With the unemployment rate (3.6%) and the number of employed (5.9 million) holding steady, the Bureau of Labor Statistics indicated the similarity of these numbers to pre-pandemic data in February 2020. The labor force participation rate is 1.2 percentage points below the February 2020 level of 63.4%.  https://www.bls.gov/news.release/empsit.nr0.htm

In Canada, the employment numbers also released on Friday, provided a mixture of positive and negative news. The number of jobs remained unchanged in April, as did the employment rate (61.9%) and the unemployment rate edged downward by 0.1% to 5.2%. Average hourly wages rose at an annualized rate of 3.3%, also unchanged from March. https://www150.statcan.gc.ca/n1/daily-quotidien/220506/dq220506a-eng.htm?HPA=1

What’s ahead for this week and beyond?

In Canada, March’s building permits are part of a light week for economic announcements amid the quarterly earnings season.  Several large entities like Boardwalk and RioCan REIT, George Weston, Suncor, Manulife, Quebecor, and Canadian Tire will report their most recent performance.

In the U.S., inflation will dominate the economic releases. The Consumer Price Index (CPI) for April will be announced on Wednesday, followed by the Producer Price Index (PPI) on Thursday. Import and Export Price Indexes will be released on Friday.

Globally, scheduled announcements include China’s Consumer and Producer Price Indexes, trade surplus and money supply, Japan’s Purchasing Managers Indexes, household spending and bank lending, Germany’s CPI, and the Eurozone’s industrial production.

 

Last Month in the Markets – April 1 – 29, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened in April?

The month began on a positive note for North American equity indices, unfortunately, the high-water mark was reached on the first Monday of the month. With only a couple of exceptions, the remainder of April delivered additional losses for equity investors. Additionally, the Year-to-Date graph, below, shows that the indices are all following the same pattern but at slightly different levels of success.

The resource linked TSX was the last to move into negative returns for Year-to-Date. The TSX is still performing best among diversified North American indices due to the rising price of many commodities, slightly behind the 30 constituents of the Dow. The technology-heavy NASDAQ has suffered from the rise of in-person work and less shelter-in-place as pandemic restrictions are lifted.

(source: Bloomberg https://www.bloomberg.com/markets and ARG Inc. analysis)                                                                             

Overall, the investing landscape has changed in 2022 and over the past year. The onset and continuation of the pandemic brought significant uncertainty to capital markets. The current period contains new and different challenges for investors and some lingering issues like supply chain disruptions. The factors that are driving equities downward, and other asset classes upward include:

  • Programs and conditions to drive economic growth are being pared back. Interest rates are being increased by central banks. Employment is being maximized while inflation runs high. Since employment has exceeded pre-pandemic levels and inflation continues to rise central banks need to slow growth to temper inflation.
  • Russia’s invasion of Ukraine and the geopolitical, energy, and resulting supply chain uncertainty
  • The resurgence of the pandemic and resulting lockdowns in China are threatening growth in the world’s second-largest economy

The likelihood of an interest rate increase by the Bank of Canada in April was supported by the Canadian employment report for March. 73,000 jobs were added, and the unemployment rate fell by 0.2% to 5.3%.  This is the lowest unemployment rate since 1976 when similar data was first collected and analyzed. Labour Force Participation remained unchanged from February at 65.4%, total hours worked rose 1.3% and wages have risen 3.4% compared to March 2021. As restrictions are lifted the percentage of employees who work exclusively from home fell 1.8% to 20.7%. https://www.cbc.ca/news/business/jobs-march-canada-1.6413073  https://www150.statcan.gc.ca/n1/daily-quotidien/220408/dq220408a-eng.htm?HPA=1

On April 7th, Minister of Finance, Chrystia Freeland, presented the governing Liberals’ latest budget, the highlights affecting Canadians’ finances include $56 Billion in new spending for national dental care, affordable housing incentives, reconciliation with Indigenous Peoples, increased defense, and climate initiatives. Also, a surtax on large banking profits and an increase in the corporate tax rate are included in the proposed measures. https://budget.gc.ca/2022/home-accueil-en.html

The Federal Reserve released the minutes from their mid-March monetary policy meeting that indicated committee members were taking a more aggressive stance against inflation than originally thought. The Federal Open Market Committee members unanimously agreed to raise the federal funds rate by ¼%, and the market has priced in an increase of about 170 basis points (1.7%) for 2022. The Federal Reserve will also allow close to $100 Billion in bonds to mature each month without being replaced. The removal of this money from markets will tighten long-term borrowing and increase costs and yields. With inflation expected to exceed 8%, and the robust jobs market and GDP growth, the U.S. economy needs price stability and no longer requires monetary support to fuel growth.  FOMC Minutes

On April 13th the Bank of Canada raised its interest rates again in 2022 to slow domestic inflation. The rate was increased by ½%, which is the largest rate increase in more than two decades. The target range for the deposit rate to the bank rate is now 0.75% to 1.25%.

The U.S. Consumer Price Index (CPI) rose again last month. Since February, prices for consumers rose 1.2% and in the past year, prices have risen 8.5%. Like preceding months, the largest contributors were gasoline, housing, and food. Energy costs have risen 32% over the past year, and groceries are up 10% since March 2021. The Producer Price Index (PPI) for March sits at 11.2%; the highest recorded year-over-year increase ever recorded for American companies. BLS CPI

StatsCan released the Canadian Consumer Price Index (CPI) data for March. Prices increased 1% during the past month and 6.7% over the past year. It is the largest, annual reading in 31 years. Gasoline has been a major contributor to the growing rate of inflation after rising more than 19% since February 1st.  Rising inflation is further justification for the Bank of Canada’s interest rate increases. CBC News

What’s ahead for May and beyond?

On May 4th, the Federal Reserve will announce its latest monetary policy to cool inflation, which is being driven by pandemic reopening, continuing supply chain disruptions, and geopolitical turmoil. The consensus among Federal Open Market Committee members as indicated in past meeting minutes suggests that multiple increases will occur in 2022 and larger increases will occur early this year before tapering as 2023 approaches. A half-point increase is expected for the federal funds rate. The Bank of Canada is scheduled to release its next interest rate announcement on June 1st.

Clear signals have been given by both the Fed and Bank of Canada of anticipated changes to monetary policy, and much of the most recent negative performance for equities reflects the “tightening” to come.

 

Last Week in the Markets – April 25 – 29, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was the fourth consecutive week that all equity indices in our grid, above, lost value. Over this period the decline has ranged between five and thirteen percent. To illustrate further, the TSX, which has been supported by rising commodity prices and lost 5% in April, has delivered a relatively strong performance among equity indices. The reasons for the negative performance are many:

  • Domestic, international, and global inflation remains high, and well beyond the goals set by central banks.
  • As inflation rises, central banks have begun to act. The Federal Reserve is likely to raise interest rates by ½ point next week. The Fed along with other central banks wants to slow growth by raising the cost of borrowing for individuals, families, and firms. Increasing the cost of financed goods and services will temper economic growth, which will eventually cause inflation to slow.
  • Although the spread of the coronavirus has slowed and its effects have been less severe based on hospitalization and death rates, the pandemic continues in China. Lockdowns are again affecting growth for the world’s second-largest economy.
  • Contradictory Gross Domestic Product (GDP) numbers in the U.S. require additional scrutiny to be understood. The U.S. economy shrank at an annualized rate of 1.4% in the first quarter of 2022, after growing at a rate close to 7% at the end of last year. The results were somewhat of a surprise with analysts predicting a growth of 1%. Bloomberg   https://www.bea.gov/news/glance
  • The protracted invasion of Ukraine continues to threaten global supply chains and the economy.
  • Earnings season has delivered less than stellar results.

What’s ahead for this week and beyond?

In Canada, the merchandise trade balance will be released along with April’s employment numbers.

In the U.S., March’s construction spending, factory orders, trade deficit, and consumer credit will be announced. Purchasing Managers Indexes (PMI) from Markit and ISM will be released for goods and services. On Wednesday at 2 pm Eastern, the Federal Open Market Committee of the Federal Reserve will release its latest monetary policy for short-term interest rates and bond-buying. Non-farm payrolls will be announced on Friday.

Globally, PMIs for China, Japan, and Eurozone will be released.  Germany’s joblessness, trade surplus, retail sales, and factory orders will be announced.  OPEC+ will hold a production and pricing meeting.

 

Last Week in the Markets – April 18 – 22, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

North American equity indices started the week flat, then rose on Tuesday and Wednesday before tumbling on Thursday and Friday. The NASDAQ got a one-day head-start on the decline and dropped nearly 4% for the week. Friday saw the other indices lose between two and three percent and three to four percent for the week. The reasons coalesce around inflation and interest rates:

  • StatsCan released Consumer Price Index (CPI) data for March on Wednesday. Prices increased 1% over the past month and 6.7% over the past year. It is the largest, annual reading in 31 years. Gasoline has been a major contributor to the growing rate of inflation after rising more than 19% since February 1st. Rising inflation is further justification for the Bank of Canada’s interest rate increases. CBC News
  • Fed Chair, Jerome Powell, indicated that inflation may have peaked in March as wages have increased, housing costs have climbed rapidly, and service industry price jumps amid continued supply chain problems. NYTimes
  • The Fed’s moves are making equities less attractive than bonds and other fixed-income The yield on 10 Year U.S. Treasuries has moved higher recently, doubling since early December, and gaining nearly 1½ points in the last five weeks. Treasury Yield
  • The Federal Reserve next meets to discuss interest rates on May 3-4.

Additionally, the unending invasion of Ukraine continues to interrupt agricultural production and increases the threat of oil and gas shortages that has oil over $100/barrel despite a drop last week.

What’s ahead for this week and beyond?

In Canada, February’s Gross Domestic Product (GDP) and survey of employment, and March’s wholesale trade, and manufacturing sales will be announced.

In the U.S., announcements of quarterly earnings will include results from Coca-Cola, GE, UPS, Alphabet, Amazon, Apple, Microsoft, McDonald’s, Exxon Mobil, and Caterpillar. Durable goods and core orders, new home sales, pending home sales, goods trade deficit, and wholesale and retail inventories will be released.

Globally, Japan’s department store sales, jobless rate and monetary policy from its central bank, Germany’s GDP, business climate, consumer confidence and CPI, Eurozone GDP, CPI, and money supply are scheduled for release.

 

Last Week in the Markets – April 11 – 14, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

On Wednesday morning the Bank of Canada raised its interest rates again in 2022 to slow domestic inflation. The rate was increased by ½%, which is the largest rate increase in more than two decades. The target range for the deposit rate to the bank rate is now 0.75% to 1.25%.

The Bank will begin quantitative tightening on April 25th when maturing Government of Canada bonds held on its balance sheet will no longer be replaced.

With the economy moving into excess demand and inflation persisting well above target, the Governing Council judges that interest rates will need to rise further. The policy interest rate is the Bank’s primary monetary policy instrument, and quantitative tightening will complement increases in the policy rate”  BoC press release

The U.S. Consumer Price Index (CPI) rose again last month. Since February, prices for consumers rose 1.2% and in the past year, prices have risen 8.5%. May 1981 was the last time the inflation rate reached this level. Like preceding months, the largest contributors were gasoline, housing, and food. Energy costs have risen 32% over the past year, and groceries are up 10% since March 2021.

The anticipation that inflation will slow is tied directly to the energy and commodity prices which have spiked due to the invasion of Ukraine and the resulting uncertainty associated with the global political response.

The Producer Price Index (PPI) for March sits at 11.2%, the highest recorded year-over-year increase ever recorded for American companies. BLS CPI

The Federal Reserve will meet on May 3 – 4 to review and adjust monetary policy, including interest rates and bond-buying, to slow the economic growth and temper inflation.

What’s ahead for this week and beyond?

In Canada, housing starts, existing home sales, MLS home price index, new house price index, and household and mortgage credit for March will be released. March’s CPI will be announced.

In the U.S., March’s housing starts, building permits, and existing home sales will be released.

Globally, China’s GDP, retail sales, industrial production, Japan’s CPI, industrial production, machine tool orders and trade balance, Germany’s Producer Price Index, and Eurozone CPI are scheduled for release.  Also, G20 finance ministers and central bank governors meet in Washington, DC.

 

Last Week in the Markets – April 4 – 8, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Canadian employment rose by 73,000 in the month of March, and the unemployment rate fell by 0.2% to 5.3%. This is the lowest unemployment rate since 1976 when similar data was first collected and analyzed. Labour Force Participation remained unchanged from February at 65.4%, total hours worked rose 1.3% and wages have risen 3.4% compared to March 2021. As restrictions are lifted the percentage of employees who work exclusively from home fell 1.8% to 20.7%.  https://www.cbc.ca/news/business/jobs-march-canada-1.6413073  https://www150.statcan.gc.ca/n1/daily-quotidien/220408/dq220408a-eng.htm?HPA=1

Last Thursday afternoon, Minister of Finance, Chrystia Freeland, presented the governing Liberals’ latest budget. The highlights affecting Canadians’ finances include $56 Billion in new spending for national dental care, affordable housing incentives, reconciliation with Indigenous Peoples, and increased defense and climate initiatives. Also, a surtax on large banking profits and an increase in the corporate tax rate are included in the proposed measures. https://budget.gc.ca/2022/home-accueil-en.html

The Federal Reserve released the minutes from their mid-March monetary policy meeting that indicated committee members were taking a more aggressive stance against inflation than originally thought. The Federal Open Market Committee members unanimously agreed to raise the federal funds rate by ¼%, and the market has priced in an increase of about 170 basis points (1.7%) for 2022. A half-point increase, which has not occurred since 2000, is expected in the coming months, and maybe more than once. The Federal Reserve will also allow close to $100 Billion in bonds to mature each month without being replaced. The removal of this money from markets will tighten long-term borrowing and increase costs and yields. With inflation expected to exceed 8%, and the robust jobs market and GDP growth, the U.S. economy needs price stability and no longer requires monetary support to fuel growth. FOMC Minutes

What’s ahead for this week and beyond?

In Canada, prior to the Good Friday holiday, the Bank of Canada will announce its monetary policy update on Wednesday morning. All major Canadian banks predict a 50 basis points (½%) increase. Banks’ Prediction

In the U.S., March’s Consumer Price Index (CPI), retail sales, import prices, business inventories, industrial production, and capacity utilization are scheduled for an announcement. Stock markets will be closed on Friday with bond markets trading limited.

 

Last Month in the Markets – March 1 – 31, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened in March?

For the fourth consecutive month, North American equities dipped mid-month and then recovered before the month’s end. The TSX continued its recent, strong performance gaining nearly 4% for the month and more than 17% for the past year. The American indices performed well last month but are still in negative territory for this year. All indexes follow the same pattern in the Year-to-Date graph below, but at differing levels of performance.

(source: Bloomberg https://www.bloomberg.com/markets and ARG Inc. analysis)

The Bank of Canada (BoC) raised interest rates by ¼% on March 2nd to combat increasing inflation. Interest rates in Canada had not increased since 2018. The BoC stated, “The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty. Prices for oil and other commodities have risen sharply. This will add to inflation around the world. . . “   BoC

Employment in February rose by 678,000 and unemployment fell slightly to 3.8% according to the U.S. Bureau of Labor Statistics. As of the end of February 6.3 million people remained unemployed compared with 5.7 million unemployed persons and an unemployment rate of 3.5% two years prior in February 2020.

One of the major contributing factors to the shortfall in current employment is the Labour Force Participation Rate. About 2 million fewer Americans are seeking jobs today than two years ago. It appears that a leading reason to stay out of the labor force is the perception that unsafe working conditions persist without pandemic safety measures and conscientious enforcement.  BLS.gov Release

It seemed the good news had ended by the time the International Monetary Fund commented that commodity prices surged dramatically adding more inflationary prices to existing price increases caused by supply chain disruptions and emergence from the Covid-19 pandemic. “Price shocks will have an impact worldwide . . . “ IMF Statement

The U.S. Consumer Price Index (CPI) rose 0.8% in February and 7.9% over the past 12 months (before seasonal adjustment), and before the economic effects of Ukraine had begun. The two most significant contributors to the highest rate of American inflation in the past 40 years were Food (7.9%) and Energy (25.6%). Excluding Food and Energy, the All-Items index, prices rose 6.4%, which is the largest 12-month change for this category of goods and services since August 1982.  BLS CPI

Canada’s CPI for February rose 0.6% moving the annualized inflation rate to 5.7%, the highest it has been since August 1991 when it was 6.0%. Food, housing, and gasoline were major contributors. Gasoline, for example, has risen 32% since February 2021. Thankfully, Canadian inflation is below the 7.9% U.S. rate, but well above the target range set by the BoC, which drove their action to raise interest rates.  StatsCan

In response to U.S. inflation sitting just under 8%, the Federal Reserve increased the federal funds rate by ¼% to a range of ¼% to ½% in the middle of March. The Fed “anticipates that ongoing increases in the target range will be appropriate.” At the time of the announcement, as many as six rate increases are expected from the Fed in 2022.  Federal Reserve Announcement

The European Central Bank met in Frankfurt and announced its latest policy to address Continental consumer inflation and the crisis in Ukraine. Bond buying will end this summer, which will then allow for interest rate increases to trim inflation.  ECB Statement

After the mid-month trough, equities performed exceptionally well as the TSX set a new all-time high and U.S. indices made major gains even as hopes for a ceasefire in Ukraine wavered, inflation continued, and interest rates rose. The uptick in March follows a prolonged downturn, where the S&P 500, Dow, and NASDAQ produced negative Year-to-Date performance. Institutional investors drove gains in the third and fourth week of the month as fewer sellers were outnumbered by buyers.  Buyers vs Sellers

On the last day of the month, the Gross Domestic Product figures for February were released by StatsCan. GDP rose by 0.8% in February up from 0.2% in January. Projections for Q1 GDP growth have increased to 4%, as have expectations for larger interest rate increases from the Bank of Canada.  February GDP

What’s ahead for April and beyond?

On April 7th at 4 pm Eastern Time, the governing Liberals will deliver their next budget. Several extensions and additions are anticipated, including $10/ day childcare, a national dental care program and steps toward a national pharma care program, and emissions reduction. Based on geopolitical turmoil defense spending is likely to rise from its current level of 1.4% of GDP toward the NATO goal of 2%.  Federal Budget

The next opportunity for the Bank of Canada and the Federal Reserve to increase interest rates to temper inflation occurs on April 13th and May 4th. After March’s price increase in oil caused by the invasion of Ukraine and its disruption of energy supplies is embedded in the overall inflation rate, larger and more frequent interest rate increases by central banks seem a certainty.  Interest Rates

 

Last Week in the Markets – March 28 – April 1, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

Equity markets were mixed based on a blend of positive and negative news locally and internationally. Inflation and actions to control it continue to be the primary driver of markets.

  • The price of oil fell last week but is up 32% this year and 62% from one year ago. Higher energy prices will filter through the economy and add to already rapid price increases.
  • Central banks anticipate rising inflation and will raise short-term interest rates.
  • Canadian Gross Domestic Product has rebounded in February with 0.8% growth following January’s Omicron-induced results of 0.2%. The strengthening economy coupled with jobs growth (report scheduled for Friday), and rapidly rising prices that are expected to continue to rise, force the Bank of Canada to trim back economic growth with higher interest rates at their next meeting in mid-April. StatsCan       https://www.cbc.ca/news/business/interest-rate-analysis-1.6402439
  • The same economic situation exists in the U.S. (rising inflation, strong employment, GDP growth) except the next meeting of the Federal Reserve’s Open Market Committee is scheduled for early May. President Biden has taken the unusual step to release 1 million barrels of oil daily for the next six months from strategic reserves, which illustrates that many inflation-fighting actions are possible.
  • Underlying the mixed news and data is the geopolitical situation emanating from Ukraine’s invasion by Russia. The disruption of energy shipments to western Europe, the rising cost of manufacturing inputs like electricity generated from natural gas, fiscal pressures for governments to increase military spending, and support for refugees will affect markets around the world.

The appropriate response for uncertainty and volatility is typically diversification. The timing to finetune a portfolio based on the investor’s unique situation is as frequent as their situation or the market changes. If the current environment is raising concerns, it may be time to rebalance your portfolio.

What’s ahead for this week and beyond?

In Canada, February’s building permits and merchandise trade balance will be announced prior to the federal budget on Thursday at 4 pm Eastern. On Friday the February jobs report will be released.

In the U.S., factory orders, goods and services trade deficit, consumer credit and wholesale inventories for February, and Purchasing Managers Indexes from ISM and Markit for March will be released.

 

Last Week in the Markets – March 21 – 25, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

A year ago, it would have been difficult to predict an “all green” week with all the negative influences occurring simultaneously. The continuing invasion of Ukraine and resulting economic and energy implications, surging case counts in some areas for the Omicron BA.2 variant, and rising interest rates would typically take their toll on markets. Last week that was not the case:

  • The strong resistance inside Ukraine has Russian leadership limiting ambitions to the far eastern parts of the country. The military losses (personnel and equipment) and lack of progress by the invaders are positive for Ukraine and its allies politically, humanitarian, and economically.
  • Optimism regarding Omicron’s BA.2 variant persists despite its high transmissibility. Vaccinations and Omicron’s prior prevalence may slow BA.2’s uptake and reduce severe illness and hospitalization rates.
  • Although the threat of increased interest rates has not spiked, overall rates are still historically low despite the recent rise and promises of additional increases. Fears of recession and stagflation remain low; at least for now.

Despite the headlines, the TSX is delivering healthy year-to-date and year-over-year results that outperform the American indices. Notwithstanding the losses from U.S. equities to date in 2022, their performance over the past year (including Q1 2022) has been reasonable; especially the broad-based S&P 500. The tech-heavy NASDAQ has delivered more than 10% over the past two weeks to overcome the deep losses that 2022 has produced.

What’s ahead for this week and beyond?

In Canada, the survey of employment and Gross Domestic Product (GDP) for January, March’s Purchasing Managers Indexes (PMI), and earnings from Dollarama, Blackberry will be released.

In the U.S., February’s wholesale and retail inventories, construction spending, goods trade deficit, personal spending, and personal income will be announced.  PMIs from ISM and Markit for March along with consumer confidence and the important non-farm payroll report is scheduled for release.

Globally, in a week with many varied data to be announced, Germany’s consumer confidence, retail sales, unemployment and consumer price index, Japan’s jobless rate, retail sales, PMIs and industrial production, China’s PMI, Eurozone jobless rate, consumer confidence, and consumer inflation will be released.  OPEC+ will meet and an EU/China summit is planned. https://www.investopedia.com/articles/investing/012216/how-opec-and-nonopec-production-affects-oil-prices.asp

 

Last Week in the Markets – March 14 – 18, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Equities performed exceptionally well as the TSX set a new all-time high and U.S. indices made major gains even as hopes for a ceasefire in Ukraine waver, inflation continues, and interest rates rise. This uptick follows a prolonged downturn. The S&P 500, Dow, and NASDAQ have Year-to-Date negative performance as many unwound their positions in 2022. Institutional investors drove last week’s gains as the unwinding slows allowing fewer sellers to be outnumbered by buyers. Also, the interest rate increase was anticipated and had been priced in prior to the announcement.   https://www.bloomberg.com/news/articles/2022-03-18/s-p-500-bottom-feeders-pin-hopes-on-institutional-exhaustion

Canada’s Consumer Price Index (CPI) rose an additional 0.6% in February and the annualized rate of inflation is 5.7%, the highest it has been since August 1991 when it was 6.0%. Food, housing, and gasoline were major contributors. Gasoline, for example, has risen 32% since February 2021, which is prior to the effects of the invasion of Ukraine. Thankfully, the rate is well below the 7.9% U.S. inflation rate, but still well above the range that the Bank of Canada has set as its target.  https://www150.statcan.gc.ca/n1/daily-quotidien/220316/dq220316a-eng.htm?HPA=1&indid=3665-1&indgeo=0

In response to U.S. inflation sitting just under 8%, the Federal Reserve increased interest rates on Wednesday afternoon. The federal funds rate increased by ¼% to a range of ¼% to ½%. This was the first increase since 2018. The Fed’s mandate is to maximize employment and manage long-term inflation at 2%. Based on the current rate of domestic inflation and international pressures the Fed “anticipates that ongoing increases in the target range will be appropriate.” As many as six interest rate increases are expected from the Fed in the coming months.  https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a.htm

What’s ahead for this week and beyond?

In Canada, February’s industrial products and raw materials inflation and manufacturing sales will be released. The federal government’s budget balance for January is scheduled. Provinces are reducing or ending pandemic restrictions, creating confusion for communities, students, and workers.

In the U.S., Purchasing Managers Indexes from Market and ISM representing optimism for corporate expansion, new home sales, pending home sales, and durable goods orders will be released.

Globally, Eurozone consumer confidence, Japan’s machine tool orders, PMI and department store sales, European Central Bank’s economic bulletin are scheduled for announcement.

 

Last Week in the Markets – March 7 – 11, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The beginning of the week was dominated by news from Ukraine and its effect on oil. The U.S. and U.K. both introduced a ban on the importation of Russian oil with the U.S. also banning Russian natural gas. Immediately after President Biden’s announcement regarding Russian oil, the price of West Texas Intermediate (WTI) crude jumped 8% before settling back down. Despite the price spike and volatility, the price of oil fell compared to last week’s close.  https://www.bloomberg.com/quote/CL1:COM

On Thursday, the latest U.S. inflation numbers were released. The Consumer Price Index (CPI) rose 0.8% in February and 7.9% over the past 12 months (before seasonal adjustment). The two most significant contributors to the highest rate of American inflation in the past 40 years were Food (7.9%), and Energy (25.6%). Excluding Food and Energy, the All-Items index, prices rose 6.4%, which is the largest 12-month change for this category of goods and services since August 1982.  https://www.bls.gov/news.release/cpi.nr0.htm

The European Central Bank met in Frankfurt and announced their latest policy to address Continental consumer inflation and, secondarily the crisis in Ukraine. Bond buying will end this summer, which will then allow for interest rate increases to trim inflation. The war in Ukraine is expected to contribute to additional inflation and lower economic growth.   https://www.ecb.europa.eu/press/pressconf/visual-mps/2022/html/mopo_statement_explained_march.en.html

On Friday Canadian employment data was released. During the month of February 337,000 jobs were created and at month’s end, the unemployment rate dropped 1.0% to 5.5%.  The unemployment rate is lower than February 2020 and the total number of jobs exceeds the level of two years ago.   https://www150.statcan.gc.ca/n1/daily-quotidien/220311/dq220311a-eng.htm?HPA=1

What’s ahead for this week and beyond?

In Canada, January’s retail sales, construction investment, manufacturing sales and new orders, wholesale trade and new vehicle sales, February’s housing starts, and existing home sales will be announced. The Consumer Price Index for February will also be released.

In the U.S., the Producer Price Index, retail sales, import prices, housing starts, existing home sales, industrial production, and capacity utilization are scheduled. On Wednesday at 2 pm Eastern the Federal Reserve Chair, Jerome Powell, will announce the latest monetary policy.

Globally, Chinese industrial production, retail sales, fixed-asset investment, Eurozone trade deficit, labour costs, industrial production, and CPI will be released. Sanctions against Russia that are designed to punish Russians and pressure Putin to withdraw from Ukraine will require time to be effective.

 

Last Week in the Markets – February 28 – March 4, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

On Wednesday morning the Bank of Canada (BoC) raised interest rates by ¼%. The overnight rate is now ½%, the Bank Rate is ¾% and the deposit rate is ½%. Rates had not increased since 2018. The BoC stated, “The unprovoked invasion of Ukraine by Russia a major new source of uncertainty. Prices for oil and other commodities have risen sharply. This will add to inflation around the world. . . “    BoC

The U.S. Federal Reserve will make a monetary policy announcement on March 16th. The BoC’s move, based on inflation, employment, and international political events, could be foreshadowing.

On Friday the Bureau of Labor Statistics released the latest non-farm payroll data. In February employment rose by 678,000 and unemployment fell slightly to 3.8%.  As of the end of last month 6.3 million people remained unemployed compared with 5.7 million unemployed persons and an unemployment rate of 3.5% two years prior in February 2020. One of the major contributing factors to the shortfall in current employment is the Labor Force Participation Rate. In the U.S about 2 million fewer people are seeking jobs today than two years ago. A leading reason to stay out of the workforce is the perception that unsafe working conditions persist without pandemic safety measures and conscientious enforcement. In Canada, more people are employed today than 2 years ago.  BLS.gov Release  StatsCan

The invasion continues across Ukraine and will continue for the foreseeable future. The economic effects have already been felt. Commodity prices have surged dramatically adding more inflationary prices to existing price increases caused by supply chain disruptions and emergence from the Covid-19 pandemic.  “Price shocks will have an impact worldwide . . . “ IMF Statement

What’s ahead for this week and beyond?

In Canada, the merchandise trade balance, goods, and services trade deficit will be announced. The February employment report will be released on Friday.

In the U.S., wholesale and retail inventories and budget balance for February will be released. The latest consumer inflation numbers will be released on Thursday in a precursor to the Federal Reserve’s announcement one week later.

Globally, in addition to news from Ukraine or Russia, it will be a robust week for international economic releases. They will include Germany’s factory orders, retail sales, industrial production. China’s foreign reserves, trade surplus, and Consumer Price and Producer Price indexes; Eurozone’s GDP.  Additionally, the European Central Bank will conduct and monetary policy meeting.

 

Last Month in the Markets – February 1 – 28, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened in February?

Prior to the invasion of Ukraine, North American equity markets had been doing relatively well despite less than favourable local news. The trend had been downward with the major indices losing value during the first three weeks of the month mirroring overall performance in 2022. Year-to-Date results range from a loss of ½% for the TSX to 12% for the NASDAQ. In Year-over-Year returns, the NASDAQ has increased its value by 4% while the TSX has grown 17%. The S&P 500 and Dow sit between the TSX and NASDAQ on both measures.

(source: Bloomberg https://www.bloomberg.com/markets and ARG Inc. analysis 

This performance for the month was achieved amid mixed economic news and growing tension between the West and Russia over the massing of troops near the borders of Ukraine that eventually became an invasion. The U.S. added 467,000 jobs in January and was just 1.7 million jobs below pre-pandemic levels.  Labour Force Participation (the number of employed people plus those seeking employment) is preventing the economy from fully recovering jobs.  BLS source

The Canadian economy was not as resilient in January when 200,000 jobs were lost as the hospitality and food service sectors suffered most severely from Omicron. Thankfully, employment levels are still above pre-pandemic levels and should continue to grow once current restrictions are lifted.  StatsCan source

Year-over-year U.S. consumer inflation exceeded most analysts’ predictions and grew by 0.6% in January to 7.5%. Prices rose 0.5% in December. Inflation sits at its highest level in forty years. Core inflation, which excludes the volatile consumer categories, food, and energy, grew to 6.0%. Inflation had been testing the Federal Reserve’s already strained patience.  BLS news release source

By comparison, Canada’s inflation rate has risen to 5.1% year-over-year, the highest rate in 30 years. The continuation of heightened inflation here and in the U.S. extends the pressure on the Bank of Canada to raise interest rates as early as their next meeting on March 2nd.

The effects of Russia’s invasion of Ukraine at the end of the month have impacted almost every country and their capital markets. Although the global economy is interconnected, Russia’s level of interaction with most other countries and countries with large economies is relatively small. Its isolation from the West on political grounds persists economically.  The Russian economy is ranked 11th in size among countries at $1.483 Trillion in 2020, which is slightly larger than Brazil and Australia and only about 90% of Canada’s Gross Domestic Product (GDP).

Despite its small size Europe is dependent on Russia for oil and natural gas, receiving about 40% and 25%, respectively, of these two energy types. Also, Russia and Ukraine together account for nearly one-third of global wheat exports.  Ukraine exports

A full-scale invasion by one nation into a separate sovereign country may have been doubted, many of the results have been measured and predictable:

  • Governing bodies, like the United Nations, have condemned Russia’s breach of international law
  • Russia’s relations with the global community, except for countries in its inner circle, are being severed diplomatically
  • Trade embargos are limiting international sales of Russian products and services
  • Russia is being cut-off from the global payments network, SWIFT, preventing the flow of capital
  • Travel restrictions have been imposed on Russian airlines and citizens
  • 500,000 refugees have fled westward from Ukraine, and the U.N. is preparing for 5 million in total
  • Assets of the Russian Federation and its citizens held in foreign banks are being seized
  • The price of commodities is climbing
    • Oil breached $100 per barrel after rising more than 11% since February 25th
    • Aluminum hit a record high and silver prices have jumped 10%
      • 60 million barrels of strategic oil reserves will be released to contain the rapid increase in the price of oil Strategic Oil Reserves
    • Traditional “safe haven” investments have also increased in value and volume
      • Gold has increased $100 per ounce in the last month
      • The U.S. dollar has strengthened against the Euro, Pound, Canadian dollar, and many other currencies
      • A rush to bonds has lowered yields in exchange for safety
    • The Moscow stock market closed for its second consecutive day on March 1st to prevent a sell-off
      • Russian firms, like Gazprom, that trade internationally have lost 20-50% of their value and several exchanges have halted trading in Russia-based firms
    • The Russian Ruble has lost about 40% of its value against the U.S. dollar as of mid-morning on March 1st

A reversal of one, many, or all changes, above, could occur rapidly should Russia abandon its ambitions in Ukraine, or some other breakthroughs occur. Unfortunately, these economic sanctions have not altered the course of the conflict on the ground.  World Bank GDP Data   Companies Exiting Russia Bloomberg on Safe Havens and Bonds

What’s ahead for March and beyond?

Two major influences that will dominate markets for the foreseeable future are the geopolitical situation in Ukraine and central bank monetary policy.

The damage caused to the global economy by Russia is just beginning to be felt. Embargos and restrictions are being instituted for Russian flights that limit them, effectively, to Russian airspace, goods and services are not travelling across international borders, sports teams are being disqualified from European and global events, like the World Cup. Financial assets for Russia and Russians are being seized.

Denying and preventing the free flow of goods, services, labour, and capital to-and-from Russia will lower economic output for Russia and any countries that cannot replace the restricted economic activity. If sanctions deliver the intended results the losses will be felt almost exclusively in Russia.

The shortening of supply, especially for oil, is predicted to lead to increased inflation and subsequently to larger moves to contain price increases by central banks like the Bank of Canada, Federal Reserve, European Central Bank (ECB) and Bank of England. The by-product of inflation-fighting interest rate increases is typically and tempering of Gross Domestic Product growth and lowering of equity prices.

The Bank of Canada announces monetary policy updates on March 2nd, the ECB meets on March 10th and the Federal Reserve releases its latest interest rate guidance on March 16th.

On March 1st at 9 pm Eastern President Biden is scheduled to deliver his State of the Union Address. It will likely veer away from a domestic speech to include a significant international focus.

 

Last Week in the Markets – February 21 – 25, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The most significant economic news from last week was politically generated. Early in the week, Russia launched a full-scale invasion initially into eastern Ukraine by land and air. Three days later Russians were spread across vast areas of the country and encircled or controlled many cities. The uncertainty and depth of sanctions against Russia caused equity markets to drop early in the week before recovering.

The disruption to supply chains is expected to delay economic recovery and prolong inflation. For example, VW is ceasing production temporarily at two assembly plants in Germany since component parts have not shipped from Ukraine. Also, the price of oil breached $100 per barrel last week.

Since Putin’s next actions are unpredictable the response from NATO will also be difficult to gauge but expect economic sanctions to increase. Russia had not initially been excluded from the global payments system, SWIFT, and Russian oil and natural gas are still being exported. Should Russia’s oil and finances be cut-off, political, economic, and military responses from Putin are expected, but their form is uncertain.

Increasing supply chain interruptions and commodity prices, like oil, will complicate the inflation situation as central banks attempt to slow the rapid rise in consumer prices. In Canada and the U.S., prices have increased at their highest level since the early 1980s.

What’s ahead for this week and beyond?

In Canada, January’s industrial product price index and raw materials price index, building permits, and Purchasing Managers Indexes for February will be released. On Wednesday morning the Bank of Canada will make a monetary policy announcement.

In the U.S., January’s wholesale and retail inventories, trade deficit, construction spending, factory orders, productivity, and labour costs will be released. Purchasing Managers Indexes (PMI) from ISM and Markit will be announced. February’s non-farm payrolls are scheduled for late in the week, while President Biden is scheduled to deliver a State of the Union Address on Tuesday evening.

Globally, PMIs for several countries including China, Japan, and the Eurozone, consumer inflation numbers will be released for Germany and Italy for February.  OPEC+ will conduct a meeting, which will address the invasion and the delivery of oil and gas from Ukraine and Russia.

 

Last Week in the Markets – February 14 – 18, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Aside from investors narrowly focused on gold, it was not a positive week. Although the TSX and the Canadian dollar may not be as tightly correlated to the price of oil as they were years ago, all three dropped. The TSX lost 2½% while the U.S. equity indices performed only slightly better, losing 1½ to 2%.

The most important domestic economic news was the Consumer Price Index (CPI). Canada’s inflation rate has risen to 5.1% year-over-year; the highest rate in 30 years. The continuation of heightened inflation here and in the U.S. extends the pressure on the Bank of Canada to raise interest rates as early as their next meeting on March 2nd.

Canadian inflation is well below the U.S. rate, which is 7.5%. The pressure on the Federal Reserve to adjust short-term interest rates higher is even more intense. Predictions that the Fed will act strongly in early 2022 before slowing interest rate rises later in the year seem more likely as inflation continues to rise. The nature of inflation, which is less tied to supply-chain issues than originally contemplated by the Fed, makes a ½ point increase to the Federal Funds rate as likely as ¼ point.

Ahead of any interest rate maneuvers by central banks equity markets are pricing for the eventual increase. Rapid market rises and drops are driven by surprises and the drop in equities indices last week could be perceived as confirmation that the Fed and Bank of Canada are poised to raise rates. The Fed’s Open Market Committee meets on March 15th and 16th and may have their monetary policy intentions signaled two weeks in advance by the Bank of Canada.

What’s ahead for this week and beyond?

In Canada, markets are closed on Monday for several provincial holidays. In Ontario, the Family Day observance closes the TSX. January’s wholesale trade and manufacturing sales will be released.

In the U.S., capital markets and banks are also closed on Monday. Durable goods orders, new home sales, pending home sales, Case-Shiller and FHFA Home Price Indexes, and personal spending will be released along with Purchasing Managers Index (PMI) from Markit.

Globally, PMI for several areas, including the Eurozone and Japan will be announced. Germany’s business climate and consumer confidence, the Eurozone’s economic and consumer confidence, and consumer inflation will be announced.

 

Last Week in the Markets – February 7 – 11, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Prior to the last week’s announcement, inflation expectations have been heavily influencing capital markets. After the announcement from the Bureau of Labour Statistics, inflation continued to dominate market influences. Year-over-year U.S. consumer inflation exceeded most analysts’ predictions and grew by 0.6% in January to 7.5%. Prices rose 0.5% in December.

Overall, U.S. consumer inflation sits at its highest level in forty years. Core inflation, which does not include the two most volatile consumer categories, food, and energy, grew by 0.6% to 6.0%. Supply chain interruptions and disruptions can no longer be blamed entirely for inflation as increases have moved to housing, rents, food, and electricity, which have a services and domestic bias. Consequently, inflation will persist beyond supply chain easing and test the Federal Reserve’s already strained patience.  https://www.bls.gov/news.release/cpi.nr0.htm

Inflation is rising as Gross Domestic Product (GDP), grows at above-average speed. Real wages continue to do so as well.

All of this data increases the expectation for interest rate increases from both the Federal Reserve and the Bank of Canada. Typically, rate increases are ¼% (0.25%), but speculation is increasing that the initial increase could be ½% (0.5%).

These monetary policy moves will temper equities, which are already suffering in 2022 from the speculation that increasing and high inflation will lead to interest rate hikes.

What’s ahead for this week and beyond?

In Canada, December’s retail sales, wholesale trade, and international securities transactions, and January’s housing starts, existing home sales, MLS Home Price Index, manufacturing sales, and new orders will be released. The latest inflation numbers through the CPI will be announced on Wednesday.

In the U.S., a number of economic indicators, including retail sales, import prices, industrial production, business inventories, housing starts, and building permits, are scheduled for release.

Globally, Japan’s real GDP, trade deficit and CPI, China’s Consumer and Producer Price Indexes, Eurozone industrial production and consumer confidence will be announced.

 

Last Week in the Markets – January 31 – February 4, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

In the end, it was a positive session as the grid above delivered an “all green” week.  The major North American equity indices gained one to two and a half percent. The TSX did well, lifted by the increasing price of oil, which climbed to its highest level since 2014. Additionally, the largest sector of the TSX, Financials, is being aided by the expected increase in interest rates.

Beyond expected rate increases at the Fed and Bank of Canada, the jobs reports on both sides of the border provided more input to markets last week. The U.S. economy exceeded expectations by adding 467,000 jobs. Average hourly wages grew by 5.7% compared with one year ago, and labour-force participation rate rose sharply. Total employment is 1.7 million less than pre-pandemic levels, but demand for workers, job openings, and rising wages suggests the U.S. economy has weathered the Omicron surge well. BLS source

For workers, the Canadian economy was not as resilient. In January, 200,000 jobs were lost with the hospitality and foodservice sectors suffering most severely. Thankfully, employment levels are still above pre-pandemic levels despite these losses, which should be temporary once the current restrictions begin to be lifted.  Statscan source

Lastly, volatility for equities has lowered, which should provide some additional respite. VIX Source

What’s ahead for this week and beyond?

In Canada, the merchandise trade balance for December will be released as the Canadian earnings season proceeds with Thomson Reuters, Canopy Growth, Aurora Cannabis, Great-West Life, Manulife, Enbridge, Sun Life, RioCan REIT, and Magna on the calendar.

In the U.S., December’s consumer credit, goods and services trade balance, and wholesale inventories will be announced. The most significant economic indicator scheduled for release is January’s consumer inflation on Wednesday. American companies reporting quarterly earnings include Amgen, Peloton, Pfizer, Disney, Coca-Cola, PepsiCo, Twitter, and Uber.

Globally, Germany’s industrial production, trade surplus, and consumer inflation, along with Japan’s machine tool orders, household spending, bank lending, and current account surplus will be released.

 

Last Month in the Markets – January 1 – 31, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened in January?

At the beginning of the month, equities fell during the first week, regained their value and stabilized before dipping strongly around the end of week 3, and ended the month regaining some lost value.  Overall equities performed poorly for several reasons.

The central banks for the two largest and developed economies in North America announced monetary policy updates on the last Wednesday of the month, January 26th. The Federal Reserve and the Bank of Canada held their benchmark rates unchanged and are now poised to increase interest rates in March.

Intra and inter-day volatility rose as the comments made by Fed Chair, Jerome Powell, were released.  He indicated that rates could be increased without harming employment. It appears that the Fed may increase rates rapidly before slowing the number of increases as 2022 proceeds. All the maneuvering by the Fed is to control inflation which is well above the 2% goal, sitting at 7% as of December. The Fed also plans to end its bond-buying program in March and to reduce its holdings that support long-term interest rate reduction.  Fed Press Release

The Bank of Canada had already ended its bond-buying support last autumn. Interest rates were left unchanged due to uncertainty of the negative effects of Omicron and inflation at approximately half the U.S. rate.  BoC Press Release

The past month did not deliver the results that equity investors desire with the major indices and every indicator in our grid falling in value, except for oil. North American equity indices fell about 1 to 9% the global All Country World Index (ACWI) that includes 25 Emerging Markets fell 5% in January.

In addition to the price changes (i.e. drops) for equities, volatility rose as January progressed and speculation about interest rate increases rose and the political situation in the Ukraine continued. Generally, the higher the volatility the bigger the price changes can be in the short term. Volatility Definition   The VIX volatility index reached its highest level since early 2021 as analysts digested central bank guidance for their stand-pat policies and tensions between NATO and Russia rose.   Volatility Index

(source: ARG analysis, Bloomberg)

The latest variant of concern, Omicron, which has been spreading rapidly in southern Africa, caused widespread concern globally. Travel restrictions have been reintroduced in several developed nations preventing foreign citizens entry when arriving from eight African countries.  https://www.cbc.ca/player/play/1978247747665

The U.S. economy added 199,000 jobs in December with year-over-year wages rising 4.7% and unemployment at 3.9%. Analysts expected about 400,000 new jobs to be created last month and 3.6 million less jobs exist at year-end than in February 2020.  The Canadian economy bested jobs growth expectations during the last two months. After adding 153,000 jobs in November and 55,000 in December, the rate of employment growth is exceeding the U.S. while Canadian wage increases and unemployment rates lag behind the American economy’s performance.                                                                                                          https://www150.statcan.gc.ca/n1/daily-quotidien/220107/dq220107a-eng.htm?HPA=1   https://www.bls.gov/news.release/empsit.nr0.htm

The big economic news from last month was the release of the latest Consumer Price Index (CPI) data in the U.S. Year-over-Year prices have risen 7.0%, the highest inflation reading since 1982, 39 years ago.  Energy (fuel, fuel oil, natural gas) and used vehicle prices have risen the most at 29.3% and 37.3%, respectively. Groceries (food at home) nearly matched the overall rate after rising 6.5% since last December. Removing energy and food, two categories that can deliver volatile price changes, inflation for Goods has risen nearly 11%, which is also the largest increase since 1982. Services (less energy services) have risen a relatively modest 3.7%, still far above the goal of 2% average total inflation.  https://www.bls.gov/news.release/cpi.nr0.htm

What’s ahead for February and beyond?

In addition to the growing danger of the Omicron variant and any that follow and the unstable geopolitical drama between NATO and Russia in the Ukraine, inflation remains a significant concern.  The persistence, the breadth, and the size of price increases are pushing central banks across the globe to act sooner than originally believed.

Expect monetary policy announcements, which will incorporate pandemic, political and economic developments, to guide the value of stocks, indices, and portfolios for most of 2022.

 

Last Week in the Markets – January 24 – 28, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The central banks for the two largest and developed economies in North America announced monetary policy updates last Wednesday. The Federal Reserve and the Bank of Canada held their benchmark rates unchanged and are now poised to increase interest rates in March.

Intra and inter-day volatility rose as the comments made by Fed Chair, Jerome Powell, were released. He indicated that rates could be increased without harming employment. It appears that the Fed may increase rates rapidly before slowing the number of increases as 2022 proceeds. All the maneuvering by the Fed is to control inflation which is well above the 2% goal, sitting at 7% as of December. The Fed also plans to end its bond-buying program in March and to reduce its holdings that support long-term interest rate reduction.  Fed Press Release

The Bank of Canada had already ended its bond-buying support last autumn. Interest rates were left unchanged due to uncertainty of the negative effects of Omicron and inflation at approximately half the U.S. rate.

As speculation about interest rates increases, expect volatility to build, as the political situation in Ukraine contributes to uncertainty as well. The VIX volatility index reached its highest level since early 2021 as analysts digested central bank guidance for their stand-pat policies and tensions between NATO and Russia rose.   Volatility Index

What’s ahead for this week and beyond?

In Canada, January’s employment data, December’s Industrial Price and Raw Materials Indices, building permits and November’s GDP will be released along with Markit’s Purchasing Managers Indices (PMI).

In the U.S., PMIs from Markit and ISM for manufacturing and composite and December’s construction spending and factory orders are scheduled for release. Non-farm payroll employment numbers will be announced by the Bureau of Labor Statistics.

Globally, China’s markets will be closed after Monday. Japan’s employment retail sales, services PMI, industrial production and consumer confidence, Eurozone retail GDP and retail sales, inflation and joblessness, service and composite PMIs will be released.

 

Last Week in the Markets – January 17 – 21, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

It was a difficult week for most Canadian investors with broad equity holdings. After Monday, when the TSX rose 180 points and U.S. markets closed for Martin Luther King Day, it was four straight days of losses. For the week the TSX dropped more than 3% and the S&P 500 fell nearly 6%, the Dow fell over 4%, and the tech-heavy NASDAQ fell over 7%.

The most recent drivers of overall equity valuations are the continued rise of Omicron and consumer inflation that is pushing central banks to react with short-term interest rate hikes sooner than expected. The Bank of Canada and the Federal Reserve have already reduced their support for long-term interest rates. Both institutions will announce their new monetary policy next week.

U.S. Treasury rates have risen as high as 1.9% from 1.5% and are causing much of the recent equity volatility. The most reliable long-term indicator of equity performance is corporate performance. Will the growing economy, that contains inflation above desired levels, be able to provide the environment for earnings growth for publicly traded companies even as interest rates are increased? The massive corporate profits seen in 2021 will likely not be repeated this year. However, the predicted arrival of higher interest rates in the second quarter will likely not eliminate earnings growth either.  https://www.youtube.com/watch?v=E3Ev26ZpSiY&t=179s

What’s ahead for this week and beyond?

In Canada, December’s manufacturing sales and wholesale trade will be released. On Wednesday morning the Bank of Canada will deliver its monetary policy announcement and report.

In the U.S., Purchasing Managers Indexes (PMI) will be released from Markit, and December’s new home sales, goods trade deficit, wholesale and retail inventories will be announced. The Federal Reserve’s Open Market Committee will meet and announce their latest monetary policy on Wednesday afternoon as the quarterly corporate earnings season continues.

Globally, PMIs will be released for several countries including Japan, the Eurozone, and U.K.  Germany’s GDP and Business Climate Report from ifo. The Eurozone consumer confidence numbers are also scheduled.

 

Last Week in the Markets – January 10 – 14, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The continued rise in the price of oil allowed both the TSX and the Canadian dollar to increase in value last week. Oil has risen by more than 11% since the beginning of 2021. Energy is the second-largest sector on the TSX and gains in crude prices are generally reflected in the overall index. Increasing oil prices increases the demand for Canadian dollars, which strengthens our currency against the U.S. dollar.

The big economic news from last week was the release of the latest Consumer Price Index (CPI) data. In the U.S., Year-over-Year prices have risen 7.0%; the highest inflation reading since 1982. Energy (fuel, oil, natural gas) and used vehicle prices have risen the most at 29.3% and 37.3%, respectively. Groceries nearly matched the overall rate after rising 6.5% since last December. Removing energy and food, two categories that can deliver volatile price changes, inflation for Goods has risen nearly 11%, which is also the largest increase since 1982. Services (less energy services) have risen a modest 3.7%, still far above the goal of the 2% average total inflation.  https://www.bls.gov/news.release/cpi.nr0.htm

The U.S. Federal Reserve along with the Bank of Canada is expected to deliver interest rate increases. The markets are pricing-in these increases for 2022. With U.S. unemployment falling below 4% and Canadian employment recovered to pre-pandemic levels there is little reason to actively support economic recovery while inflation exceeds desired levels.   https://www.ctvnews.ca/video?clipId=2359171

What’s ahead for this week and beyond?

In Canada, November’s manufacturing sales and new orders, new vehicle sales and retail sales, and December’s existing-home sales, housing starts, and new housing price index are scheduled for release. Of note, the latest consumer inflation numbers will be announced on Wednesday morning.

In the U.S., markets are closed on Monday for Martin Luther King Jr Day. Later in the week, December housing prices will be released as the quarterly corporate earnings season gathers momentum with major firms like Bank of America, Charles Schwab, State Street, PNC, Morgan Stanley, U.S. Bancorp, and Goldman Sachs, UnitedHealth, Procter & Gamble, Union Pacific, American Airlines, CSX, and Netflix announcing results.

Globally, Japan’s industrial production, machine orders, trade balance and CPI, Germany’s CPI, and Eurozone CPI, and consumer confidence will be released.

 

Last Week in the Markets – January 3 – 7, 2022

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Markets were mostly down during the first week of trading in 2022. At the present time, the Year-to-Date (YTD) reflects only the first week’s results and is more than 17 percentage points apart. As the year progresses the YTD numbers will become more meaningful when compared to the longer-term 1-year returns.

This year has not started as most investors would have liked. Equity indices in North America and around the world lost ground last week based on three major influences. The Covid-19 cases, hospitalizations, and ICU admissions have spiked and are causing restrictions to be reintroduced. Central banks are indicating that the temporary nature of inflation is not as brief as first believed and short-term interest rates will need to be raised.  Employment numbers in the U.S. disappointed.

The U.S. economy added 199,000 jobs in December with year-over-year wages rising 4.7% and unemployment at 3.9%. Analysts expected about 400,000 new jobs to be created last month and 3.6 million less jobs exist today than in February 2020. The Canadian economy bested jobs growth expectations during the last two months. After adding 153,000 jobs in November and 55,000 in December the rate of employment growth is exceeding the U.S. while wage-rate increases and unemployment rates lag behind the American economy’s performance.  https://www150.statcan.gc.ca/n1/daily-quotidien/220107/dq220107a-eng.htm?HPA=1    https://www.bls.gov/news.release/empsit.nr0.htm

The lone “green” indicator in our grid is the price of oil that surged nearly 5% last week after OPEC+ agreed to another round of cooperative supply adjustments. The rising price of oil will continue to contribute to rising consumer and producer inflation should this trend persist.

What’s ahead for this week and beyond?

In Canada, a number of important announcements will occur in the next few days and weeks, GDP, inflation, and the next Bank of Canada interest rate announcement.

In the U.S., wholesale inventories, business inventories, and industrial production will be announced. The Senate Banking Committee will conduct nomination hearings for Jerome Powell’s second term as Federal Reserve Chair. Lastly, and certainly not least, consumer inflation for December will be announced.

Globally, the Eurozone jobs report, trade surplus and industrial production, China’s Consumer and Producer Price Indices, and trade surplus represent important indicators from significant economies.

 

Last Year in the Markets – January 1 – December 31, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in 2021?

The last year, just like the past 22 months since March 2020, has been filled with investment uncertainty based on many major and minor factors. Thankfully early losses have been recouped and exceeded in nearly every case. Volatility has also tempered. The most recently concluded calendar year continued to reflect those themes of growth and calm despite turmoil in nearly every other aspect of daily life.

(source: ARG analysis, Bloomberg and MSCI)

The world’s economy has been subjected to tremendous negative and positive forces as the pandemic continues. As case counts, hospitalizations and deaths wax and wane the response from local, regional, and national governments was adjusted and Gross Domestic Product (GDP) was reduced by commercial and travel restrictions. Labour and supply chain shortages, while monetary policy, direct supports, and global cooperation, at times, sought to lessen or prevent negative economic shocks.

For most of last year, the largest effect of the pandemic and the efforts to control it have been centered on regaining job losses, overcoming growing and persistent inflation, providing appropriate direct assistance to individuals, families, and businesses while fighting the spread of the coronavirus and two major variants-of-concern; Delta and Omicron.

Analyzing pandemic effects on the economy and investments might be a more satisfying activity than a painful recap of local and global public health.

The TSX ended 2021 at 3,700 points and 22% ahead of its 2020 year-end level. Although the TSX reached its 52-week high in mid-November its level of 21,223 is the highest month-end and year-end in its history. Since 2000, last year was the third-best year for the TSX, bested only by 2003 and 2009. Three-quarters of the gain at the TSX came from its two largest sectors, Financials and Energy. Of the top ten performing stocks in Toronto, eight were from the Energy Sector. Healthcare, which includes cannabis companies, was the lone sector to decline. In addition to the impressive gains, 2021 experienced the second-smallest intra-year drop over this same period. That is, 2021 made tremendous gains aided by the lack of a significant pullback. https://www.bloomberg.com/news/articles/2021-12-31/s-p-tsx-index-falls-0-3-shopify-leads-decline-kxuw3tre

The S&P 500 rose more than 1,000 points and 27%, the Dow rose 5,700 (19%) and the NASDAQ delivered a 2,700-point (21%) increase. It was an excellent year for investors focused on North American equities as all eleven sectors of the S&P 500 rose by more than 13% for the first time ever. Energy and Real Estate led the way by returning more than 40% increases, while the Information Technology sector delivered 34% and edged out Financials for a third-place within the index. https://www.bloomberg.com/news/articles/2021-12-31/for-first-time-all-11-s-p-500-sectors-in-double-digits-chart

The All-Country World Index (ACWI) that is comprised of 2,966 large and mid-cap companies from 23 Developed and 25 Emerging Markets that represent 85% of the global investable equity opportunity set also made significant total gains in 2021. The ACWI was the laggard in our grid, above, primarily because its Emerging Markets component fell 2½% over the year, and still delivered 17% returns. Progress against the pandemic through vaccine administration lags in developing and emerging countries, and their capital markets have not strengthened as quickly as mature markets and economies. https://www.msci.com/documents/10199/a71b65b5-d0ea-4b5c-a709-24b1213bc3c5

Based on recent, negative pandemic news, and the events of the past year, one might feel that success against the virus and investment gains are directly and proportionally tied to one another. This is clearly not true for most equity investors who are focused on retirement savings with holdings that mirror the broad indices and are concentrated in North America.

(source: ARG analysis, Bloomberg and MSCI)

Notwithstanding the tragic events of the last twenty-two months, investors have seen the equity indices rise at historically high rates over the past three calendar years, with the NASDAQ as the clear leader over this period after doubling its value. Despite some increased choppiness at the end of 2021 (and into 2022), the year-long graph lines show a typical “sawtooth” upward progression over the last 12 months.

The price of oil and gold has risen about 63% and 43%, respectively over the same three-year period. The rapid rise in the price of oil during economic recovery has allowed the Canadian dollar to gain ground against its U.S. counterpart and finish 2021 ½ cent above where it started the year.

What’s ahead for January and beyond?

The influences for investors in 2022 are virtually unchanged from 2021. Public health progress against the pandemic and the effects of the monetary policy response (along with various government’s fiscal actions) will determine market performance until Covid-19 becomes endemic.

As economic recovery continues, it is expected that employment and wage growth will maintain their trajectories, supply chain issues will linger, and inflation will remain above desired levels. This will cause central banks to respond with increases to short-term interest rates.

Rising interest rates will trim inflation by reducing economic growth, slower economic growth will deliver fewer and smaller opportunities for firms to drive revenue and profits, and the prospects of lower corporate performance will likely trim the growth of their share prices. Relative to 2021, the broad-based growth across nearly all sectors will become more selective and exclusive.

The latest release of the U.S. Federal Open Market Committee meeting minutes from the Federal Reserve shows that inflation concerns are growing. The Governors believe that inflation is not permanent, but it will continue longer than originally anticipated. The Federal Reserve is expected to continue the tapering of its bond-buying program. It is likely to conclude near the end of next year’s first quarter. This will coincide with the newly anticipated increases to short-term rates in mid-2022.

The Bank of Canada will announce its own measures to combat inflation and raise employment just prior to the next American announcement. Canada’s central bank has also indicated that it intends to raise rates sooner than originally forecast in response to inflation concerns.

It is difficult for any endeavour or team to repeat a strong performance for two consecutive years, or seasons. As its history has shown the equity market is not immune from this challenge. The S&P 500, for example, typically follows a year with performance like it achieved in 2021 with more muted performance. Historically, after a high-performance year, a drop of 12% occurs during the following year. This drop is a major contributor to preventing a repeat performance. This is not dissimilar to last year’s championship team losing games it should have won, still make the playoffs, but lose in the semi-finals.

Despite this history in equity investing, the fundamentals and supports remain in place to deliver more positive results. Although interest rates are expected to rise, they remain at historically low levels. Should a drop occur, it may be an opportunity to purchase or to rebalance positions.

Based on personal, professional, and financial factors, it may be time to examine additional investment and financial planning opportunities that will arise as monetary policy changes are enacted. The broad investment themes will be tailored to your unique situation to develop your plan.

 

 

Last Week in the Markets – December 27 – 31, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The year concluded last week with the traditionally quiet and light trading week between Christmas and New Year’s Eve. Daily volumes of transactions were about 25% less than typical. In addition to falling volumes, the last two days of trading saw North American equities drop slightly as the Omicron variant of the coronavirus caused spikes in infections across the globe. The rates of hospitalizations and severe illness have not arrived, yet. Despite all of the uncertainty attributed to Covid-19, equities performed strongly during 2021 as major indices gained 19 – 27%. That level of performance made 2021 an above-average year for stocks during the past 30 years according to Bloomberg. In 2021 equities also avoided a major correction, which often occurs when high rates of gain occur.  https://www.bloomberg.com/markets/stocks

Economic growth in Canada and the U.S. measured as Gross Domestic Product and employment fueled stock market gains. Economic growth (and supply manipulations from OPEC, for example) drove the price of oil 55% higher than its value at the end of 2020. Gold is the only indicator in our grid (above) that lost value last year.

The Canadian dollar hit a trough on December 20th but finished the year strongly and based on last week’s increase of 1½%, climbed into positive territory for the year. Adding the small gain in foreign exchange value to the TSX’s overall performance has Canadian denominated equities returning more than 22%. For all the attention that the tech-heavy NASDAQ receives for its returns, the TSX outperformed it. Since most Canadians invest domestically, many have seen their individual portfolios rebound over the past twelve months.

What’s ahead for this week and beyond?

In Canada, the Toronto Stock Exchange will be closed on Monday to observe New Year’s Day. Industrial product and raw materials price indices, purchasing managers indices, automobile sales, and December’s employment report will be announced.

In the U.S., capital markets will be open for five full trading days. The economic data scheduled for release includes construction spending, factory orders, purchasing managers indices from both ISM and Markit, vehicle sales, non-farm employment, and the minutes of the Federal Reserve’s last monetary policy meeting.

Globally, purchasing managers indices for goods and services in the Eurozone, Japan, China, and the U.K., Germany’s unemployment, factory orders, industrial production, inflation, and retail sales, and France’s consumer inflation will be announced. OPEC+ will hold another meeting to discuss production limits.

 

Last Week in the Markets – December 13 – 17, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a difficult week for investors focused on equities. The major indices lost about 1% to 3% last week.  Canadians may have suffered the smallest loss in share values, but the Canadian dollar’s 1.3% fall dropped domestic investor losses down to the level experienced for American denominated investors. Inflation and monetary policy news, particularly from the U.S., drove last week’s markets.

The Canadian annual inflation rate in November equalled the consumer price increases of October at 4.7%. The month-to-month increase dropped to 0.2% from 0.7% a month earlier, which is encouraging news. Unfortunately, essentials that are difficult to economize, like food, shelter, energy (including electricity, gasoline, and natural gas), led the way on price increases. On December 8th, the Bank of Canada indicated in its monetary policy announcement that interest rate increases were anticipated in 2022 to combat inflation.
https://www150.statcan.gc.ca/n1/daily-quotidien/211215/t001a-eng.htm           https://www.bankofcanada.ca/2021/12/fad-press-release-2021-12-08/

In the U.S., the Federal Reserve held meetings to discuss and announce their latest monetary policy measures.  With Gross Domestic Product (GDP) approaching pre-pandemic levels, unemployment lowering again and nearing 4%, real wages increasing by more than 4%, and consumer inflation running at 6.8%, the Fed is compelled to act. Of its dual mandates, maximizing employment and price stability, addressing the historically high consumer price increases is the priority.  Jerome Powell, Fed Chair, announced on December 15th that it will lower the bond-buying program more quickly than previously announced. Bond buying lowers long-term borrowing costs. He also indicated that short-term rates could be increased as many as three times in 2022.  https://www.federalreserve.gov/monetarypolicy/fomcpresconf20211215.htm
https://www.bls.gov/cpi/
https://www.bls.gov/news.release/empsit.nr0.htm

What’s ahead for this week and beyond?

In Canada, October’s retail sales and real Gross Domestic Product will be released in a light week for economic announcements. The TSX will close early on December 24th and will reopen on December 29th.

In the U.S., the leading indicator, personal spending, and income, durable goods orders, new and existing home sales for November, are scheduled, along with third-quarter Gross Domestic Product. On Friday, December 24th, U.S. markets will be closed and will reopen on Monday, December 27th.

Globally, the data of note includes the Eurozone and German consumer confidence, Japanese department store sales, machine tool orders, and Consumer Price Index, in a light week for economic releases around the world.

 

Last Week in the Markets – December 6 – 10, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The Bank of Canada announced its latest monetary policy on Wednesday and kept the three key, short-term interest rates unchanged. The Overnight Rate and Deposit Rate sit at ¼% and the Bank Rate stays at ½%. This stay-the-course inaction was expected based on the Bank’s previous guidance. However, the comments that accompanied maintenance of current interest rate levels indicated that increases cannot be avoided indefinitely. Inflation is running well above the desired level in Canada, Gross Domestic Product is approaching pre-pandemic levels after strong third-quarter growth, and economic momentum appears strong with job gains bringing the level of employment close to February of 2020. All these factors were explicitly stated in the Bank’s announcement along with the projection that the Bank of Canada will continue to support economic recovery with low interest rates. The support could begin to be lessened by an increase in short-term rates “sometime in the middle quarters of 2022.”  https://www.bankofcanada.ca/2021/12/fad-press-release-2021-12-08/

The U.S. Federal Reserve will release its monetary policy update on Wednesday, December 15th.

The other major announcement from this past week was the Consumer Price Index (CPI) in the U.S., which showed that prices have risen 6.8% overall in the last year. Prices were up 0.8% in November after a 0.9% increase in October. This is the highest rate of inflation since 1982. The core inflation rate is 4.9%, and “the price indexes for gasoline, shelter, food, used cars and trucks, and new vehicles were among the larger contributors” according to the Bureau of Labor Statistics.  https://www.bls.gov/news.release/cpi.nr0.htm

What’s ahead for this week and beyond?

In Canada, November’s industrial product price index, housing starts, existing home sales, and inflation through the Consumer Price Index will be released.

In the U.S., the Producer Price Index, retail sales, import prices, housing starts and building permits for November are scheduled. Also, the Federal Reserve’s latest monetary policy announcement and economic projections are on the calendar for Wednesday afternoon.

Globally, industrial production, trade balance and Purchasing Managers Indices from Japan, China and Eurozone will be announced. Mirroring the U.S., the European Central Bank will conduct its monetary policy meeting.

 

Last Week in the Markets – November 29 – December 3, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was an extremely difficult week for markets with equity indices in Canada, the U.S., and globally falling along with the Canadian dollar, gold, and oil. It was another “all red” week for our grid.

Positive news on the jobs front suggests that the Bank of Canada and the Federal Reserve may act more quickly to raise interest rates to reign-in inflation. Fears of an economic slowdown associated with higher rates were bolstered by the uncertainty of the Omicron variant, which has caused several countries to enact restrictions.

The latest jobs data was released with 154,000 jobs added in Canada. The unemployment rate fell again by 0.7% to 6.0%. Employment exceeds the February 2020 level by 186,000 jobs and the unemployment is just 0.3% below its level at that time. Total hours worked increased by 0.7% and have returned to pre-pandemic levels.  The ending of support programs in Canada was seen as a contributor as more individuals sought to move to earned income. More than 80% of women aged 25 to 54 were employed in November, which is the highest level since the data was first collected in 1976, with growth spread across multiple industries. By comparison, 87% of men of the same age are employed, exceeding February levels by 0.5%.

In the U.S., 210,000 new jobs were added in November and the unemployment rate fell by 0.4% to 4.2%.  “Notable job gains occurred in professional and business service, transportation and warehousing, construction and manufacturing. Employment in retail trade declined over the month” according to the report released by the Bureau of Labor Statistics.

https://www.bls.gov/news.release/pdf/empsit.pdf    https://www150.statcan.gc.ca/n1/daily-quotidien/211203/dq211203a-eng.htm

https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-canadian-dollar-rebounds-from-10-week-low-after-jobs-surge/

What’s ahead for this week and beyond?

In Canada, merchandise trade balance and third-quarter capacity utilization will be announced. The most important update of the week will be the latest release of the Bank of Canada’s monetary policy.

In the U.S., third-quarter productivity, October’s goods and services trade deficit and consumer credit, and November’s Consumer Price Index (CPI) will be released.

Globally, China’s trade surplus, CPI and producer inflation, Germany’s factory orders and CPI, industrial production will be announced along with Eurozone real Gross Domestic Product.

 

Last Month in the Markets – November 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What Happened in November?

November did not deliver the results that equity investors had hoped. There were three main contributors to the damage equity markets saw this month:

  1. actual and rumored action by the Federal Reserve
  2. commodities suffered from a predicted weakening of demand and
  3. a new coronavirus variant has investors, health officials, and governments concerned and taking restrictive actions.

While the NASDAQ did see modest gains, the TSX, Dow, and S&P 500 fell because of these negative influences occurring during the second half of the month. Indices peaked on November 16th and 19th, which led to a dramatic decline during the last trading days of the month. Despite a disappointing month, indices are still performing well this year. Year-to-Date increases of 19%, 13%, 21%, and 22% for the TSX, Dow, NASDAQ, and S&P 500, respectively.

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis) 

Jobs and Inflation

The first Wednesday of the month saw the U.S. Federal Reserve (the Fed), followed by the Bank of Canada’s (BoC), reduce their bond-buying programs. Just the week before, the BoC eliminated the same program that supports lower-long-term borrowing costs in Canada. The Fed will reduce its purchases from $120 Billion/month to $15 Billion. This indicates that the Fed plans to end its buying after 8 months (June of 2022). These big moves by both central banks are strategic changes in an attempt to curtail inflation. Inflation is much higher than the target rate and the temporary nature of price increases is being questioned. Fed Chair, Jerome Powell, indicated that short-term interest rates would remain unchanged.  A video of Powell’s announcement is available.

  • Canada added 31,000 jobs last month and the unemployment rate fell to 6.7%. The prior month saw nearly five times as many jobs, which may indicate a softening of employment results.
  • In October, the U.S. economy underperformed in job creation (194,000). They have since rebounded, adding 531,000 jobs in October, and lowering the unemployment rate further to 4.6%.
  • The American wage rate has increased by 4.9% compared to the same period last year. Rising U.S. wages, along with more persistent housing costs and food prices, may have contributed to the Fed’s decision to slow its bond purchasing program to temper inflation.
  • Equities in the U.S. have been negatively affected by the recent release of consumer and producer inflation numbers. The Consumer Price Index (CPI) has risen to 6.2% in October and the Producer Price Index (PPI) is at 8.6%. The CPI last reached this level in the U.S. in 1990.
  • The Canadian inflation rate for October was 4.7%, up from 4.4% in September. From 2010 to 2019, inflation in Canada and the U.S. had averaged 1.6%, staying within the Bank of Canada’s target range of 1 to 3%.
  • The inflation rates on both sides of the border are driving increased speculation that the Bank of Canada and the Federal Reserve will act to increase their benchmark lending rates to cool inflation and, subsequently, economic growth. Both central banks have set the average inflation target at 2%. At nearly 5%, and more than 6%, Canada and the U.S are well beyond the goal. Early analysis suggested that increased inflation rates were merely temporary as reopening expanded, but price increases are persisting, and it appears that it may be spring of 2022 before prices become more stable. This is evidence that interest rates will rise sooner than expected from a few months ago.

Covid Update

  • The latest variant of concern, Omicron, which has been spreading rapidly in southern Africa, has driven global action. Travel restrictions have been reintroduced in several developed nations preventing foreign citizens entry when arriving from eight African countries.
  • Economic recovery could see damage amid new fears of domestic restrictions and lockdowns. Such restrictions could curtail the movement of both people and materials. North American equity indices already have suffered losses on November 26th and again on November 30th, both can be attributed to the uncertainty surrounding the Omicron variant.

Oil and Gold

  • Over the past month, the price of West Texas Intermediate (WTI) oil fell by more than $16/barrel, which is nearly 20% below its price at the end of October.
  • Compared to equities and oil, gold held steady by dropping at only $7.80 per ounce (less than ½%), which demonstrated its potential as a safer haven than other asset classes.

What is Ahead for December and Beyond?

The uncertainty surrounding the latest variant, Omicron, and inflation remains a significant concern. The persistence, the breadth, and the size of price increases are pushing central banks across the globe to act sooner than originally believed.

The next monetary policy announcements by the Bank of Canada will take place on December 8th and December 15th for U.S. Federal Reserve. The actions presented on these days will reflect the predicted effects of Omicron, inflation driven by rising wages, pent-up savings, and ongoing supply chain issues.

 

Last Week in the Markets – November 22 – 26, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Equity indices had been neutral for the month to date, not gaining or losing value substantially until Friday arrived. The latest variant of concern, Omicrom, which has been spreading rapidly in southern Africa, caused widespread concern globally. Travel restrictions have been reintroduced in several developed nations preventing foreign citizens entry when arriving from eight African countries.  https://www.cbc.ca/player/play/1978247747665

Fears that renewed domestic restrictions and lockdowns, as well as curtailing the movement of people, raw materials and finished goods could damage the pace of economic recovery caused a rapid and broad downturn at the end of the week. North American equity indices dropped more than 2% each on Friday and drove the grid above to another pandemic-related “all red” week. Global equities represented by MSCI’s All Country World Index (ACWI) is down almost 3% for the week. The price of West Texas Intermediate (WTI) oil fell by more than $10/barrel and more than 13% on Friday. Gold held steady on Friday, gaining $1.20 per ounce, which demonstrated its value as a safe haven, at least for a day.

These one-day losses (except for gold) followed the observance of Thanksgiving across the U.S. and continued the tradition of a light trading day with volumes down more than 20% compared with the previous Friday. This would have been the second consecutive “all red” week had S&P 500 lost value last week. Two consecutive weeks where all our indicators have lost value has not happened in 2021 and not since the darkest days of the pandemic.

Despite the recent setbacks equity indices in North America are up 14-22% in 2021 and 17-28% from a year ago.

What’s ahead for this week and beyond?

In Canada, building permits, industrial product and raw materials price indexes for October will be released.  November’s employment report is scheduled along with real GDP for the third quarter.

In the U.S., October’s pending home sales, construction spending, factory orders, wage rate and the employment report for November will be announced.

Globally, Germany and the Eurozone will announce their latest data on employment, inflation, and consumer confidence. OPEC+ will conduct another meeting in response to the recent variant news from Africa and the release of strategic oil reserves by several governments to lower the price of oil to soften inflation.

 

Last Week in the Markets – November 15 – 19, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Investors focused on North American equities likely didn’t enjoy last week. The markets were mixed with the TSX and Dow losing 1% or more while the S&P 500 and NASDAQ made gains. The drop in Canadian equities rested largely on the drop in the price of oil. Energy is the second largest sector comprising the TSX after Financials. The Canadian dollar also dropped three-quarters of a percent, magnifying the losses in Canadian dollar denominated equities.

Much of the negative momentum was propelled, again, by domestic inflation as October’s Consumer Price Index rose 4.7% over the same period in 2020. Transportation costs, including gasoline, was a major contributor, but the recent reduction in the price of oil should help. Food and housing are continuing their rise as well. Thankfully inflation is well below the U.S. rate of 6.2%, but this is the highest rate increase for Canadian prices in more than 18 years.

The inflation rates on both sides of the border are driving increased speculation that the Bank of Canada and the Federal Reserve will act to increase their benchmark lending rates to cool inflation and, sadly, economic growth. Both central banks have set the average inflation target at 2%, and nearly 5% and more than 6% in Canada and the U.S., respectively, are well beyond the goal. Early analysis suggested that increased inflation rates were merely temporary as reopening expanded, but price increases are persisting and it appears that it may be well into spring of 2022 before prices become more stable. This further contributes to the belief that interest rates will rise sooner than expected a few months ago. https://www.cbc.ca/news/business/inflation-october-1.6251921

What’s ahead for this week and beyond?

In Canada, September’s budget balance for the federal government and October’s wholesale trade and manufacturing sales are on the economic release calendar.

In the U.S., Thanksgiving will shorten the trading week with markets closed on Thursday. New and existing home sales, goods trade deficit, durable goods orders, personal spending and income, wholesale and retail inventories for October will be announced. Also, the Purchasing Managers Indexes (PMIs) from Markit for November and third-quarter real Gross Domestic Product (GDP) will be released.

Globally, Eurozone and Japanese PMIs that signal purchasing managers’ optimism will be released along with Germany’s consumer confidence, real GDP, and business climate survey.

 

Last Week in the Markets – November 8 – 12, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

In a week that saw bond markets closed on Thursday for the observance of Remembrance Day, the TSX was the clear winner among North American equity indices. The TSX gained while the S&P 500, the Dow and NASDAQ all lost ground. The TSX has returned almost 25% in 2021 and has edged ahead of the S&P 500 and NASDAQ in year-to-date returns, which is excellent news for those who have focused their investments domestically.

Equities in the U.S. have been negatively affected by the recent release of consumer and producer inflation numbers. The Consumer Price Index (CPI) has risen to 6.2% in October and the Producer Price Index (PPI) is at 8.6% in the U.S. The CPI last reached this level in 1990 and it has been more than a decade since the PPI has been this high. The Canadian inflation rate will be updated on Wednesday but had been trailing the U.S. at 4.4% in September. Prior to the pandemic and since 2010 inflation in Canada and the U.S. had averaged 1.6%.

Both countries’ inflation rates are well above the desired long-run average of 2%. In theory, inflation would hover at or near 2%, with equal amounts of time spent above and below the goal of 2%.  When the rate exceeds four, five and six percent, the goal can only be achieved after sustained periods under the goal.

It appears that the U.S. Federal Reserve and the Bank of Canada will be pressured to raise interest rates sooner than were anticipated only a few weeks ago as inflation appears to be more persistent than transitory. If you have any long-term loans like your mortgage that are renewing, it may be time to negotiate before rates rise. https://www.bls.gov/news.release/cpi.nr0.htm  https://www.cbc.ca/news/business/mortgage-pre-approval-1.6242958

What’s ahead for this week and beyond?

In Canada, retail sales, manufacturing sales, new orders, and wholesale trade, all for September, will be announced. Existing home sales, housing starts and new housing price index for October will be released along with consumer inflation for the same period.

In the U.S., October data will be released for a number of economic indicators including retail sales, import prices, industrial production, capacity utilization, business inventories, housing starts, and building permits.

Globally, Gross Domestic Product growth and inflation, through their respective CPIs, will be released for Japan, the Eurozone. China is scheduled to release its retail sales and industrial production.

 

Last Week in the Markets – November 1 – 5, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Following last week’s action by the Bank of Canada to eliminate its bond-buying program, the U.S. Federal Reserve (Fed) took a similar and more protracted approach. Both are reducing support for economic recovery to curtail inflation, which is much higher than either central bank would prefer. Additionally, the temporary nature of price increases is being questioned. As a result, the Federal Reserve will reduce bond purchases, which have been $120 Billion per month by $15 Billion each month. If this reduction schedule holds the bond-buying program (known as quantitative easing) will end in June of next year. The purchase of bonds helps stimulate economic activity by reducing long-term interest rates. Fed Chair, Jerome Powell, indicated that short-term interest rates would remain unchanged. A video of Powell’s announcement is available at: https://www.federalreserve.gov/monetarypolicy/fomcpresconf20211103.htm

Canada added 31,000 jobs last month and the unemployment rate fell to 6.7%. The prior month had nearly five times as many jobs, which may indicate a softening of employment results. Last month the U.S. economy underperformed in job creation but has rebounded by adding 531,000 jobs in October and lowering the unemployment rate further to 4.6%. Also, the American wage rate has increased by 4.9% compared to the same period last year. Rising U.S. wages along with more persistent housing costs and food prices may have contributed to the Fed’s decision to slow its bond purchasing program to temper inflation.

Positive economic predictions are beginning to emerge as supply chain disruptions are expected to ease over time and the effects of the Delta variant of the coronavirus become more muted.

What’s ahead for this week and beyond?

In Canada, the economic announcements scheduled are not significant for most retail investors. Bond markets in Canada (and the U.S.) will be closed on Thursday for Remembrance Day. It will be an important week for earnings results as several Real Estate Investment Trusts (REITs) will be announcing their performance figures.

In the U.S., the most recent inflation numbers will be released through the announcement of the Consumer Price Index. Wholesale inventories will be announced and the Chair of the Federal Reserve, Jerome Powell, will be speaking at several conferences and will likely comment on the Fed’s decision from last week.

Globally, China will announce its inflation numbers for both consumers and companies as their CPI and Producer Price Index (PPI) are released. Germany will also release its CPI.

 

Last Month in the Markets – October 1 – 29, 2021

(source: ARG analysis, Bloomberg and MSCI)

What Happened in October?

October was kind to most investors. Equity indices rose steadily, with most indices seeing gains ranging from 5% to 7%. The typical mid-month “dip and recover” was replaced with a brief pause for the U.S. indexes and a flat spot for the Canadian index (below). This was concentrated around October 10th.

While the final days of trading saw American equities as the top performers, the TSX held its own and was not far behind the three big players in the US.

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search, and ARG Inc. analysis                                               

The Canadian dollar, gold, oil, and North American equities all performed well despite economic news that was not entirely positive:

  • One positive report that came in October was the Canadian Job Report. 157,000 Canadian jobs were added during September. This increase beat analyst expectations. The unemployment rate fell to 6.9%, the lowest level since the pandemic began in 2020. Companies continue to face labor shortages as they struggle with the fallout of almost 400,000 Canadians not rejoining the workforce.
  • The U.S. added only 194,000 jobs in September. This is the lowest monthly increase in 2021 and well below analyst expectations. Unemployment is down to 4.8%, but the lower rate was mainly driven by a lack of job seekers. As a result, American workers have seen an increase to their wages of nearly 5% since last year. This can be attributed to the inability of labor supply to keep up with production demand.
  • The International Monetary Fund (IMF) released its World Economic Outlook this month. The headline read “Global Recovery Continues, but the Momentum has Weakened, and Uncertainty has Increased”. The slowdown has been attributed in part to supply disruptions in advanced economies and worsening pandemic conditions in developing countries.
  • The U.S. consumer inflation rate rose 5.4% in September. The Federal Reserve has maintained its stance that the high rate of inflation is temporary. Despite the Federal Reserve’s attempt at reassurance, concern is growing that inflation may not be as transitory as hoped, based on recent data from the housing market.
  • Expectations to taper Federal Reserve bond purchases, which would increase the cost of long-term borrowing, is continuing to grow. This move is predominately being driven by increasing inflation but could also see delays with stalling GDP and lagging employment numbers. Based on the Fed’s prior statements, an increase to the benchmark interest rate is not expected until 2022 or 2023.
  • Canada’s inflation rate for September was 4%. The assumption that current inflation is temporary and related directly to the reopening and recovery of economies is beginning to be questioned by some. When food, shelter, and transportation prices rise (3.9%, 4.8%, and 9.1% respectively), concern follows that price increases are not transitory. Eventually, inflation will pressure central banks to slow price increases by slowing economic growth.
  • The effects of the Covid-19 delta variant have not been as dire as originally predicted. In most developed economies, aside from a few dangerous pockets of infection, high cases-counts and severe illness have been avoided or have seen a downturn.
  • Significant news from the Bank of Canada this month was that their quantitative easing program of bond-buying would be ending due to inflation pressures and job growth. Secondarily, the Bank’s forward guidance has an interest rate increase predicted for the middle of 2022, rather than at the end of next year.
  • The Bank of Canada, much like the U.S. Federal Reserve, has inflation control and employment maximization at the top of their to-do list. Bond-buying lowers the long-term borrowing rate for businesses and households. This in turn encourages and allows major investments that contribute to economic recovery. Further reducing the quantitative easing program back to zero reduces overall demand and upward price pressures (inflation). This move will likely slow economic growth and unfortunately, the job market could be a causality.

What is Ahead for November and Beyond?

The Bank of Canada has taken action to reduce economic supports and it may be time for the U.S. Federal Reserve to follow suit. The next U.S. monetary policy announcement occurs November 3, 2021, following the Federal Open Market Committee meeting. The results of this announcement provided by Jerome Powell, Federal Reserve Chair, could give guidance to investors on what moves they should make in the short term.

Powell’s actions will be covered by the media in the U.S. and Canada. The official announcement can be found after 2:00 pm EST on November 3rd, at https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

 

Last Week in the Markets – October 25 – 29, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The TSX was the only major North American equity index to lose ground last week. Even with some high-profile earnings disappointments like Amazon and Apple the U.S. indices, including the NASDAQ, made strong gains.

The most significant negative news for the TSX and most Canadian investors was the announcement by the Bank of Canada that their quantitative easing program of bond-buying would be ending. Secondarily, the forward guidance that an interest rate increase is predicted for the middle of 2022, not the end of next year lowered expectations further. This move and guidance are based on the growing realization that inflation in Canada (and the U.S.) is not as temporary as first suspected. The Bank of Canada has inflation control and employment maximization as their most important mandates that must be managed simultaneously.

Bond-buying lowers the long-term borrowing rate for businesses and households and encourages and allows major investments and purchases that contribute to economic recovery. Dialing the quantitative easing program back to zero reduces overall demand and upward price pressures. Unfortunately, it also will reduce economic growth that produces jobs and is built upon consumer and commercial demand. With the short-term rate at its lowest possible level of ¼% the ability to spur economic growth with short-term rates does not exist, so the Bank of Canada has decided to raise long-term rates now.                                                                 https://www.cbc.ca/news/business/bank-of-canada-decision-1.6226796   https://www.bankofcanada.ca/2021/10/mpr-2021-10-27/

What’s ahead for this week and beyond?

In Canada, October’s manufacturing Purchasing Managers Index (PMI) from Markit, building permits and merchandise trade balance will be released. The employment report for October is scheduled for Friday.

In the U.S., Markit and ISM will announce their manufacturing and services PMIs, along with construction spending, and factory orders. The Federal Reserve will announce its latest monetary policy following the Federal Open Market Committee’s meeting midweek.

Globally, the Eurozone, China, and Japan will release their manufacturing and services PMIs, too. Germany’s factory orders, industrial production, and retail sales are on the calendar. OPEC+ will hold another meeting amid continued increases in the price of oil.

 

Last Week in the Markets – October 18 – 22, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was the second consecutive all-green week for our grid (above), an achievement that has not occurred during the pandemic. The TSX and Dow reached new all-time highs last week. The TSX has had an unbroken series of thirteen daily gains, last losing value on October 4th.

Domestically the most important news was the announcement that Canada’s overall inflation rate for September was 4.4%, compared with the U.S. rate of 5.4% for the same period. The assumption that current inflation is temporary and related directly to the reopening and recovery of economies is beginning to be questioned. When food, shelter, and transportation prices rise, 3.9%, 4.8%, and 9.1%, respectively, concern also rises. Eventually, inflation will pressure central banks like the U.S Federal Reserve and our Bank of Canada to slow price increases by slowing economic growth.  https://www.theglobeandmail.com/investing/markets/inside-the-market/article-inflations-return-is-just-in-time-for-halloween/   https://www150.statcan.gc.ca/n1/daily-quotidien/211020/dq211020a-eng.htm?HPA=1

This excellent progress on stock prices occurred with more negative news beyond inflation. Evergrande, China’s massive housing builder, continues to struggle with debt repayment issues ($300 Billion) and links to a housing bubble in that country as China’s Gross Domestic Product (GDP) growth stagnates.

Additionally, Covid-19 case counts continue to persist. Despite a drop of 25% over the past two weeks, nearly 75,000 cases are being reported daily in the U.S. In the developed economies of Europe, infection rates increase the further east you travel with the U.K. being an unfortunate exception as the leader in new cases. Covid Cases

What’s ahead for this week and beyond?

In Canada, wholesale trade and the raw materials price index for September and two very important indicators for August, the employment report and real GDP will be announced. On Wednesday the Bank of Canada will release its latest monetary policy announcement.

In the U.S., September’s goods trade deficit, wholesale and retail inventories, durable goods orders, pending home sales, and new home sales will be announced. Personal spending and real GDP, also for September, will be the most noteworthy economic indicators released this week.

Globally, GDP, business climate, consumer confidence, unemployment, and consumer inflation will be released for Germany. Eurozone figures for GDP, inflation, consumer confidence, and money supply are scheduled to be announced.

 

Last Week in the Markets – October 11 – 15, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

All of the indicators in our grid above made gains, achieving the first all-green week since August. Equities rose 1.5% to 2.5% with the major indices approaching or setting new 52-week highs. The Canadian dollar rose along with the price of oil. Oil has doubled in the past year, which is good news for Energy investors, but will increase consumer and producer inflation. Gold which gained last week is still down more than 7% in the past year. The positive performance for stocks and oil was achieved despite the mixed news that was announced:

  • The International Monetary Fund (IMF) released is “World Economic Outlook” with the headline “Global recovery continues, but the momentum has weakened, and uncertainty has increased”. The slowdown has been attributed in part to supply disruptions in advanced economies and worsening pandemic conditions in developing countries. IMF’s World Economic Outlook
  • Consumer inflation rose 5.4% in September. The Federal Reserve has been maintaining that the higher inflation rate situation is temporary. Concern is growing that inflation may not be as transitory as hoped based on recent data from the housing market.
  • Expectations to taper Federal Reserve bond purchases, which would increase the cost of long-term borrowing is continuing to grow. The move to taper is being driven by increasing inflation, but also potentially delayed by stalling Gross Domestic Product and employment numbers. Based on the Fed’s announcements an increase to the benchmark interest rate is not expected until 2022 or 2023. https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20210922.pdf

What’s ahead for this week and beyond?

In Canada, September inflation through the Consumer Price Index will be released, which will heavily influence Bank of Canada actions. The central bank’s Business Outlook Survey, housing starts, manufacturing sales are all on the calendar.

In the U.S., industrial production, capacity utilization, building permits, and housing starts, and existing home sales for September will be released. A number of Purchasing Managers Indexes (PMIs) that predict upcoming business and wholesale activity are also on the schedule.

Globally, important economic indicators from China will be announced with real Gross Domestic Product, trade balance, retail sales, and industrial production scheduled for announcement. Japan’s CPI and Eurozone inflation and consumer confidence will also be announced.

 

Last Week in the Markets – October 4 – 8, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

157,000 jobs were added in Canada last month, soundly beating the expectations of analysts. The unemployment rate fell to 6.9%, the lowest level since the pandemic began in March of 2020.  Unfortunately, companies are still looking to hire more workers and 400,000 people have not rejoined the workforce.  https://www150.statcan.gc.ca/n1/daily-quotidien/211008/dq211008a-eng.htm?HPA=1

In the U.S. 194,000 jobs were added in September, which is the lowest monthly increase in 2021 and well below the estimated number of new jobs for the month. Unemployment is down to 4.8%, also the lowest level since the pandemic began. For September its was less job seekers (labour force participation) than more jobs that lowered the unemployment rate.  As workers delay their return-to-work wages have increased nearly 5% since last year. https://www.bls.gov/news.release/empsit.nr0.htm

The disappointing results in the U.S. job market may delay the Federal Reserve’s move to taper its bond-buying program. Despite the mixed news for jobs, the resultant Fed response moved equity markets upward last week.

Increasing energy prices, which act like a consumer tax, did not weigh down equity markets either. The price of oil increased an additional 5% last week and has nearly doubled in the past year. It is now at its highest level in 7 years. Economic output is being negatively affected in China and Europe as energy shortages are occurring widely. OPEC+ agreed to increase output in an effort to reign in prices, increase their revenues, and allow recovery to continue.  https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-opec-likely-to-stick-to-existing-oil-output-policy-amid-covid-19/

What’s ahead for this week and beyond?

In Canada, markets were closed on Monday for Thanksgiving that started a week with August’s manufacturing sales, industrial production, wholesale trade, and September’s existing-home sales on the schedule.

In the U.S., bond markets were closed on Monday for Columbus Day. Inflation for September via the Consumer Price Index (CPI), U.S. Federal Reserve minutes from Sept 21-22, retail sales, import prices, and business inventories are scheduled for release this week.

Globally, China’s trade surplus, CPI, Germany’s CPI, Eurozone, and Japan’s industrial production are on the calendar.

 

Last Month in the Markets – September 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in September?

It was a difficult period for equities in North America and around the world last month. Oil gained strongly. American indices gave back 5% of their Year-to-Date gains, dropping them back from their former levels of 15-20% for 2021. Recently equity indices have been rising early in the month, dipping midway and then recovering and achieving a gain for the month. Unfortunately, September started poorly, dipped further, and finished the last few days of the month with more losses.

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)                                                      

The influences over capital markets last month were many and varied:

  • The announcement of Canadian jobs growth was stronger than the weak expectations as 90,000 jobs were added during August, the unemployment rate fell from 7.5% to 7.1%. However, 200,000 less jobs exist now than in February 2020
  • To continue to bolster our economy the Bank of Canada left its supportive monetary policy actions unchanged. The Bank Rate is ½%, and the overnight rate and the deposit rate have been held steady at ¼%. The bond buying program also remains unchanged. This signaled that the economy has not recovered significantly to trim monetary supports. BoC Announcement
  • Inflation in Canada surged to its highest level since 2003 as prices in August rose 4.1% compared with a year earlier. August becomes the fifth consecutive month where inflation exceeded the Bank of Canada’s target annualized year-over-year rate of 2%. Our central bank still maintains that this heightened inflation level is temporary. When measuring inflation since the start of the pandemic the overall rate is only slightly above the Bank’s 2% target.
  • The Liberals led by Prime Minister Trudeau were reelected to the same minority government that it had prior to Monday’s Canadian federal election. They did gain an additional two years, potentially, to their mandate. A significant plank in their election platform is to increase taxes on Canadian major banks, which nearly every Canadian investor owns directly and indirectly. Election Summary
  • A lingering condition that has been influencing economic growth is supply-chain disruptions. As businesses reopen and attempt to return to full production, the availability of raw materials and component parts has not been universal. For example, the backlog of vehicles is large as the shortage of computer chips prevents the delivery of fully finished new cars and trucks to buyers. Recently automakers have announced plant closures and layoffs until the supply chain issues are resolved. Similar situations are found all across the economy, and until it is resolved, the return to full production will be difficult.
  • In the U.S. their year-over-year inflation rate fell slightly from 5.4% in July to 5.3% in August. The month-to-month inflation rate also declined. Prices rose 0.3% in August compared to July, down from 0.5% for the period of June to July. This very slight moderation, and the lower core rate of inflation at 4.0% for August versus 4.5% for July, supports the Federal Reserve’s position to maintain current programs.
  • The U.S. Federal Reserve kept its monetary policy for interest rates and bond-buying unchanged in its announcement on Wednesday, but indicated, “If progress continues broadly as expected the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” Any change that reduces support for economic growth, in this case measures to keep long-term borrowing costs lower, will negatively affect markets in the long term. Fed Press Release
  • Political negotiations over the federal government’s debt ceiling were concluded at the final moment with an extension into December. Focus returns to President Biden’s centerpiece infrastructure bill, which could provide significant fiscal stimulus for economic activity as monetary stimulus may be reduced.
  • Concerns that China’s housing and property developer, Evergrande, could default on interest payments triggered and/or contributed to a decline in equity indices. Evergrande’s $300 Billion debt load and $100 Billion in real estate sales last year represent a significant concentration risk but should not threaten the stability of the global banking system.

What’s ahead for October and beyond?

The list above suggests that many items could influence capital markets and balances in investment accounts. The major indicators that affect overall markets are economic growth measured as Gross Domestic Product, inflation through the Consumer Price Index (CPI), employment (monthly new jobs, unemployment rate), and monetary policy by central banks (interest rates and bond-buying) since these will affect corporate performance. Other unpredicted shocks can occur (like the pandemic), but the major economic indicators are an excellent place to begin your analysis and limit your preoccupation. Trust investment professionals who monitor economic indicators, and local and global developments continuously.

 

Last Week in the Markets – September 27 – October 1, 2021


(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

All of the major indices suffered losses, especially the technology-heavy NASDAQ that dropped more than 3% last week. Most of the news negatively affecting equity markets last week emanated from the U.S.

  • The negotiations in Washington over the debt ceiling and the infrastructure bill dragged on past the end of the week and into the weekend.
    • The House of Representatives passed measures on Thursday evening, just prior to the deadline, raising the debt ceiling until early December when the same type of posturing and politicizing will return. The threat to the AAA rating the U.S. holds for debt is threatened each time this ceiling is negotiated.
    • The massive $3.5 Trillion infrastructure bill proposed by President Biden is stalled in the House and will now be discussed and debated after his social policy package is passed by the Democrat-controlled Congress.
      • Progressives within the Democrat ranks have blocked approval of the infrastructure bill and have created a rift within the party as legislative delays persist.
    • The Federal Reserve, and by extension the Bank of Canada, appears poised to allow long-term interest rates to rise as the bond-buying measures will likely be tapered soon.

The good news is that short-term interest rates are not expected to be changed by the Fed or other central banks soon; forecasts are placing that action about one year away.

What’s ahead for this week and beyond?

In Canada, data will be released for building permits and trade balances for August. The September employment report will be released, where 60,000 new jobs are expected along with the unemployment rate falling to 6.9%.

In the U.S., August wholesale trade, factory orders, trade balance, and consumer credit will be announced.  Purchasing Managers Indices from ISM will be released along with the U.S. jobs report for September where nearly 500,000 new jobs are expected, and the unemployment rate should fall to 5.1%.

Globally, markets in China will be closed until Friday to observe its National Day and Golden Week. OPEC+ will hold a meeting via videoconference. Eurozone retail sales, Germany’s factory orders, trade surplus, and industrial production will also be released.

 

Last Week in the Markets – September 20 – 24, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Major domestic and international events influenced markets last week including:

  • The U.S. Federal Reserve kept its monetary policy for interest rates and bond-buying unchanged in its announcement on Wednesday, but indicated, “If progress continues broadly as expected the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” Any change that reduces support for economic growth, in this case, measures to keep long-term borrowing costs lower, will negatively affect markets in the long term. Fed Press Release
  • Concerns that China’s housing and property developer, Evergrande, could default on interest payments triggered and/or contributed to a decline in equity indices. Evergrande’s $300 Billion debt load and $100 Billion of real estate sales last year represent a significant concentration risk but should not threaten the stability of the global banking system.
  • The Liberals were re-elected to the same minority government they had prior to Monday’s Canadian federal election. They did gain an additional two years, potentially, to their mandate. A significant plank in their election platform is to increase taxes on Canadian major banks, which nearly every Canadian investor owns directly and indirectly. Election Summary

Potentially, the next major influences on capital markets will be the U.S. government’s debt ceiling and progress on President Biden’s infrastructure bill, as well as progress against the coronavirus.

What’s ahead for this week and beyond?

In Canada, employment numbers (new jobs, labour force participation, unemployment rate) for July will be announced. Real Gross Domestic Product (GDP) for July, an important indicator, will be released along with the industrial product price index and raw materials price index for August.

In the U.S., durable goods orders, goods trade deficit, wholesale and retail inventories, pending home sales, home price index, personal spending and income, construction spending, automobile sales, and Purchasing Managers Indices, all for August, are scheduled for release in a busy week.

Globally, Eurozone money supply, consumer and economic confidence, inflation, and jobless rate will be released along with Japan’s jobless rate retail sales and industrial production and Germany’s consumer inflation and unemployment.

 

Last Week in the Markets – September 13 – 17, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

For the second consecutive week, all indicators in our grid above lost ground except for oil. The losses for equities were not as severe as the previous week but were also not inconsequential. The year-over-year (1Yr) advances still remain in the 24 – 38% range, and so far, year-to-date (YTD) equities have gained between 13 -18%. Inflation fears and resultant monetary policy responses have heavily influenced markets lately.

Inflation in Canada surged to its highest level since 2003 as prices in August rose 4.1% compared with a year earlier. Comparing July 2020 to July 2021 the inflation rate was 3.7%. August becomes the fifth consecutive month where inflation exceeded the Bank of Canada’s target annualized year-over-year rate of 2%. Our central bank maintains that this heightened inflation level is temporary. Also, when measuring the rate of inflation since the pandemic began the overall rate is only slightly above the 2% target.

In the U.S. their year-over-year inflation rate fell slightly from 5.4% in July to 5.3% in August. The month-to-month inflation rate also declined. Prices rose 0.3% in August compared to July, down from 0.5% for the period of June to July. This very slight moderation, and the lower core rate of inflation at 4.0% for August versus 4.5% for July, supports the Federal Reserve’s position to maintain current programs.

It appears that inflation is peaking, but not disappearing, which removes the pressure on the Federal Reserve, Bank of Canada, and other central banks to take more immediate action to slow inflation.

What’s ahead for this week and beyond?

In Canada, retail sales for July and the new housing price index for August will be released. The Federal government has tentatively scheduled a release of July’s budget balance. A summary of party stances on election issues can be found at https://www.theglobeandmail.com/politics/article-canada-federal-election-20210-party-plaform-guide/

In the U.S., housing starts, building permits, existing home sales for August will be announced. The Chair of the Federal Reserve, Jerome Powell, will speak following the Federal Open Market Committee’s announcement of monetary policy and an update to economic projections.

Globally, capital markets are closed at the beginning of the week in Japan and China. Eurozone consumer confidence, manufacturing, and service Purchasing Managers Indices (PMI) will be released. The Bank of England will announce its monetary policy, and the European Central Bank released its economic projections.

 

Last Week in the Markets – September 7 – 10, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

After the closing of markets in Canada and U.S. to observe Labour Day, it was an extremely active week. Like many of us during a holiday-shortened week, five days of activity were packed into four.

The week ended with our jobs report for August that beat expectations by adding 90,000 in the month. The unemployment rate fell to 7.1% from 7.5%. The Canadian economy is 200,000 jobs below February 2020 levels, which has the hospitality sector making up much of the lost ground as reopening continues.

To continue to bolster our economy the Bank of Canada left its supportive monetary policy actions unchanged. The Bank Rate is ½%, and the overnight rate and the deposit rate have been held steady at ¼%. The bond-buying program also remains unchanged. https://www.bankofcanada.ca/2021/09/fad-press-release-2021-09-08/

A lingering condition that has been influencing economic growth is supply-chain disruptions. As businesses reopen and attempt to return to full production, the availability of raw materials and component parts has not been universal. For example, the backlog of vehicles is large as the shortage of computer chips prevents the delivery of fully finished cars and trucks to new buyers. Recently automakers have announced plant closures and layoffs until the supply chain issues are resolved. Similar situations are found across the economy, and until it is resolved, the return to full production will be difficult.

As a result, equity markets have reflected the current and looming issues as the major North American indices lost value last week. As noted in previous Market Updates, volatility is expected to increase while these issues work themselves out.

What’s ahead for this week and beyond?

In Canada, manufacturing sales and new orders for July and the Consumer Price Index for August along with the existing home sales, housing-starts and average home prices will be released.

In the U.S., inflation for August through the Consumer Price Index is the most significant indicator to be released this coming week. Industrial production will also be announced along with the important retail sales figures.

Globally, Japan’s industrial production, machine orders, and trade balance, China’s retail sales, industrial production, Eurozone consumer inflation, industrial production, and trade surplus will all be released.

 

Last Week in the Markets – August 30 – September 3, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Equity indices continued to power ahead again last week.  Unfortunately, the thirty corporations, https://www.theglobeandmail.com/investing/markets/indices/DOWI/components/, that comprise the Dow Jones Industrial Average (Dow or DJIA) lost ground. After maintaining value for the first four days, twenty of the thirty Dow firms lost value on Friday. That is, the one-day performance of only twenty firms, albeit large companies like Amex, IBM, Coca-Cola, and 3M, caused the Dow index to finish in negative territory for the week.

For perspective, the Dow has still returned more than 15% in 2021. The other major North American equity indices have delivered 20% so far this year.

A growing concern is the trajectory of this success. “Will it continue, how long will it continue, what will occur if it doesn’t continue”, are popular questions from investors. Forecasts for corporate growth and profitability continue to rise while Gross Domestic Product (GDP) growth forecasts are beginning to flatten. Since GDP is a fair proxy for an aggregate of corporate performance the forecasts are starting to contradict each other. The typical response to this contradiction has been increased volatility.

The increasing number of Covid-19 hospitalizations and severe sickness related to the highly contagious Delta variant as in-person schooling, dining and entertainment could lead to a renewed round of economic effects that could also contribute to greater swings in capital markets. As always, a well-designed plan that can be adapted to changing conditions, like increasing volatility, is much better than no plan at all.

What’s ahead for this week and beyond?

In Canada, after closing for the observance of Labour Day that closes capital markets on Monday the major domestic, economic news will be the Bank of Canada’s policy announcement on Wednesday. On Friday the employment report for August will be released.

In the U.S., markets will be closed on Monday before the release of the July jobs report producer price index, wholesale trade, and the most recent weekly jobless claims later in the week.

Globally, China is scheduled to announce consumer and producer inflation, trade surplus, and foreign reserves.  Eurozone factory orders, Q2 Gross Domestic Product, and Germany’s industrial production and trade surplus will be released. The European Central Bank will hold a monetary policy meeting on Thursday.

 

Last Month in the Markets – August 2 – 31, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in August?

Overall, it was a positive month for most Canadian investors. The broad-based North American equity indices rose, as did the All-Country World Index (ACWI), above. August gains for these indices ranged between 1 and 4 per cent. The large corporates represented in the Dow performed the worst at a still impressive 1¼% improvement while the tech-heavy NASDAQ topped out at exactly 4% more than its July closing level. The NASDAQ had been lagging behind its peers, but the second half of August has allowed it to catch and surpass the Dow, TSX and ACWI.

The range for Year-to-Date performance for equity indices has risen to between 15 and 20%, which is an extremely healthy gain in any year. Also remarkable since only 8 months (two-thirds) of a news-filled 2021 have passed. August was the fourth consecutive month that equity indices started well, then suffered a mid-month dip, before regaining their footing and finishing in positive territory.

(source: ARG analysis, Bloomberg and MSCI)

The influences over capital markets last month were many and varied:

  • U.S. Gross Domestic Product (GDP) has grown 6.4% during 2021
  • Canadian GDP grew by more than 5% in the first quarter before the announcement that it had shrank by 1.1% in Q2. Analysts had expected further growth of 2.5% during the second quarter. The Canadian economy is suffering from supply-chain shortages, which caused it to miss vehicle production and export targets, for example. The Canadian dollar reacted slightly to this news, but has already dropped in value against the U.S. dollar prior to the GDP news
    https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-canadian-dollar-retreats-after-surprise-gdp-contraction-in-second/
  • July job growth has been strong in both countries with 94,000 new jobs in Canada and 943,000 in the U.S. The unemployment rate in Canada has fallen to 7.5% and 5.4% in the U.S.
  • The U.S. consumer inflation rate for July was 5.4%. The core inflation rate that excludes food and fuel rose 4.3%, which was slightly lower than June’s year-over-year increases.
  • The U.S. Senate passed a bipartisan infrastructure bill of $3.5 Trillion package.
  • In Canada, the spending continues to accelerate by the governing Liberals. The trend could be in jeopardy if their negotiated mandate with the NDP ends following the next election.  
  • Oil fell for the month despite mostly positive news on the demand-side
  • A primary driver in the rise of equities at the end of the month was the announcement on Friday, August 27th by the Chair of the Federal Reserve, Jerome Powell. His remarks came at the conclusion of the annual Jackson Hole Symposium. Some changes are on the horizon for monetary policy but are not imminent. Consistency, and lack of unpredictability, typically provides positive momentum to markets
  • The Fed’s current program of buying $120 Billion in bonds each month, which injects liquidity into capital markets, will likely be “tapered” by the end of the 2021. The liquidity (along with low interest rates) encourages personal and corporate borrowing and spending to fuel further economic growth.
  • Secondarily, the need to temper inflation with an interest rate increase is being handled with extreme care. The major concern is that a rate rise now will cause lasting damage to a temporary, pandemic-recovery related period of price increases. The need to act is reduced because inflation is limited to a narrow band of goods and services, the areas with the highest inflation are moderating, wages are not positioned to support further inflation growth.
    https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm

More uncertainty is likely to arrive soon as the extent of the Delta variant’s virility becomes better known, the reactive vaccine mandates begin enforcement, and the return to school for mostly unvaccinated children occurs. More uncertainty requires more planning, not less as some people believe. The monitoring of local and global events and their impact on markets will continue to be monitored.

What’s ahead for September and beyond?

Closer to home for Canadians, the federal election campaign continued. Whatever one might think about the timing of this election, it is difficult to complain about its duration. The seemingly endless rounds of primaries and debates in the U.S. make our 36-day election almost quaint by comparison. Canadians have a sooner-than-expected opportunity to pass judgement on the current government and local MPs.

 

Last Week in the MarketsAugust 23 – 27, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Last week produced another all-green week for our grid, above. While some of the recovery, especially for equities, has been very strong, this has occurred only three other times in 2021.

A primary driver in the rise of equities last week was the announcement on Friday by the Chair of the Federal Reserve, Jerome Powell, at the conclusion of the annual Jackson Hole Symposium. Some changes are on the horizon for monetary policy but are not imminent. The Fed’s current program of buying $120 Billion in bonds each month, which injects liquidity into capital markets, will likely be “tapered” by the end of 2021. The liquidity (along with low interest rates) encourages personal and corporate borrowing to fuel economic growth.

Secondarily, the need to temper inflation with an interest rate increase is being handled with extreme care. The major concern is that a rate rise now will cause lasting damage to a temporary, pandemic-recovery related period of price increases. The need to act is reduced because inflation is limited to a narrow band of goods and services, the areas with the highest inflation are moderating, and wages are not positioned to support further inflation growth. https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm

After hitting an 8-month low on August 20th, the Canadian dollar has risen sharply; 1.6% last week and outpaced the TSX’s 1.5% gain. The TSX relied heavily on the results of the major banks who bested profit expectations based on reduced loan-loss provisions and increasing retail banking performance. The banks’ collective performance of quarterly profit above $15 Billion caused Prime Minister Trudeau to propose increased taxation.

https://www.theglobeandmail.com/business/article-td-profit-gains-on-reversal-of-pandemic-loan-loss-provisions-rise-in/

What’s ahead for this week and beyond?

In Canada, real Gross Domestic Product (GDP) for the second quarter is scheduled for release along with July’s trade balance, labour productivity and building permits.

In the U.S., pending home sales, construction spending, goods and services trade balance, and factory orders will be announced. The most important data, especially affecting monetary policy, on the schedule is August employment numbers, which includes labour force participation and unemployment. A number of Purchasing Managers Indices (PMI) will also be released by Markit and ISM.

Globally, Japan retail sales, industrial production, unemployment and consumer confidence will be released. Eurozone inflation, Germany consumer inflation U.K. markets are closed for the Summer Bank Holiday.

 

Last Week in the Markets August 16 – 20, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

North American markets were heavily influenced by U.S. monetary policy last week. The minutes from the most recent the Federal Reserve’s Open Market Committee meetings suggest that the bond purchase program could be scaled back sooner than anticipated. While no decisions have been made and no actions have been taken, it appears that markets are realizing that enhanced stimulus measures are not an indefinite solution.

The overall results last week were typical under these circumstances. Firstly, uncertainty rose on the increased likelihood of more future, negative news from the Fed, which caused equities to retreat by the end of the week.  Then this less supportive monetary policy that could cause business activity to fall, and the demand for oil to also fall as corporate activity stalls, resulted in a 9% drop in the price of oil. The outflows from equities were invested into gold, which experienced a small price increase last week, and is well below its summertime high of $1900+ in early June. In summary, equities dipped, along with oil, and the safe haven of gold rose.

Much closer to home the rhetoric and campaigning for the upcoming federal election is increasing. More details are available at https://liberal.ca/ , https://www.conservative.ca/ , https://www.ndp.ca/ , https://www.greenparty.ca/en , https://www.blocquebecois.org/

What’s ahead for this week and beyond?

In Canada, wholesale trade, and employment, payrolls and hours, and the industrial price index for July are scheduled to be announced. For equity investors, the major banks will be releasing their latest quarterly results.

In the U.S., July’s new and existing home sales, wholesale and retail inventories, durable goods orders, and personal income and spending will be released. On Friday Federal Reserve Chair, Jerome Powell, will deliver remarks as the annual Jackson Hole Symposium concludes. Expect the markets to react should he indicate, even obliquely, any changes to their near-term plan of holding bond purchases and interest rates steady.

Globally, Purchasing Managers Indices for Japan and the Eurozone will be released along with Europe’s consumer confidence and money supply, and Germany’s Gross Domestic Product and retail sales.

 

Last Week in the Markets August 9 – 13, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The most important news released was the U.S. consumer inflation rate for July. Prices rose 5.4% higher than the previous year. The core inflation rate that excludes food and fuel rose 4.3%, which was slightly lower than June’s year-over-year increases. Categories that are closely associated with reopening, and have had large increases in previous months, have slowed their rise and in some cases retreated. Overall, the increases were in line with expectations and the slowing of price increases is excellent news.

The Federal Reserve is watching inflation very closely, as always, and has portrayed that these larger than desired inflation numbers as temporary and that they would moderate quickly. It appears that the Fed has been correct, and its watching-and-waiting approach to monetary policy changes has been prudent.

As a result, equity markets have responded favourably with new highs achieved for major indices in the U.S. and Canada. Despite a small loss for the NASDAQ last week, the major indices have risen 15 to 19 percent in 2021.  MSCI’s All-Country World Index (ACWI) has gained nearly 14% over the same period, which is remarkable with the unevenness of economic recovery based on vaccination rates around the world.

Another positive contributor to equity markets in North America last week was the predicted increase in fiscal spending by the U.S. federal government. The Senate passed a bipartisan infrastructure bill as a larger $3.5 Trillion package is pursued by Democrats, which is causing additional negotiation and perhaps delay.

In Canada, the spending continues to accelerate by the governing Liberals. The trend could be in jeopardy if their negotiated mandate with the NDP ends following the next election.

What’s ahead for this week and beyond?

In Canada, last week’s light calendar for economic announcements rebounds with a full slate, including June’s manufacturing sales, wholesale trade, new orders and retail sales, July’s housing starts, and existing home sales.

In the U.S., after last week’s important news regarding domestic inflation, the calendar is lighter with July’s retail sales, industrial production, housing starts, and Federal Reserve meeting minutes scheduled for release.

Globally, production and inflation will dominate the news with China’s retail sales, industrial production, Japan’s real GDP, inflation, trade balance, and industrial production, and the Eurozone’s real GDP and inflation scheduled.

 

Last Week in the Markets August 2 – 6, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a strong week for equities compared to commodities in our grid above. Canada’s TSX, America’s S&P 500, Dow and NASDAQ, and the global MSCI All-Country World Index each gained 1% over the past five-day trading session.

Gross Domestic Product (GDP) and employment expansion continue to drive equity advances. In the U.S. GDP has grown 6.4% during 2021, and Canadian GDP has grown by more than 5% in the first quarter as we await Q2 GDP numbers domestically. July job growth has been strong in both countries with 94,000 new jobs in Canada and 943,000 in the U.S. The unemployment rate in Canada has fallen to 7.5% and 5.4% in the U.S.

Strong jobs growth combined with increasing wages could drive inflation concerns. Many countries: China, Germany, U.S., and Canada, will announce inflation numbers for July this week, and we will see whether these concerns are justified, and eventually whether monetary policy will be affected. For the near future, it appears that bond-buying programs and interest rates will be held steady by central banks around the world.

Should inflation numbers be higher than expected (or above the desired range set by central bankers) most analysts believe that action will be delayed until the impact of the delta variant of Covid-19 is known. As we wait, the measures in place by the Bank of Canada, the Federal Reserve, and other banks will continue to support equities markets.

What’s ahead for this week and beyond?

In Canada, producer inflation will be the lone indicator of importance on the economic release calendar.

In the U.S., job openings and labour turnover for June are scheduled for release and second-quarter productivity.  July’s consumer and producer inflation will be announced.

Globally, the Tokyo Olympics concluded on Sunday and Japanese markets will be closed on Monday. China will release its latest inflation numbers through the Consumer and Producer Price Indices. Germany will also release its inflation data.

 

Last Month in the Markets July 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in July?

The first month in the second half of 2021 has concluded. Overall, the results were a continuation of the solid performance shown in the preceding six months. More specifically, the results for equities in July were similar to June. Both months started reasonably well, endured a small mid-month dip in values, and then managed a recovery for the balance of the month. On balance, July’s recovery was about the same as June’s. The TSX did slightly better in June, the S&P 500 returned an identical percentage, the Dow reversed June’s loss, and the NASDAQ provided a solid performance, but not as strong as June’s lofty 5%.

Progress against the pandemic is still driving markets. By the time that July had concluded the forces included the ongoing rise of virus variants, a stalling vaccination rollout in the U.S. and elsewhere, increasing cases counts, new record levels of infection in many jurisdictions, nearly 100% of deaths comprised of unvaccinated people, and the re-introduction of restrictions to slow the spread of the virus.

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)                    

The recovery of Gross Domestic Product (GDP) in North America has been impressive. Once restrictions began to lift, pent-up demand and access to goods and services have moved economic indicators ahead briskly. The drivers have been the unleashing of savings caused by deferred purchases and the spending of government payments to individuals. The expectation is that consumer spending, which comprises about two-thirds of GDP, will continue to power economic expansion as the recovery continues.

The concern that inflation would lead to central bank actions to contain it has fallen slightly. The effects of increasing demand and supply shortages appear to be temporary. Commodity price increases have slowed, manufacturing levels have grown, and the services sector’s recovery should help return inflation closer to the Federal Reserve’s desired level of a 2% long-term average. With inflation more in check, the earlier guidance that interest rate increases should materialize in 2023 seems more likely.

American consumer inflation rose to 5.4% in June, the highest year-over-year price increase during a month since 2008 and the global financial crisis. Prices of goods and services fell during the early months of the pandemic, and June 2021 price spikes are being compared against the lows of June 2020.  https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm https://www.bankofcanada.ca/2021/07/opening-statement-140721/
https://www.theglobeandmail.com/business/economy/article-bank-of-canada-trims-bond-buying-raises-inflation-forecast-as-economy/

Despite the high rate of inflation, the U.S. interest rates are unchanged. Federal Reserve Chair, Jerome Powell, announced that both interest rates and bond-buying programs would remain in place following the meeting of the Federal Open Market Committee. The dual mandate of managing inflation and maximizing employment continues to require $120 Billion in bond purchases monthly and its benchmark interest rate, the federal funds rate, to remain at a range of 0 to ¼ percent.

Canadian inflation slowed somewhat in June compared to May, down to 3.1% from 3.6%. The core inflation rate also improved and sits at 2.2%. Like the Federal Reserve, the Bank of Canada will closely monitor inflation levels and respond with monetary actions like interest rate increases should they feel price increases are more permanent than the conditions caused by reopening like supply chain shortages and releasing pent-up demand. https://www.theglobeandmail.com/business/economy/article-canadas-annual-rate-of-inflation-hit-31-in-june/

The Bank of Canada also held its benchmark interest rate unchanged at ¼% as the country and world continue to emerge from the pandemic. The central bank does not expect to raise rates until the second half of 2022 at the earliest even as variants of concern continue to rise and virus containment is not universal.

The two themes discussed in detail at the press conference were increased confidence and continued attention.  Governor, Tiff Macklem, mentioned falling case counts, progress on vaccinations, and easing measures as evidence of recovery and an expectation for its continued momentum. Also, ongoing scrutiny must be applied to the “dynamics of recovery and inflation”.

As expansion continues, the Bank’s forecast for inflation has been increased. Bank of Canada economists believe that inflation will be above 3% for the balance of 2021, before nearing the Bank’s target of 2% during 2022, rise again in 2023 and then back to 2% in 2024. The belief is that pent-up demand is outstripping decreased supply temporarily; when supply rebounds inflation is expected to slow, and more typical price increases will return.

What’s ahead for August and beyond?

Case counts driven by vaccination levels will continue to heavily influence markets. The surest way to reach full recovery is to prevent the need for social and economic measures to control the virus.

As of August 1st, 72% of Canadians have received at least one dose and 60% are fully vaccinated placing us in 9th and 11th place, respectively, among countries. In the U.S., 57% of Americans have received one dose or more, and 49% are fully vaccinated (32nd and 27th place, respectively).  https://www.nytimes.com/interactive/2021/world/covid-vaccinations-tracker.html

 

Last Week in the Markets July 26 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Corporate results held investors’ attention last week in both New York and Toronto as the busiest week for quarterly reporting occurred. The results have been very strong in the U.S. as nearly 90% of firms have beaten estimates by nearly 20%. Technology companies led the way with Google, Amazon, Apple, Microsoft, Facebook and Shopify delivering solid profitability and profit growth compared to last year.

Federal Reserve Chair, Jerome Powell, announced that both interest rates and bond-buying programs would remain unchanged following the meeting of the Federal Open Market Committee. The dual mandate of managing inflation and maximizing employment continues to require $120 Billion in bond purchases monthly and its benchmark interest rate, the federal funds rate, to remain at a range of 0 to ¼ percent. The announcement, as always, was worded carefully to avoid influencing markets unnecessarily.  For example, Powell stated, “the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings”. https://www.federalreserve.gov/newsevents/pressreleases/monetary20210728a.htm

Canadian inflation slowed somewhat in June compared to May, down to 3.1% from 3.6%. The core inflation rate also improved and sits at 2.2%. Like the Federal Reserve, the Bank of Canada will closely monitor inflation levels and respond with monetary actions like interest rate increases should they feel price increases are more permanent than the conditions caused by reopening like supply chain shortages and releasing pent-up demand. https://www.theglobeandmail.com/business/economy/article-canadas-annual-rate-of-inflation-hit-31-in-june/

What’s ahead for this week and beyond?

In Canada, markets will be closed on Monday for the observance of mid-summer holidays. Markit’s Purchasing Managers Index (PMI) for July will be released. Additionally, building permits, merchandise trade balance, and employment figures for July will be announced.

In the U.S., both Markit and ISM will release their manufacturing and services PMIs for July, along with non-farm payroll numbers. June construction spending, factory orders, ADP’s national employment report, goods and services trade deficit, and wholesale inventories.

Globally, manufacturing and services PMIs for China, Japan, and the Eurozone for July will complete the purchasing managers’ view of recovery. Two other important measures, Japan’s household spending and Germany’s industrial production will also be released.

 

Last Week in the Markets July 19 – 23, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Each of the indicators in the grid reversed their performance of the previous week. Two weeks ago, we had only one gainer; gold, as all the others lost ground. Last week, gold was the only loser as all of the other indicators increased in value. The TSX and Dow each gained a little more than 1% as the S&P 500 and NASDAQ gained, 2% and 3%, respectively.

The positive finish for the week belies the turmoil that preceded the strong finishes for equity indices. The Dow started the week by dropping 2% on Monday. By the close of markets on Monday the S&P 500 and TSX had dropped about 3% in less than a week. By the end of the week, the U.S. indices had not just recovered, they touched all-time highs.

The expectation that volatility will rise as we emerge from the pandemic materialized last week. The prevalence of the Delta variant of the virus has caused increased cases in many nations. Vaccination rates vary dramatically between nations and are, generally, slowing in the U.S., particularly outside major cities. The World Health Organization is warning of a two-track pandemic, where wealthy and technologically advanced nations diverge from less wealthy nations.

The method to avoid another devastating wave, according to local and international health agencies like the Centers for Disease Control and the World Health Organization, is vaccination. Canada is a global leader.

What’s ahead for this week and beyond?

In Canada, inflation data for June will be released by StatsCan through the Consumer Price Index. May’s Gross Domestic Product (GDP) will represent the overall economic rebound as vaccination rates were climbing and reopening was being carefully managed six to ten weeks ago.

In the U.S., June’s new home sales, durable goods orders, and pending home sales will be announced. GDP for the second quarter will be released along with July’s consumer confidence. On Wednesday, the Federal Reserve announcement will be immediately followed by a press conference with the Fed’s Chair, Jerome Powell.

Globally, the upcoming week’s calendar includes Japan’s manufacturing purchasing managers index and jobless rate, Germany’s consumer confidence, unemployment, and CPI. Also, several indicators for the Eurozone will be announced and include economic and consumer confidence, GDP, CPI, and employment numbers.

 

Last Week in the Markets July 12 – 16, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

On Wednesday the Bank of Canada held its benchmark interest rate unchanged at ¼% as the country and world continue to emerge from the pandemic. The central bank does not expect to raise rates until the second half of 2022 at the earliest even as variants of concern continue to rise and virus containment is not universal.

The two themes discussed in detail at the press conference were increased confidence and continued attention.  Governor, Tiff Macklem, mentioned falling case counts, progress on vaccinations and easing measures as evidence of recovery and an expectation for its continued momentum. Also, on-going scrutiny must be applied to the “dynamics of recovery and inflation”.

As expansion continues the Bank’s forecast for inflation has been increased. Bank of Canada economists believe that the rate will be above 3% for the balance of 2021, before nearing the Bank’s target of 2% during 2022, rise again in 2023 and then back to 2% in 2024. The belief is that pent-up demand is outstripping decreased supply temporarily. When supply rebounds inflation is expected to slow, and more typical price increases will return.

American consumer inflation rose to 5.4% in June, the highest year-over-year price increase for a month since 2008 during the financial crisis. Prices of goods and services fell during the early months of the pandemic, and June 2021 price spikes are being compared against the lows of June 2020. Despite the high rate of inflation, the Federal Reserve has also left rates unchanged. https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm

https://www.bankofcanada.ca/2021/07/opening-statement-140721/

https://www.theglobeandmail.com/business/economy/article-bank-of-canada-trims-bond-buying-raises-inflation-forecast-as-economy/

What’s ahead for this week and beyond?

In Canada, it will be a light week for economic announcements with Aprils’ household credit, retail sales for May, and housing prices for June as the major announcements.

In the U.S., housing starts, new house prices, existing home sales are scheduled for announcement. Also, the Purchasing Managers Indices from Markit for the month of July will be released.

Globally, the light week for economic news continues. The major releases on the calendar are Japan’s inflation numbers and trade balance, and the Eurozone’s consumer confidence. On Thursday the European Central Bank will conduct a Monetary Policy Meeting that will discuss the effects of the pandemic, the recovery, the vaccination program, and recent weather events on the region’s economy.

 

Last Week in the Markets July 5 – 9, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was another strong week for North American equities.  Even though U.S. markets were closed for the Independence Day festivities on Monday, four days was enough time for modest gains on the Dow and NASDADAQ, while the S&P 500 achieved another new, all-time high. Canada’s TSX repeated the previous week’s performance by treading water again. Last week’s gain of 0.16% easily reversed the preceding loss of 0.02% from the week ending July 2nd.

Negative news has been neutralized by Canadian jobs growth. Jobs rebounded well in June as expansion and recovery continued as re-opening moved forward. 230,000 new jobs were added last month after losing 63,000 jobs in May. The unemployment rate has been falling slowly, but unfortunately, it is as much a reflection of the lowering of job seekers as job finders. The second half of the year is traditionally a time of a strong job market (summer employment and holiday season hiring, for example). As more people re-enter the job market the seasonal hiring increases should hold the unemployment rate steady or continue to slow its decline. Despite the uncertainty associated with the pandemic’s lingering effects a strong second half to the year for jobs growth and productivity.

The recovery of Gross Domestic Product (GDP) in North America has been impressive. Once restrictions began to lift pent-up demand and access to goods and services has moved economic indicators ahead briskly. The drivers have been the unleashing of savings caused by deferred purchases and the spending of government payments to individuals. The expectation is that consumer spending, which comprises about two-thirds of GDP, will continue to power economic expansion as the recovery continues

What’s ahead for this week and beyond?

In Canada, industrial inflation, manufacturing sales, housing starts, and existing home sales numbers will be released. On Wednesday the Bank of Canada will release its latest Monetary Policy Report.

In the U.S., June consumer and producer inflation data for June will be released along with retail sales. Consumer inflation is forecast to rise 0.4% from May which would quell worries for interest rate rises to stifle inflation.

Globally, China will release its trade surplus figures, retail sales, industrial production, and second quarter Gross Domestic Product. Germany, UK, France, and the collective Eurozone will all announce their inflation data.

 

Last Month in the Markets June 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in June?

In many ways the last month of the first half of 2021 was typical:

  • North American and global equities were stronger during June, except for the NASDAQ,
  • the Canadian dollar weakened against its American counterpart,
  • gold dropped since its popularity as a safe haven has retreated as control over the pandemic through vaccinations increases,
  • crude oil rose in value as restrictions are loosened business and personal activity have pushed the price of oil higher by 52% this year. This price pressure has been felt at the gas pump,
  • new record highs were reached on the TSX and S&P 500. During June equities began well, experienced a mid-month drop, and regained those losses by the end of the month.

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)                      

The TSX, where most Canadians’ equity holdings reside, is the leader in year-to-date performance besting the major American indices by as much as 3% for the first six months of the year. This performance occurred despite the 68,000 job losses in Canada for May that pushed the unemployment rate to 8.2%. The U.S. added 559,000 jobs in May, which was below the consensus expectation of 670,000 jobs. In both countries the staging and scale of reopening weighed heavily on employment and jobs numbers. As Canada reopens jobs are expected to be added in large numbers during the second half of the year. In the U.S. May’s new job creation was double the number of April as they continue deeper into their recovery.

As of the end of May Canada has 700,000 fewer jobs than pre-pandemic levels while the U.S. has nearly 8 million less jobs. There is significant opportunity to add jobs as each economy recovers. The level of unemployment will likely result in new jobs, not higher wages, as expansion occurs. This should lessen and/or delay inflation, which could spur central bank action of interest rates increases.

Much of the turmoil during the third week of the month when equity indices lost as much as 3½% was attributed to the U.S. Federal Reserve’s statements on Wednesday, June 16th.  Although interest rates remained stagnant, the spectre of inflation was prominently featured in the announcement by Jerome Powell, Fed Chair, and will influence the timing of future interest rate increases. The Fed has two primary mandates, control inflation and maximize employment. The Fed is watching inflation closely and could cause a reversal or slowing of employment gains to stifle inflation.

The latest announcement from Powell and the Federal Open Market Committee (FOMC) states, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.”  Since inflation has been below 2%, it will be allowed to float above 2% for some time to arrive back at the 2% average for the longer term. The Federal Reserve expects to increase interest rates in 2023, and perhaps twice.  https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm

The Bank of Canada held its monetary policy steady with bond purchases and interest rates unchanged in their announcement on the prior Wednesday. Inflation is at the upper end of the bank’s preferred range, but the temporary nature of the recovery has slowed any monetary policy changes. This could be a foreshadowing of upcoming Federal Reserve (in)action.  https://www.bankofcanada.ca/2021/06/fad-press-release-2021-06-09/

Inflation and monetary policy responses will heavily influence equities over the next few weeks and months.  Canadian inflation for May was 3.6%, a slight increase from April’s 3.4%. The Bank of Canada has had a similar stance as the Federal Reserve regarding inflation. Inflation will eventually cause interest rate increases if it exceeds targets. However, both the Canadian and American central banks are similarly cautious and take action after deliberation. The recovery is not complete and measures, like an interest rate increase, that are intended to reduce inflation by slowing the economic rebound will not be viewed favourably by most but will be necessary at some point in time.

In Canada, the latest jobs figures are more optimistic than one month ago. After losing 207,000 jobs in April the loss of 68,000 jobs was less severe. The unemployment rate rose in May to 8.2% from April’s 8.1%.  Labour force participation is a little troubling as youth and women are no longer seeking employment due to the adverse business conditions. In the U.S. nearly 600,000 jobs were added in May as reopening is occurring more quickly than Canada and many other countries.

The jobs and Gross Domestic Product rebounds in the U.S. should foreshadow the long-term expansion in Canada and globally as the pandemic ends and the virus is controlled.

What’s ahead for July and beyond?

Case counts driven by vaccination levels will continue to heavily influence markets. The surest way to reach full recovery is to prevent the need for social and economic measures to control the virus.

As of July 1st, 68% of Canadians have received at least one dose and 31% are fully vaccinated placing us in 3rd and 32nd place, respectively, among countries. In the U.S., 54% of Americans have received one dose or more and 47% are fully vaccinated (26th and 13th place, respectively).  https://www.nytimes.com/interactive/2021/world/covid-vaccinations-tracker.html

 

Last Week in the Markets June 28 – July 2, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

North American equities did reasonably well last week as the first half of 2021 has concluded. The U.S. major indices gained between 1 and 2% in five days of trading, and the TSX lost only 4 points, which is essentially flat for the week. The observance of Canada Day on Thursday had markets here closed, while the U.S. will celebrate their independence on Monday, July 5th.

The major news regarding economic recovery centred on American jobs. The Bureau of Labor Statistics announced that 850,000 jobs were added in June. More than one-third of the additional gains were from the hospitality industry, where wide-spread reopening has occurred. The sector has 13% less jobs than prior to the pandemic indicating that more gains can still be made.

Unfortunately, nearly 7 million less people are employed than in February 2020, with a total of 9.5 million unemployed persons and the unemployment rate at 5.9%. Significant room exists for rapid economic expansion and jobs growth to regain former levels of productivity with 4 million Americans experiencing long-term unemployment of 27 week or more.  https://www.bls.gov/news.release/pdf/empsit.pdf

In Canada, labour force participation has grown faster than in the U.S., which has caused the unemployment rate to seem higher. The unemployment rate is making steady progress by falling to 9.8% from 10.2%, which is significant because labour force participation (the number of people working and seeking employment) is rising.

What’s ahead for this week and beyond?

In Canada, the Bank of Canada’s Business Outlook Survey for the second quarter and June’s employment report will be released. In May Canada lost 68,000 jobs, the expectation is a gain of 138,000 jobs and unemployment to fall 0.4% from May’s figures.

In the U.S., markets will be closed for the observance of Independence Day on Monday. Meeting minutes from the Federal Reserve’s Open Market Committee will be released along with wholesale inventories, consumer credit and job openings, and labor turnover for May.

Globally, Eurozone retail sales, Japan household spending, China’s foreign reserves and foreign direct investment, consumer and producer price indices, and money supply. On Friday G20 Finance Ministers will conduct a meeting in Venice.

 

Last Week in the Markets June 21 – 25, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was an all-green week of our grid! That is just the third time it has been achieved in 2021 and the first time since April. All of the losses from two weeks ago that were caused by concerns over changing Federal Reserve announcements regarding inflation have been reversed.

The S&P 500 reached a new all-time high last week as well indicating that monetary policy jitters may be temporary. In more good news in the U.S., banks passed stress tests and President Biden passed his infrastructure plan.

In Canada, the latest jobs figures are more optimistic. After losing 207,000 jobs in April the loss of 68,000 jobs was less severe. The unemployment rate rose in May to 8.2% from April’s 8.1%. Labour force participation is a little troubling as youth and women are no longer seeking employment due to the adverse business conditions.  Overall 570,000 less jobs exist in Canada from pre-pandemic levels, but that number is expected to fall sharply as more Covid-19 restrictions are lifted.

In the U.S. nearly 600,000 jobs were added in May as reopening is occurring more quickly than Canada and many other countries. The jobs and Gross Domestic Product rebounds in the U.S. should effectively foreshadow the long-term expansion in other countries and globally as the pandemic ends and the virus is controlled.

What’s ahead for this week and beyond?

In Canada, real GDP for April will be announced showing the effects of pandemic restrictions. Also, the industrial and raw materials price index, merchandise trade balance, building permits for May, and the Markit Purchasing Managers Index (PMI) for June will be released. Domestic markets will be closed on Thursday for Canada Day.

In the U.S., the economic release calendar includes May’s factory orders, pending home sales, and construction spending. Data for June will focus on employment with ADP’s national employment report and the Bureau of Labor Statistics’ non-farm payroll reports where 700,000 new jobs are predicted compared to May’s 559,000.

Globally, a number of important indicators will be announced, Japan’s PMI, jobless rate, retail sales, industrial production and consumer confidence, Eurozone’s PMI, consumer and producer price indices (CPI and PPI), economic and consumer confidence, Germany’s CPI, unemployment, and retail sales. Lastly, expect oil prices to react to the upcoming OPEC+ meeting.

 

Last Week in the Markets June 14 – 18, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a disappointing week for most investors last week as the major North American equity indices, the Canadian dollar, and gold all fell. Gold dropped by nearly 6%, while equities lost between ¼% and 3½%.

Much of the turmoil and negative results are being attributed to the U.S. Federal Reserve’s statements on Wednesday. Although interest rates remain unchanged, the spectre of inflation was prominent in the announcement by Jerome Powell, Fed Chair, and will influence the timing of future interest rate increases according to Powell’s press conference. The Fed has two primary mandates, control inflation and maximize employment. The Fed is watching inflation closely and is willing to risk reversing employment gains as recovery from the pandemic continues in order to stifle inflation. The latest announcement from the Federal Open Market Committee (FOMC) states, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.” Since inflation has been below 2%, it will be allowed to float above 2% for some time to arrive back at the 2% average for the longer term. The Federal Reserve expects to increase interest rates in 2023, perhaps twice.  https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm

Canadian inflation for May was 3.6%, a slight increase from April’s 3.4%. The Bank of Canada has had a similar stance as the Federal Reserve regarding inflation. Inflation will eventually cause interest rate increases if it exceeds targets. However, both the Canadian and American central banks are similarly cautious and take action after deliberation. The recovery is not complete and measures, like an interest rate increase, that is intended to reduce inflation by slowing the economic rebound will not be viewed favourably by most but will be necessary at some point in time.

What’s ahead for this week and beyond?

In Canada, April figures for employment and jobs will be released along with retail sales for the same period. May’s wholesale trade and manufacturing sales are also scheduled for release.

In the U.S., existing and new home sales, wholesale and retail inventories, durable goods orders, and personal income and spending for May are scheduled for release. Also, first-quarter data for real Gross Domestic Product (GDP) and pre-tax corporate profits will be announced.

Globally, Eurozone consumer confidence, purchasing managers index (PMI), and money supply information is on the calendar. Japanese PMIs and retails sales figures will also be announced.

 

Last Week in the Markets June 7 – 11, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Equities performed well, both absolutely and relatively. All of the major North American indices increased in value except for the Dow. The TSX and S&P 500 reached new all-time highs again as the NASDAQ continues its climb. These results were achieved despite negative U.S. inflation news that has been ignored by equity markets.

Consumer prices rose 5% in May compared to a year ago and rose 0.7% from April. The concern is a response from the Federal Reserve to reign in inflation by raising interest rates. Inflation is reduced with this action because economic output is also slowed. During the recovery from the pandemic as societies reopen any lessening of output could cause longer-term injury to the economy.

Since the size and duration of the inflation is unknown in the unique reopening phase, and central banks’ responses are also unknown, uncertainty could spook markets. At this time it appears that both investors and banks are taking a wait-and-see approach.

The Bank of Canada held its monetary policy steady with bond purchases and interest rates unchanged in their announcement last Wednesday. Inflation is at the upper end of the bank’s preferred range, but the temporary nature of the recovery has slowed any monetary policy changes. This could be a foreshadowing of upcoming Federal Reserve (in)action.  https://www.bankofcanada.ca/2021/06/fad-press-release-2021-06-09/

Inflation and monetary policy responses will heavily influence equities over the next few weeks and months.

What’s ahead for this week and beyond?

In Canada, April’s manufacturing sales, new orders, and wholesale trade will be announced. May housing starts, existing home sales, and average prices are scheduled. Inflation numbers that guided the Bank of Canada’s policy will be released through May’s Consumer Price Index (CPI).

In the U.S., the calendar includes the release of the latest figures for May’s building permits, housing starts, industrial production, and retail sales. Federal Reserve Chair, Jerome Powell, will announce monetary policy and economic projections on Wednesday following the Federal Open Market Committee’s meeting.

Globally, inflation around the world will dominate news as Japan, Germany and the entire Eurozone CPI will be announced. Also, Chinese retail sales and industrial production will be announced.

 

Last Week in the Markets May 31 – June 4, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a great four days for U.S. stocks with Memorial Day on Monday, and a great week for Canadian and global equities that enjoyed another week of positive gains. For the second, consecutive week the TSX was the best performing index gaining nearly 1%. The TSX also maintains its first-place position in Year-to-Date increases for 2021.

This performance persisted despite the 68,000 job losses in Canada for May that pushed the unemployment rate to 8.2%. Conversely, the U.S. added 559,000 jobs during the same period, which was below the consensus expectation of 670,000 jobs.

In both countries the staging and scale of reopening weighed heavily on employment and jobs numbers.  As Canada reopens jobs are expected to be added in large numbers during the second half of the year. In the U.S. May’s new job creation was double the number of April as they continue deeper into their recovery.

As of the end of May Canada has 700,000 fewer jobs than pre-pandemic levels while the U.S. has nearly 8 million less jobs. There is significant opportunity to add jobs as each economy recovers. The level of unemployment will likely result in new jobs, not higher wages, as expansion occurs. This should help delay inflation, which would spur central bank action to increase interest rates.

What’s ahead for this week and beyond?

In Canada, the most significant economic announcement for the upcoming week will be the Bank of Canada’s latest monetary policy announcement on Wednesday.

In the U.S., inflation figures through the Consumer Price Index (CPI) for May are scheduled to be released.  Wholesale inventories, Q1 flow of funds and May’s budget balance will also be announced during a relatively light week for domestic economic news.

Globally, China will announce its trade surplus. money supply and foreign reserves. Japan and the Eurozone will deliver real GDP numbers. The European Central Bank will hold a policy meeting to analyze their economic indicators and global trends to influence upcoming monetary policy statements. On Friday the Group of Seven (G7) countries will hold a summit meeting.

 

Last Month in the Markets May 3 – 31, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in May?

Last month was a particularly strong month for Canadian equities as the TSX rose by 3¼%, besting the major U.S. indices and MSCI’s All Country World Index (ACWI). The TSX had been even higher but lost a little ground on May 31st when U.S. markets were closed for Memorial Day.

Each of the North American equity indices experienced their lowest points for the month after one-third of May had passed. The TSX fell less on May 10/11 and then delivered consistent gains for the rest of the month to out-distance its American rivals. After the first five months of 2021, the TSX leads the S&P 500, Dow, and NASDAQ in Year-to-Date performance as well.

The Canadian dollar has risen 5.5% in 2021 which provides an additional boost to domestic investments compared to U.S. dollar holdings.

(source: ARG analysis, Bloomberg and MSCI)

The first week of May ended with pessimistic and disappointing employment news. Renewed pandemic restrictions for Canadians were implemented in April and led to 207,000 job losses, about 35% more than expected. The Canadian unemployment rate announced at the beginning of May was 8.1%. In the U.S. 266,000 new jobs were added when almost 1 million additional jobs were expected. Instead of increasing the number of new jobs from March’s result of 770,000, employment growth fell by about 200,000 jobs. About 7 million less jobs exist in the U.S. than before the pandemic began, and the unemployment rate is 6.1%.

About two-thirds of North American Gross Domestic Product (GDP) is comprised of consumer spending.  The purchase of products and services by individuals and families is the largest contributor to GDP.  Consumers without income (i.e. jobs) will exhaust their savings and stall economic recovery. Monitoring job data domestically and internationally is critical to understanding progress against the pandemic.

The dip in equity markets attributed to jobs data was enhanced by the announcement of U.S. inflation figures for April. U.S. inflation is higher than expected at an annualized rate of 4.2% over one year ago and 0.8% more than the last reported month (March). The monthly core inflation rate, which excludes food and energy, rose 0.9%. This is the largest one-month inflation increase in 40 years, which was 1981.

Many American states reduced restrictions simultaneously causing a surge in domestic demand, leading prices higher as supply lagged. Wage growth could support further price increases once short-term stimulus savings are spent. Currently, wage growth is not positioned to fuel additional price increases. The Federal Reserve and other central banks closely monitor inflation to determine if monetary action is needed. The primary method to slow inflation is an increase in interest rates.

Higher interest rates directly increase the cost of borrowing, which raises the cost of living of consumers and for business expansion, which would slow Gross Domestic Product (GDP) growth. Central bankers would rather choose to control interest rates than have inflation control the economy. It is much more complicated than that, but inflation and high (or higher) interest rates are typically bad for most people and investors. The lone exception would be those who rely solely on interest income.

During the last full week of May, the TSX was led by the Financial sector as the major Canadian banks released positive earnings reports. The Bank of Montreal, CIBC, Royal Bank, and TD announced results that exceeded expectations for the latest quarter. Most of the increased performance has been attributed to declining loan losses and the accompanying reserves necessary to cover unpaid debt. The default rate on outstanding credit is a strong indicator of the health of the overall economy.

American firms have also delivered impressive quarterly earnings. According to FactSet and Standard&Poors analytics, 86% of U.S. public companies have beaten analyst profit projections, and the expected profits are more than 20% than anticipated.

In the short term, the alignment of corporate profits and equity prices should provide some predictability for investors. Early emergence from the pandemic had the promise of recovery driving stock prices, it appears that much of that promise is being delivered and markets are continuing to react positively.

What’s ahead for June and beyond?

GDP growth based on a broad reopening of the economy will drive capital markets. The major contributor to safely reopening is the administration of vaccines.

As June begins 58% of Canadians have received at least one dose of vaccine, which ranks Canada as 7th worldwide. Four of the six countries ahead of us have very small populations, 500,000 or less, and small geographies. Unfortunately, less than 6% of Canadians have been fully vaccinated. Our reopening will depend on increasing the rate of vaccination and full vaccinations over the summer.

 

Last Week in the Markets May 24 – 28, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

North American equity indices delivered another week of strong returns. The Canadian dollar was the sole declining indicator on the grid (above), but only just slightly. Gold moved back into positive territory for its Year-to-Date returns as oil continued its rise as well.

For the TSX the major Canadian banks led the Financial sector, and the Financial Sector led the entire index higher on its strength. The Bank of Montreal, CIBC, Royal Bank, and TD announced results that exceeded expectations for the latest quarter. Most of the increased performance has been attributed to declining loan losses and the accompanying reserves necessary to cover unpaid debt. The default rate on outstanding credit is a strong indicator of the health of the overall economy.

American firms have also delivered impressive quarterly earnings. According to FactSet and Standard&Poors analytics, 86% of U.S. public companies have beaten analyst profit projections, and the expected profits are more than 20% than anticipated. The explanation is that consumer and business demand is rising quickly across the U.S. as restrictions are relaxed more quickly than in other countries. The driver of reopening is declining infection rates as vaccinations continue.

In the short term, the alignment of corporate profits and equity prices should provide some predictability for investors. Early emergence from the pandemic had the promise of recovery driving stock prices, it appears that much of that promise is being delivered and markets are continuing to react positively.

What’s ahead for this week and beyond?

In Canada, first-quarter real Gross Domestic Product (GDP) will be announced. The annual growth rate is expected to be almost 7%. On Friday employment data for May will be released, which will show the effects of the latest restrictions to combat the pandemic in various regions across the country.

In the U.S., the markets are closed to observe Memorial Day. Once the business week begins, construction spending and Markit and ISM’s purchasing managers indices are scheduled for release.

Globally, Japan will release its industrial production, retail sales, household spending, and consumer confidence numbers. Germany will release its inflation, which as the largest European economy could influence future decisions for the European Central Bank. Germany will also release retail sales and unemployment numbers.

 

Last Week in the Markets May 17 – 21, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was another mixed week for investors as the North American equity indices moved in both directions. The TSX and NASDAQ increased, while the S&P 500 and the Dow decreased in value. The culprit that interrupted the recovery in markets last week is inflation. The threat of inflation, since it has not actually appeared yet, is causing some uncertainty in markets as the pandemic finally seems to be corralled, if not controlled.

The concern regarding inflation is that central banks, like the Fed and the Bank of Canada, will move to curtail it by slowing economic recovery. Their primary method would be to increase interest rates.

Higher interest rates directly increase the cost of borrowing, which raises the cost of living of consumers and for business expansion, which would slow Gross Domestic Product (GDP) growth. Central bankers would rather choose to control interest rates than have inflation control the economy. It is much more complicated than that, but inflation and high (or higher) interest rates are typically bad for most people and investors. The lone exception would be those who rely solely on interest income.

The good news, of course, is where equity values are compared to February or May of 2020. For a broad-based portfolio that mimics the market indices, even with a significant portion dedicated to low-interest fixed-income vehicles, the last year has been positive. Equities have weathered the Covid-19 storm well overall despite some significant variation among some stocks.

What’s ahead for this week and beyond?

In Canada, April’s manufacturing sales and March’s employment, payrolls, and hours will comprise the announcements for a shortened week due to the Victoria Day celebrations.

In the U.S., new home sales, pending home sales, durable goods orders, personal income, and spending, and first-quarter real Gross Domestic Product for April will be announced next week prior to the Memorial Day observance on May 31st. President Biden will release an annual budget as well.

Globally, Germany will announce its Gross Domestic Product and consumer confidence for April. German data will be a component of the overall consumer confidence for the Eurozone that will also be released.

 

Last Week in the Markets May 10 – 14, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Equity markets lost value and renewed volatility last week as U.S. inflation for April was releasedAfter Monday, the North American indices dipped dramatically. Thankfully, they regained a large portion of their lost ground by the end of the week despite ending the week “in the red.  Driving the drop is U.S. inflation that is larger than expected at 4.2% over one year ago and 0.8% more than the last reported month (March)The core inflation rate, which excludes food and energy, rose 0.9% over MarchThis is the largest one-month inflation increase in 40 years, which was 1981.

The Federal Reserve and other central banks will be paying close attention to inflation to determine if it is directly related to reopening during the pandemicMany American states reduced restrictions simultaneously causing a surge in domestic demand, leading prices higher as supply laggedWage growth could guide price increases once short-term stimulus savings are spentIt appears, at this time, that wage growth is not positioned to fuel additional price increases.

It should be noted that during periods of inflation bond yields have tended to increaseThe longterm allocation within an investment portfolio should be monitored continuously, this period of increased inflation and accompanying bond yields is no exception.

Canada’s inflation numbers will be released during the coming week, and are expected to mirror U.S. figures, but in a more muted manner since our reopening is lagging the timing in the U.S.

What’s ahead for this week and beyond?

In Canada, April’s housing starts, existing home sales, average home prices and retails sales will be announcedInflation for April will also be released through the Consumer Price Index as we proceed toward the Victoria Day holiday observed this year on May 24th.

In the U.S., housing starts, building permits and existing home sales for April are the major indicators on the calendar.

Globally, China will announce its industrial production and retail sales, Japan will announce its Gross Domestic Product (GDP), trade balance, inflation and industrial production, Europe will also announce its GDP along with consumer confidence.

Last Week in the MarketsMay 3 – 7, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

North American equities did well last week except for the NASDAQ index which experienced a rare, negative reversal when the other indices roseThe NASDAQ’s technology firms, especially the largest like Facebook, Amazon, Alphabet (Google) and Microsoft, have not delivered the performance lately that has allowed the index to grow the most in the past year. Thankfully, the week ended with the equity indices rising.

The week also ended with pessimistic and disappointing employment newsRenewed pandemic restrictions for Canadians were implemented in April leading to 207,000 job loses, about 35% more than expectedIn the U.S. 266,000 new jobs were added when about 1 million additional jobs were expectedInstead of increasing the number of new jobs from March’s result of 770,000, employment growth fell by about 200,000 jobsAbout 7 million less jobs exist today than before the pandemic began.

The unemployment rate in the U.S. stands at 6.1% and 8.1% in CanadaThe rates do not seem as discouraging as expected until a little more investigation occursThese indicators are lower because labour force participation has fallenThat is, many are not actively seeking employment and are no longer included in the calculation as those who have lost their job and want another.

About two-thirds of North American Gross Domestic Product (GDP) is comprised of consumer spendingThe purchase of products and services by individuals and families is the largest contributor to GDPConsumers without income (i.e. jobs) will exhaust their savings and stall economic recoveryMonitoring job data domestically and internationally is critical to understanding progress against the pandemic.

What’s ahead for this week and beyond?

In Canada, the Bank of Canada Governor Tiff Maklem will hold a webcast where he will review the central banks actions and lay groundwork for upcoming measuresMarch’s industrial price index, manufacturing sales and new orders and wholesale trade information will be released.

In the U.S., inflation figures for April will be released through the Consumer Price Index (CPI)Budget deficit figures, retail sales, import and export price indices, industrial production and business inventories are also scheduled for release.

Last Month in the Markets: April 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in April?

The month began with North American, European and many other markets closed for the observance of Good Friday on April 1st. When trading did begin the results were positiveThe major indices rose 2 – 5% for the month, which is a strong performance by nearly any standard, despite difficulties during the month and on the final day of trading.

(source: ARG analysis, Bloomberg and MSCI)

The first week ended very positively for North American and global equity investorsThe broad-based indices of the TSX, S&P 500 and MSCI’s All-Country World Index achieved record highsA number of contributing elements played a part: 

  • The US employment report that was released on Good Friday provided a positive start to the month. The Canadian jobs exceeded expectations for employment and job creation, too. 
  • Purchasing Managers Indices (PMI) from ISM for services companies indicated an increasing optimism for economic growth 
  • The International Monetary Fund (IMF) increased its forecast for global growth to 6% from 5.5% 

During the second week of the month equity indices reached new record levels againDriven by strong economic data and falling government U.S. bond yields the TSX, Dow and S&P 500 reached all-time highs 

  • The American and Chinese economies, the world’s two largest, are growing at accelerating rates based on recently released data for Gross Domestic Product, employment, consumer confidence and consumer spending.  
  • Another bellwether of an economy’s health is the earnings reported by banksReversing overly pessimistic reserves set aside for loan losses have led to stronger profits.
    US bank profitability 
  • The TSX was pushed higher by positive economic progress in the U.S. and China. 
  • The Bank of Canada (BoC) released its quarterly Business Outlook, which achieved its highest level since 2018.
    BoC BOS Spring 2021 

Week 3 was a reversal when North American and global equities, the Canadian dollar, gold and oil fell. 

  • The results can be directly related to faltering success against the COVID-19 pandemicInternationally, surges in cases in the less developed nations, particularly India and Brazil, and in more developed nations, like Japan have increased the likelihood of ongoing economic damage 
  • The Canadian federal government released its first budget in two years that included $101.4 Billion in new spending to provide pandemic relief and position Canadians and businesses for future economic successThe budget deficit is projected at $354 Billion for the year ended March 31, 2021 and $155 Billion for the current fiscal year. 
  • The Bank of Canada (BoC) held its benchmark interest rate unchanged in its continued support for economic recoveryIt has forecast Canadian Gross Domestic Product (GDP) growth for the first quarter at 7%Based largely on this high rate of growth the BoC is planning to reduce its bond purchase program and has indicated that interest rates may increase sooner than earlier projections.
  • The European Central Bank (ECB) kept its interest rates steady and indicated that bond purchases would be increased to support the collective Eurozone economy. 
  • All of these developments reminded markets of the pandemic’s effects. 

Results were mixed for the last week of the month that left major indices mostly unchangedA number of contradictory influences contributed to these results: 

  • Solid corporate earnings have been turned in for the latest quarter. 
  • President Biden continued to advance his economic recovery plan with several trillion dollars of spendingThe bills introduced include the $1.8 Trillion American Families Plan (education, child-care and social supports), the $2.3 Trillion American Jobs (infrastructure) and the approved $1.9 Trillion American Rescue Plan (pandemic relief and stimulus).
  • U.S. and Canadian economic expansion/recovery is occurring more quickly than first anticipated
    • Canadian retail sales are rebounding more quickly than expectedAs an example, Shopify which is a major component of the TSX, reported sales much higher (about double) and profits (almost triple) ahead of expectations.
  • The Federal Reserve continues to support economic recovery despite a rise in the rate of inflation which could eventually cause interest rate increasesThe Bank of Canada made a similarly toned announcement nearly two weeks ago.
  • Pandemic case numbers are again rising in many parts of the world with the threat of renewed lockdowns and restrictions loomIndia has had more than 400,000 cases daily while they experience shortages of critical supplies like oxygen.

All of this allowed the NASDAQ, S&P 500 and Canada’s S&P/TSX indices to reach all-time record highs during the week before falling back on Friday.
https://www.nytimes.com/2021/04/29/business/economy/united-states-gdp.html

What’s ahead for May and beyond? 

After another month the effects of the latest pandemic efforts will be seenThe co expansion of vaccination programs will oppose the increasing number, contagiousness and severity of virus variants as governments enact legislation to combat negative economic and public health outcomes.

At the present time many indicators are positiveEconomic growth (GDP) in Canada and the U.S. is strongQuarterly company earnings are exceeding expectations, especially for large consumer IT/internet firms like Facebook, Apple, Amazon, Microsoft and Alphabet (Google)Central banks continue to support recovery with monetary policy and have focused on promoting a rise in GDP, not inflation fearsGovernment fiscal policy, spending on stimulus, infrastructure and worker supports, have bolstered the economies in Canada and the U.S.

The latest pandemic support measures from the Canadian federal government can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html

Last Week in the MarketsApril 26 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Results were mixed for North American equities with markets ending on a down note that left major indices essentially flat for the weekA number of contradictory influences contributed to these results:

  • Solid corporate earnings have been turned in for the latest quarter.
  • President Biden continued to advance his economic recovery plan with several trillion dollars of spendingThe bills introduced include the $1.8 Trillion American Families Plan (education, child-care, and social supports), the $2.3 Trillion American Jobs (infrastructure) and the approved $1.9 Trillion American Rescue Plan (pandemic relief and stimulus).
  • U.S. and Canadian economic expansion/recovery is occurring more quickly than first anticipated
    • Canadian retail sales are rebounding more quickly than expectedAs an example, Shopify which is a major component of the TSX, reported sales much higher (about double) and profits (almost triple) ahead of expectations.
  • The Federal Reserve continues to support economic recovery despite a rise in the rate of inflation which could eventually cause interest rate increasesThe Bank of Canada made a similarly toned announcement nearly two weeks ago.
  • Pandemic case numbers are again rising in many parts of the world with the threat of renewed lockdowns and restrictions loomIndia has had more than 400,000 cases daily while they experience shortages of critical supplies like oxygen.

All of this allowed the NASDAQ, S&P 500, and Canada’s S&P/TSX indices to reach all-time record highs during the week before falling back on Friday.
https://www.nytimes.com/2021/04/29/business/economy/united-states-gdp.html

What’s ahead for this week and beyond?

In Canada, March’s merchandise trade balance is the sole major expected economic announcement.

In the U.S., Purchasing Managers Indices from Markit and PMI for April, March’s construction spending, goods and services trade index and factory orders data are all scheduled for release.

Globally, Eurozone manufacturing PMI is on the calendar, as well as German retail sales, industrial production, and factory ordersChinese markets will be closed at the beginning of the week before they announce their April trade surplusAlso, the Bank of England monetary policy announcement and report on Wednesday.

Last Week in the MarketsApril 19 – 23, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was an “all red” week for North American and global equities, the Canadian dollar, gold, and oilAgain, the results can be directly related to faltering success against the COVID-19 pandemicInternationally, surges in cases in the less developed nations, particularly India and Brazil, and in more developed nations, like Japan have increased fears of ongoing and increasing economic damage.

The federal government released its first budget in two years that included $101.4 Billion in new spending to provide pandemic relief and position Canadians and businesses for future economic successThe budget deficit is projected at $354 Billion for the year ended March 31, 2021 and $155 Billion for the current fiscal year.

The Bank of Canada (BoC) held its benchmark interest rate unchanged in its continued support for economic recoveryIt has forecast Canadian Gross Domestic Product (GDP) growth for the first quarter at 7%Based largely on this high rate of growth the BoC is planning to reduce its bond purchase program and has indicated that interest rates may increase sooner than earlier projections.

Vaccine reluctance in the U.S. has placed serious doubts that herd immunity will be achieved even as nearly 30% of Americans have received a full course of the vaccineThe White House announced a proposal to increase taxes on capital gains that increased downward pressure on equitiesIt was counter-balanced by first quarter earnings reports that generally exceeded analysts’ expectations.

The European Central Bank (ECB) kept its interest rates steady and indicated that bond purchases would be increased to support the collective Eurozone economy.

What’s ahead for this week and beyond?

In Canada, February’s retail sales, employment reports and Gross Domestic Product (GDP) are scheduled for release as are March’s industrial and materials price indices.

In the U.S., durable goods orders and goods trade deficit, pending home sales and personal spending and income for March will be announcedOn Wednesday, the Federal Reserve will release their latest monetary announcement and conduct a news conference featuring Chair, Jerome PowellLater, on Wednesday evening, President Biden will deliver his first address to the Joint Session of Congress (Senate and House members).

Last Week in the Markets April 12 – 16, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Equity indices reached new record levels again last weekDriven by strong economic data and falling government bond yields in the U.S. the TSX, Dow and S&P 500 reached all-time highs.

The American and Chinese economies, the world’s two largest, are growing at accelerating rates based on recently released data for Gross Domestic Product, employment, consumer confidence and spending.

Despite the good news, the U.S. dollar fell against foreign currencies since it is generally corelated with its falling bond yieldsThe falling dollar led to a rise in commodity prices, like gold and oil in our grid aboveHowever, another bellwether of the U.S. economy’s health is the earnings reported by banksThey have exceeded expectations and are 60-250% ahead of last yearReserves set aside for loan losses have been larger than necessary and reversing these allowances have led to stronger profits.
US bank profitability

Here at home, the TSX was pushed higher by developments in the U.S. and China, which have a strong influence over our economy’s ability to growAnother contributor was the Bank of Canada (BoC) releasing its quarterly Business Outlook, which achieved its highest level since 2018Demand is increasing and high-contact industries continue to struggle.
BoC BOS Spring 2021

These achievements are linked to pre-surge data and continued vigilance is necessary.

What’s ahead for this week and beyond?

In Canada, the schedule includes the release of March housing starts and new housing price index, manufacturing sales and inflation through the Consumer Price Index (CPI)The Bank of Canada will release its policy announcement and monetary policy report on WednesdayThe biggest news in an already busy week for announcements will be the federal budget, which is scheduled for Monday.

In the U.S., leading indicator, new and existing home sales for MarchMarkit Purchasing Managers Indices (PMI) will show corporate confidence for expansionA number of large industrials will release their latest earnings reportsincluding United, American and Southwest Airlines, Coca-Cola, IBM, P&G, J&J, Netflix, AT&T, American Express, Travelers, Kimberly-Clark, CSX, Xerox.

Globally, Japan releases its March trade surplus and February industrial production, along with its PMI and inflation numbersThe European Central Bank (ECB) holds its policy meeting.

Last Week in the Markets: April 5 – 9, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The week ended very positively for North American and global equity investorsThe broad-based indices of the TSX, S&P 500 and MSCI’s All-Country World Index achieved record highsA number of contributing elements played a part: 

  • The US employment report that was released on Good Friday provided a positive start to the weekThe same report for Canadian jobs exceeded expectations for employment and job creation. 
  • Purchasing Managers Indices (PMI) from ISM for services companies indicated an increasing optimism for economic growthThe perspective of corporate purchasers is a strong leading indicator of future economic activity. 
  • Minutes from the latest Federal Reserve meetings that were released midweek reconfirmed their commitment to low interest rates. 
  • The International Monetary Fund (IMF) increased its forecast for overall global growth to 6% from 5.5% 
  • With a drop in the value of the U.S. dollar commodity prices rose, except for oilForeign exchange influences also lifted the materials sectorin the indices as metals rose. 
  • The largest technology firms also rose; Amazon, Apple, Microsoft, Alphabet (Google) and Facebook that comprise one-fifth of the S&P 500, contributing strongly to overall record highs. 

 What’s ahead for this week and beyond? 

In Canada, the Bank of Canada will release its latest business outlook, which influences its future monetary policyAlso, February’s manufacturing sales and new orders, and March’s existing home sales and average prices from the red-hot housing market will be announced. 

In the U.S., March inflation numbers will be released through the Consumer Price Index (CPI)as will the budget deficit, retail sales and industrial productionThe Federal Reserve Chair, Jerome Powell, will speak at the Economic Club of Washington, where he is expected to continue his organization’s strong support of recovery.

Last Week in the MarketsMarch 29 – April 1, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The markets were closed on Friday, and the shortened week proved to be a spring tonic for most investmentsThe equities indices and oil gained, while the Canadian dollar essentially broke-even and gold lost value only slightly.

It was mostly news from the U.S. drove values higherevidenced by the Dow’s new record high and the S&P 500 rising above 4,000 for the first timeThe vaccine schedule is accelerating with many American states beginning to include all adults in the rollout as more than 200 million are expected to have received at least one dose in the near future. Pfizer announced that its vaccine was safe and highly effective for early teensFiscally, the Biden administration unveiled its infrastructure plan with expenditures totaling $2.25 Trillion. Transportation, manufacturing, workforce development, housing, elderly care, electrical and broadband grid, and clean energy are all included.

In Canada, our Gross Domestic Product (GDP) numbers for January was revised higher. The TSX reflected this and American news to finish the week just below 19,000 points. The leading Canadian index has gained nearly 9% in 2021, one of its best quarters, and is currently beating the major U.S. indices in Year-to-Date performance, which is a rare achievement. The TSX gain has been across many sectors to achieve this large an increase this early in the year.
https://www.spglobal.com/spdji/en/indices/equity/sp-tsx-composite-index/#overview

What’s ahead for this week and beyond? 

In Canada, February’s merchandise trade balance will be announced along with Canadian employment numbers for the month of March. The reopening should be reflected in the jobs growth achieved last month.

In the U.S., the scheduled announcements for the week include February’s factory orders, wholesale inventories, and the goods and services trade balance. The Federal Reserve Chair, Jerome Powell, will join a combined World Bank and International Monetary Fund meeting to debate the global economy in 2021.

Globally, European markets remain closed on Monday, while its jobless rate for the region will be posted on Tuesday. Mid-week the G20 finance ministers and central bank governors will meet via videoconference.

Last Month in the Markets – March 1 – 312021

(source: ARG analysis, Bloomberg and MSCI)What happened in March?

The markets have reacted directly to local and global success against the pandemic continued, as expected, throughout the month of March.  As vaccinations were finally building some momentum, restrictions began to be relaxed and the unfortunate response has been a rise in Covid-19 cases across Canadathe United States and many other countries.  This pattern of rising infection rates after lowering restrictions will continue as long as herd immunity has not been achieved as economies are reopened.  Our ability to contain the spread of the virus will depend on the number, variety and infectiousness of virus variants as well as protective measures and vaccinations.

For retail investors the volatility that was witnessed in March is expected to persist for the rest of the spring, the summer and into the autumn of 2021.

(source: ARG analysis, Bloomberg and MSCI)

However, the news in March was not all negative, several bright spots emerged: 

  • Each of the major North American indices and the All-Country World Index (ACWI), above, have made strong gains to date in 2021 ranging from almost 3% to nearly 8% during the first quarter.
  • Despite a 3% loss this month the price of oil has risen 23% in 2021 and almost 200% from one year ago.
  • The U.S. Covid-relief bill passed through Congress and was signed into law.  The $1.9 Trillion bill contains multiple measures to provide rent relief for individuals and businesses, support for households with direct payments to individuals and specific initiatives to assist lower income individuals.
    • Later in the month, stimulus cheques began to arrive for American families and are expected to increase consumer spending in the short term.
    • For longer term economic recovery, a proposed infrastructure bill has been introduced by the Biden administration.  Both measures are designed to spur economic recovery.
  • Indicators show that growth in the inflation rate has slowed or are lower than previously predicted.  Consequently, central banks are not expected to take any action that would slow economic growth in an attempt to tamp down inflation.  The Bank of Canada held its interest rate and bond-buying program steady in its announcement on March 10th.
  • The U.S. Federal Reserve also continued its communication that interest rate increases are not expected until 2024, which provided price support for equity values. 
  • In Canada the Federal and Provincial government fiscal measures and Bank of Canada monetary policy moves have been generally successful.  Fortunately for families and the most vulnerable, foreclosures and evictions have not risen as quickly as employment and business closures, but it has been very difficult for many.
    • Governments and the central bank were forced to conduct operations virtually while designing and implementing solutions in record time.  A recap of some of the activity can be found here, it serves as a reminder of the challenges we have faced and solutions and revisions that have been enacted.
      Bank of Canada article
  • The Organization for Economic Cooperation and Development (OECD) has increased its forecast for global GDP growth for this year.

Despite all of the dire predictions and upheaval to families and individuals, including the loss of life in Canada and around the world, the markets which reflect economic health have performed well.  Record highs have been reached recently by the Dow, S&P 500 and the TSX, after the NASDAQ had been setting records.

What’s ahead for April and beyond?

Expect many measures to slow or contain the spread of the coronavirus to be announced in the next few days.  Just as March ended and April began, Quebec City and Gatineau are on lockdown, school closing schools have been warned for the days immediately following Easter and Passover (and would lead into the rescheduled “March Break” in Ontario).

Markets will be watching the Covid-19 cases, hospitalizations, ICU occupancy and deaths closely.  There will be more economic stress ahead as a third wave moves through major economies.

Should you have any questions regarding the effect of the pandemic on your investments, do not hesitate to contact our office.

Last Week in the Markets March 22 – 26, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was a mixed week for North American equities as the TSX and NASDAQ lost ground while the S&P 500 and the Dow moved ahead.  The primary driver of equity values continues to be the progress against the pandemic, both domestically and globally.  Restrictions in Europe are being reimposed as case rates have begun to climb, which is a phenomenon that is also reappearing in Canada and the U.S.  Additionally, concerns are rising concerning the safety and efficacy of vaccines as side effects, variants and second doses scheduling evolves.

Nonetheless the major equities indices have logged strong gains for the first 12 weeks of 2021.  The NASDAQ lags the field at 2% for the year while the Dow leads with slightly more than 8% gains.

Stimulus cheques began to arrive for American families and are expected to increase consumer spending in the short term.  For longer term economic stimulus a proposed infrastructure bill has been introduced by the Biden administration.  Both measures are designed to spur economic recovery.

In Canada, the Federal and Provincial government fiscal measures and Bank of Canada monetary policy moves have been generally successful.  Fortunately for families and the most vulnerable, foreclosures and evictions have not risen as quickly as employment and business closures, but it has been very difficult for many.  Like many businesses, governments and our central bank were forced to conduct operations virtually and imagine, design, and implement solutions in record time.  A recap of some of the activity can be found here, it serves as a reminder of the challenges and solutions, as well as the timing and sequencing of them.
Bank of Canada article

What’s ahead for this week and beyond?

In Canada, the most significant economic release will be January’s Gross Domestic Product numbers which measures Canada’s overall output.  The pace of its growth will indicate how well we are recovering during the pandemic.  Also, the TSX will be closed on Friday.

In the U.S., markets will be closed on Friday and economic releases will be lighter than usual during the short week.  February’s construction spending, along with March’s Purchasing Manager’s Index (PMI) from both ISM and Markit are on the calendar.

Last Week in the Markets: March 15 – 19, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Despite the overall negative finish for American equities indices by the end of the week, there was some positive news in other waysBoth the S&P 500 and the Dow, along with the TSX, rose to record all-time highs again last week before falling backThe TSX breached 19,000 points briefly before, essentially, breaking-even for the week by only gaining 2 points.

Rising bond yields that are drawing investments away from equities into debt investments seems to be the main culprit for the dip at week’s endBond yields tend to help the Financial sector, which provided stability for the TSX when oil prices fell more than 6% last week and dragged down the Energy sectorAdditionally, initial jobless claims rose last week, retail sales and housing starts fell below expectationsThe severe weather was blamed, especially its effects in Texas.

Thankfully, the Federal Reserve’s continued communication that interest rate increases are not expected until 2024 provided price support for equity valuesConcern for equities would grow if the Federal Reserve reversed itself on rate increases to battle rising inflationHowever, if the pace of vaccinations rises and infection rates begin to fall, then pandemic restrictions should be liftedA more open society here and abroad will lead to increased jobs growth and consumer confidenceSince consumer spending is about 60% of the economy the increases in employment and confidence coupled with U.S. stimulus cheques should lead to rapid economic growth.

These assumptions will require close monitoring to ensure the desired results are occurring.

What’s ahead for this week and beyond?

In Canada, it will be a relatively light week for the reporting of economic indicators with the two measures of note being February’s wholesale trade and manufacturing salesBoth Ontario and Quebec are scheduled to provide their budgets for the coming year.

In the U.S., a lot more reporting activity is scheduled with the data for February on existing and new home sales, durable goods orders, and personal income and spendingOn Wednesday Federal Reserve Chair, Jerome Powell and Treasury Secretary, Janet Yellen, will appear at House Financial Service Committee to provide a quarterly CARES Act report.

Last Week in the Markets: March 8 – 12, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The positive economic announcements and legislative events of last week caused North American and global equities to gain ground last week

  • Indicators show that growth in the inflation rate have slowed or are lower than predictedConsequently, central banks are not expected to take any action that would slow economic growth while tamping down inflationThe Bank of Canada held its interest rate and bond-buying program steady in its announcement on March 10th.
  • The U.S. Covidrelief bill passed through Congress and was signed into lawThe $1.9 Trillion bill contains multiple measures to provide rent relief for individuals and businesses, increases for consumer spending with direct payments to households and additional Democrat-led initiatives to assist lower income individuals.
  • The Organization for Economic Cooperation and Development (OECD) has increased its forecast for global GDP growth for this year.
  • Applications for unemployment benefits fell to levels not seen since November and job openings are rising faster than expected according to the U.S. Bureau for Labor Statistics.

All of these factors, and more, contributed to last week’s success for equities as record highs for the Dow Jones Industrial Average, S&P 500, Canada’s TSX and Germany’s DAX were reached.

One year ago, we were at the trough of coronavirus effects on equity markets as we struggled with business closingsThe year-over-year equity returns (50-85% above) reflect the rebound in equities from this low pointThe mathematical calculations will continue to show steep gains from one year ago but are really depicting a return to pre-pandemic levels and now onto record high levels.

What’s ahead for this week and beyond?

In Canada, February housing starts, home sales and average price will be announced along with inflation through the Consumer Price IndexJanuary data will be released for Canadian retail sales and manufacturing sales and new orders.

In the U.S., retail sales, industrial production and capacity utilization, building permits and housing starts for February will be released.

Last Week in the MarketsMarch 1 – 5, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

The TSX did well last week, along with the S&P 500 and the DowStatsCan announced Canadian GDP, and it was higher than expected for December and the fourth quarter of last yearOur expanding economy seemed to be prevailing in small measures despite the negative restrictions that have been put in-place to control the pandemicThe rise in the price of oil help boost the Energy sector, the second largest sector comprising the TSX indexFinancials, the largest sector of the TSX, continued to benefit from last week’s strong bank earnings that totaled nearly $14 Billion and from rising bond pricesHigher bond rates typically raise earnings for Financials, the high earnings could be poised to increase should the pandemic and its economic effects be lessening.

On Friday, the U.S. jobs report for February was releasedMany of the measures remained unchanged although 379,000 non-farm jobs were addedThe unemployment rate held firm at 6.2%, 10 million Americans were unemployedOne year ago, prior to the pandemic, the unemployment rate stood at 3.5% with 5.7 million unemployedThe groups that are taking the brunt of pandemic induced job loss are African Americans and HispanicsNearly 2 million have had their full-time jobs downgraded to part-time employmentThe employment numbers will continue to be a representation of economic recovery.
https://www.bls.gov/news.release/empsit.nr0.htm

Canadian economic policy makers are watching the U.S. economy’s recovery since it is our largest trading partner and our economy’s health is closely tied to it.

What’s ahead for this week and beyond?

In Canada, it will be our turn for February employment numbersOn Wednesday, the Bank of Canada will release its latest interest rate decisionComments by Tiff Macklem, Bank of Canada Chair, will be closely monitored and analysed as inflation fears and bond rate uncertainty have risen.

In the U.S., the focus of economic releases will be inflation for February with the release of the Consumer and Producer Price Indices (CPI and PPI, respectively)Inflation as a positively corelated indicator of economic growth is the measure that central bankers are watching to guide any interest rate increasesNone are expected in the near term but noting inflation’s movement could provide some hints of interest rate changes.

Last Week in the Markets: February 22 – 26, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was a trying week for North American equity investorsThe major indices fell by 2% and the NASDAQ doubled that declineThe Canadian dollar lost another percentage point to its American counterpartThe lone gainer on our grid was oil, but it did not feel like positive progress at the gas pump, at least for Canadian consumers. 

The results by the large Canadian banks provided support for the TSX and its most heavily weighted sector, FinancialsThe Bank of Montreal and Scotiabank led off with profits higher than pre-pandemic levels for the most recent quarterCIBC, RBC and TD also delivered impressive resultsLower loan-loss provisions, lower credit default rates, increased revenues were the reasons the banks were able to exceed analyst earnings expectationsThe institutions were able to best their own expectations and are admittedly further ahead on recovery that they expectedCollectively, they earned $13.9 Billion in the quarter ending on January 31st. Thankfully, nearly every Canadian investor holds bank stock directly or within mutual funds or ETFs.
https://www.theglobeandmail.com/business/article-big-six-banks-beat-own-predictions-climbing-above-prepandemic-levels/  

In news that does affect every Canadian household, Mark Machin, Chair of the Canada Pension Plan Investment Board (CPPIB), resigned last week amid controversy surrounding his international travel during the pandemicHe is currently in Dubai where he has received the coronavirus vaccineThis is the latest example that a leader’s judgment and integrity is demonstrated more broadly than merely with at-work decisionsThe Board of Directors felt that the leader of a nearly $500 Billion public investment fund should be available for in-person conversations, meetings, and decisions during a period of market volatilityJohn Graham, the former head of credit investing at the CPPIB, will now lead the organization.
https://www.theglobeandmail.com/business/article-head-of-canadas-largest-pension-fund-steps-down-in-the-wake-of-covid/  

What’s ahead for this week and beyond?

In Canada, December and the 2020 Q4 Gross Domestic Product numbers will be released and will provide the latest data on our economic recoveryJanuary’s building permits and trade balance are also scheduled.

In the U.S., the Purchasing Managers Index from ISM for both products and services will be releasedThese reports summarize the forward-looking confidence of corporate buyersFebruary’s employment numbers will demonstrate if the U.S. recovery has resulted in improvements in jobs, job creation and joblessness.

Last Week in the MarketsFebruary 16 – 19, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

North American equity indices faltered by the end of last week.  After the TSX, S&P 500, Dow and NASDAQ reached new all-time highs on Tuesday they all finished the week lower. The uptick was caused by news of better progress against the coronavirus as cases, hospitalization and deaths have stabilized and, in many locations, fallenVaccine distribution (or at least news of increased production and distribution) also contributed to gains early last weekEquities have been very responsive, both positively and negatively, to Covid-19 news and are not expected to lose their correlation soon, or perhaps ever. 

As economic recovery proceeds the spectre of inflation reappeared after those equity peaks were reached.  Most global indices finished the week below where they started the week, the Dow being a notable exception. Canada’s Consumer Price Index (CPI) had its largest monthly increase in about a year, which was driven by the prices of durable goods and gasoline. The U.S. Producer Price Index (PPI) rose at higher levels than recently seen. Both indices have moved closer to the long-standing target inflation rate of 2%. The Federal Reserve and Bank of Canada have indicated that they will begin raising interest rates once an average of 2% inflation is reached. The fear is that growth would need to be trimmed to control inflation before economic recovery is fully achieved. Rates are at the bottom of their effective range, and since they cannot be lowered, eventually they will rise. The reaction in equity markets seems to account for a long-term basis, and interest rate increases are not expected in the near term 

https://www150.statcan.gc.ca/n1/daily-quotidien/210217/dq210217a-eng.htm

https://www.bls.gov/ppi/#news

https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/markets-week

What’s ahead for this week and beyond?

In Canada, it will be a relatively light week for economic data announcements with employment data for December the lone major event on the calendar. To fill the news void, the Canadian major banks will all release their most recent quarterly performance on three middle days of the weekSince these stocks are so widely held their results are meaningful to almost every Canadian investor. 

In the U.S., housing data will be well represented in news releases as January’s new home sales and pending sales will be released. Federal Reserve Chair, Jerome Powell, will testify before the House Financial Services Committee and will likely reaffirm his organization’s continued support for economic recovery through monetary policyJanuary’s consumer spending and income, durable goods orders will also be released. 

Last Week in the MarketsFebruary 8 – 12, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Several positive influences created an all-green grid (above) and set records for the TSX and the S&P 500Even the safe haven of gold improved as equities didPositive news elsewhere, particularly in the U.S., typically leads to positive results hereLast week was no exception: 

  • Coronavirus infections, hospitalizations and deaths continued to improve globally 
  • Corporate earnings in Canada and the U.S. provided optimistic news that was generally better than expected 
  • Stimulus measures in the U.S. built additional momentum for their eventual enactment 
  • Janet Yellen, the new Secretary of the Treasury, indicated that recovery could be swift if stimulus measures can be bold enough 
  • The Federal Reserve indicated that it would continue to support recovery in the long term as U.S. inflation has not shown itself and consequently will not need to be trimmed with higher interest rates in the near future 
  • The U.S. dollar faltered slightly, which allowed the Canadian dollar to advance against it and allowed the price of gold and oil to rise 

Improvements still remain possible on the dual fronts of vaccine development and distribution, and the gains made to-date have yet to include all of these two still unrealized areas. 

Lastly, on Saturday at 3:49 pm Eastern Donald Trump was acquitted in his second impeachment trial when 57 Senators voted guilty and 43 Senators said, not guiltymostly along party linesA two-thirds majority (67 votes) is required for conviction. 

What’s ahead for this week and beyond?

In Canada, even with markets closed on Monday for various provincial observances the economic releases will include December’s retail sales, manufacturing sales and new orders, and January’s housing starts, new housing price index, existing home sales and price averages and inflation via the Consumer Price Index (CPI). 

In the U.S., markets will also be closed for Washington’s Birthday (also known as Presidents’ Day)Scheduled for release during the shortened week are December’s retail sales and business inventories, January’s industrial production and capacity utilization, building permits, housing starts and existing home sales. 

Last Week in the Markets: February 1 – 5, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

Overall, it was one of the best 5day trading sessions for equitiesThe major North American indices and the All-Country World Index (ACWI) jumped 4 to 6%The ACWI, TSX and the S&P 500 reached new all-time highsThe performance for last week pulled the indices out of negative territory for 2021 Year-to-Date (YTD), except the NASDAQ which was already positive for the yearThe advances were broad based, especially on the TSX and S&P 500 where every sector made positive contributions. 

Weekly gains like these were last delivered nearly a year ago but were partially recovering losses that had just occurredThe year-over-year results have all of the indices ahead of their pre-pandemic levels. 

Most of last week’s success relied upon progress in Washington toward a stimulus packageThe alignment of the House of Representative, the Senate and the Presidency to Democrat-control has made passing resolutions and legislations easierSome may disagree with the policies or the methods being put forth, but the stalemate seems to have been broken. 

It was not all good newsIn the U.S. employment growth has slowed with only 49,000 jobs added in JanuaryThe unemployment rate is 6.3% with 10.1 million unemployed “well above their pre-pandemic levels in February 2020 (3.5% and 5.7 million, respectively)”In Canada employment fell by 213,000 in January pushing the unemployment rate to 9.4%the highest rate since August 2020. 

https://www.bls.gov/news.release/empsit.nr0.htm
https://www150.statcan.gc.ca/n1/daily-quotidien/210205/dq210205a-eng.htm

What’s ahead for this week and beyond? 

In Canada, we are settling in for one of the coldest weeks of the winter, if not the last few, for most of the countryThe economic release schedule seems stalled by the cold with very little of note plannedEarnings season continues with many firms reporting their latest results as we approach a new federal government budget announcement. 

In the U.S., relatively quiet week is also anticipated from scheduled economic releasesThe most important economic news will likely be centred around the stimulus legislationPositive progress toward enacting legislation will cause markets to improve, and the opposite is also trueThe trial of Donald Trump for his actions on January 6th will begin, which will test principles and allegiances for U.S. Senators. 

Last Week in the MarketsJanuary 25 – 29, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was a mixed week for economic data releases and news in-generalPlaced against optimistic expectations less than buoyant news and new investor activism caused equity markets to fall last week. 

  • The manufacture, delivery and administration of the vaccine has slowedThe completion of a new U.S. stimulus bill to combat the virus at the consumer and household level has been delayed by political machinationsU.S. Gross Domestic Product (GDP) for the fourth quarter and durable goods orders fell short of expectations. 
  • Thankfully Canadian GDP was better than expected for November, which could suggest that firms are adapting reasonably well to the operating conditions that they have been facing for nearly one year. 

On Wednesday, the U.S. Federal Reserve made its interest rate decisionLike our Bank of Canada “the Fed” has indicated that it will hold the benchmark lending rate steady until inflation rises to an average of 2%, which will prove that economic expansion has occurred in a sustainable mannerJerome Powell, Federal Reserve Chair, announced that the Federal Funds rate would remain unchanged and stay in the range between 0 and ¼ percent. https://www.federalreserve.gov/newsevents/pressreleases/monetary20210127a.htm 

What’s ahead for this week and beyond?

In Canada, the latest employment numbers, for January, are scheduled for release on Friday before markets openAlso, trade deficit data for December and the purchasing managers index are on the calendar. 

In the U.S., purchasing managers indices for products and services are scheduled along with the trade deficit reportJanuary’s jobs numbers for non-farm payroll will provide additional guidance for a stimulus bill and counter offers as the negotiations continue between Republicans and Democrats. 

Last Week in the Markets January 18 – 22, 2021  

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

On Wednesday, the Trump presidency concluded with the Inauguration of President Biden at the U.S. Capital, the scene of riots just two weeks earlierOnce in power Biden immediately signed nearly twenty Executive OrdersMost reversed his predecessor’s policies or were focused on combating the coronavirus by increasing the manufacturing of protective equipment, vaccines, and testing, requiring masks on Federal property and during interstate travel, and identifying additional treatment options. 

One of the executive orders revoked permission for the Keystone XL pipeline, which is “devastating for Alberta”.  President Obama’s decision to ban cross-border shipments via this pipeline was reversed by Trump, and then reversed again by the new President of the United StatesThe strength of this action based on its timing and lack of consultation with Premier Kenney or Prime Minister Trudeau suggests that there is little appetite for Biden (or Trudeau) to negotiate this decisionEconomically and politically this is troubling news for Alberta and Canada, and those holding senior offices, federally and provincially.
https://www.theglobeandmail.com/opinion/article-the-scrapping-of-keystone-xl-is-devastating-for-alberta-and-jason/
https://www.theglobeandmail.com/politics/article-with-a-more-important-fight-to-win-trudeau-is-prepared-to-surrender-in/  

Also, on Wednesday, the Bank of Canada made its latest interest rate announcement amid the continuing environment of historically low interest ratesThe “effective lower bound has described the overnight rate at ¼ of a percentThe possibility of a “micro cut” had been the subject of speculation ahead of the Bank’s decision to hold the rate unchanged.
https://www.bankofcanada.ca/2021/01/fad-press-release-2021-01-20/
https://www.theglobeandmail.com/business/article-market-eyes-boc-ahead-of-possible-policy-rate-microcut/  

What’s ahead for this week and beyond?

In Canada, pandemic effects will be expressed in our economic activity as November’s Gross Domestic Product (GDP) is releasedDecember’s building permits and raw materials price index is also on the schedule. 

In the U.S., the Federal Reserve will release its interest rate decision on WednesdayA number of indicators from December are also scheduled: durable goods orders, personal income and spending, new home salesOn Monday, the House of Representatives will be sending the Articles of Impeachment for Donald Trump to the Senate triggering a trial that is scheduled to begin on February 8th.
https://nyti.ms/2Y7n04x  

Last Week in the Markets: January 11 – 15, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The coronavirus and political turmoil in the United States had a strong hold on equity markets last weekCase counts and hospitalizations have not improved and concerns that impeachment proceedings would slow the legislative agenda for the incoming U.S. administration hurt most indices, except for the S&P500. 

Iits quarterly “Business Outlook Survey” released on Monday, the Bank of Canada indicated that businesses were poised to move positively forward prior to the latest round of lockdownsMore than half of firms expected revenuestaff and investments to increase this yearSurveys were conducted during the second half of November and into early December prior to the latest round of lockdowns. Similar sentiments are held in the U.S. where many businesses expect late 2021 and 2022 to be the timing of a resurgence of economic activity that must wait for the vaccine to be administered widelySurviving the winter and into the summer is the most pressing priority for many businesses, especially after news that the stores of vaccine earmarked for second doses are unavailable as the Trump administration concludesFirms on both sides of the border are less optimistic than they have been and have been moving the timing of economic recovery further into the future. 

https://www.theglobeandmail.com/business/economy/article-boc-says-business-hiring-investment-outlook-was-improving-heading-into/

https://www.bankofcanada.ca/2021/01/business-outlook-survey-winter-2020-21/

https://www.nytimes.com/2021/01/11/business/economy/coronavirus-business-outlook.html  

StatsCan data supports this pessimismIts recently released employment numbers show employment fell by 63,000 in December, the first decline since AprilUnemployment remained almost unchanged since November at 8.6%Also reflecting lowering expectations, the number of people seeking work, Labour Force Participationfell for the second consecutive monthhttps://www150.statcan.gc.ca/n1/daily-quotidien/210108/dq210108a-eng.htm  

What’s ahead for this week and beyond?

In Canada, the Bank of Canada will release an interest rate decision on WednesdayThere is little, if any, room to move rates to spur economic activity, and would most likely be overwhelmed by coronavirus setbacksDecember’s Consumer Price Index along with November’s retail sales will provide insights into our recovery.

In the U.S., the data scheduled for release revolves around housing with December’s building permits, housing starts and existing home sales on the calendarThe biggest event will be the inauguration of Joe Biden on January 20th and his immediate plans for stimulus, Covid-19 measures and a longer-term infrastructure plan.

Last Week in the Markets: January 4 – 8, 2021  

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It appears that Canadian equities benefited frodevelopments elsewhere, particularly in the United States, rather than local to news to cause Canadian equities to riseA strengthening U.S. economy, our largest trading partner, is always positive for Canadian investors. 

  • On Wednesday two Democrat Senate candidates defeated the Republican incumbents in run-off electionsWith Democrats poised to control the White House, Senate and House of Representatives, a robust stimulus package will more likely materialize quickly and has already provided encouraging economic newsFor example, the price of oil has rose 8% last week, and the Energy sector led the TSX to a 3½% gain. 
  • Wednesday was also one of the most important days in American democracyThe ballots of the Electoral College were to be counted and certified by the Vice-President, Mike PenceFollowing a speech by Trump that inflamed his supporters, thousands of his most ardent supporters marched on the Capital and seized it. https://globalnews.ca/video/7560200/trump-mob-storms-capitol-hill-halts-biden-confirmation  
  • By 4 a.m. on Thursday order had been restored and the Electoral College vote was finally certifiedThe overnight markets and futures indicated that the confirmation of Joe Biden will be a positive for markets. The new administration is predicted to better manage the pandemic and pass important legislation smoothly, like the long-promised infrastructure billhttps://www.nytimes.com/2021/01/08/us/politics/biden-economy-pandemic.html  
  • News soured by early Friday when the Bureau of Labor Statistics in the U.S. reported that employment fell by 140,000 jobs in December and the unemployment rate remained unchanged as workers abandoned the job search10.7 million Americans are officially jobless and 6.7% are unemployed, both measures are nearly double the pre-pandemic levelsHowever, the positive political news continued to power markets at the end of the week.
    https://www.bls.gov/news.release/empsit.nr0.htm  

What’s ahead for this week and beyond?

In Canada, a quiet week for economic announcements is scheduled with the Bank of Canada’s business survey for the 4th quarter and December’s existing home sales on the calendar. 

In the U.S., a robust week includes December data for industrial production and capacity utilization, retail sales and inflation with Import and Export price indices and Producer and Consumer price indices.

Last Year in the Markets – January 2 – December 31, 2020

 

(source: ARG analysis, Bloomberg and MSCI)

What happened in 2020? 

A more contrite question might be “what didn’t happen in 2020?”  Along many dimensions, it was very difficult and volatile year for Canadians and almost everyone on the planet, because of many factorsIn addition to the coronavirus, we endured government reactions to the pandemic, a contentious U.S. election cycle, the continuation of the Brexit saga, on-going trade tensions between and among many nations, and racial unrest and protest to name a few of the challenges we faced last year. 

Financially, at least, the year ended much better for capital markets than was expected in early spring and during the summer2020 had a “Bull-Bear-Bull” cycle over the course of the last twelve monthsAll of the major North American equity indices finished in positive territory, which seemed almost unimaginable after markets lost one-third or more of their value by mid-March 

By midyear, even after a slight market recovery, many investors felt that several years of savings and gains had been lost foreverFor those with patience and who held the market broadly enough to mimic the major indices, far better results were achieved than permanent lossesAt its worst 2020 delivered little or no gain, and at its best investors overweight in technology stocks experienced excellent results. 

(source: ARG analysis, Bloomberg)

Overall, the TSX performed the worst among the major North American equity indices returning slightly more than 2% for the yearAt the other end of the spectrum was the NASDAQ that delivered over 43%The Dow and S&P 500 returned 7% and 16%, respectively, by the end of 2020. 

Since each index has a unique composition and concentration of firms, each of which are affected differently, provides some insight into overall performance 

  • TSX 
  • concentration on financial services firms and banks with potential increases in loan defaults and energy (oil and gas) with decreased global demand = 2.17% 
  • Dow 
  • 30 very large U.S. corporates that are unable to respond quickly to unpredictable and large effects of a global pandemic = 7.25% 
  • S&P 500 
  • 500 US corporations with diversification that, on average, are smaller and more agile than the Dow = 16.26% 
  • NASDAQ  
  • concentration on technology stocks that benefited from the move to remote work and online spending = 43.64% 

One year ago, 2020 started well for equity markets with solid gains being posted over the first seven weeks of the year, despite a small dip in JanuaryUnfortunately, most of us were unaware that the coronavirus was gathering strength as it spread in Asia, Europe, and North AmericaThe efficiency of markets was displayed in late February when the success that most investors had been enjoying quickly reversed itselfOver the next month the value of equity indices dropped by 30-40% as the extent and severity of the then epidemic was growing. 

In the autumn after about 6 months of increased volatility, North American indices had recovered sufficiently to erase the losses of February and MarchA local peak was reached in September followed by a short period of lossesThe last quarter of the year saw a challenge to the steady progress against the pandemic as measures were relaxed, which led to a resurgence of cases, hospitalizations and deaths across Canada, the U.S. and western Europe, which comprises the largest economies other than China and JapanDespite the worsening of the pandemic, equity indices performed very well in November and December. 

An apparent disconnect between economic performance and stock market values has emerged since equities are climbing as the virus’ return forces new restrictions on businessesMany of the market rebounds in 2020 have seemed to rely upon the future results of current actions 

Monetary policy decisions by the Federal Reserve and the Bank of Canada to maintain very low interest rates, to indicate that rates will not rise until inflation returns and to purchase high volumes of bonds to promote liquidity factored heavilyMarkets saw these actions as positive, which they are, but rates were already low and expected to remain at the bottom end of their effective rangeIn the U.S., the initial stimulus package provided some relief for businesses and households, but many months passed before any additional, substantive relief was discussedThe second wave of cheques from Congress have yet to be dispersed. 

In Canada, our government’s actions were far from perfectmany corrections and clarifications had to be issued after initial rounds of both fiscal and public health initiatives were undertakenFrom a positive perspective money was put directly into the hands of Canadians to provide economic, social, and emotional securityThe financial bill has yet to be tallied and will likely far exceed estimatesHowever, when the time to pay arrives we should be in much better condition than had we taken a minimalist approach. Time, of course, will tell. 

Progress on an effective coronavirus vaccine has provided plenty of upward pressure on equities, but substantial revenue increases, for most firms, will not materialize until more normality returnsOnce real and predictable progress is made against the pandemic, the gap between economic performance and equity valuation will narrow. 

What’s ahead for January and beyond?

For equitiesprofitability drives a company’s stock price and market value over the long-term, not the promise of a vaccine or stimulus checks for individualsBusinesses will need substantial assistance to begin a sustainable rebuilding of their firms and in-turn, the Canadian economy. 

To prepare for 2021 and beyond, Finance Minister, Chrystia Freeland, provided an economic update at the end of NovemberAdditional stimulus of $70-100 Billion has been planned once the pandemic is under control and the stimulus is expected to be parsed out over the next three Federal fiscal yearsFurther details are expected to be released in the 2021 Federal Budget in late February or early March. The projected budget deficit for this year has been updated to $381 Billion, $121 Billion for 2021/22 and $50 Billion for 2022/23The stimulus package, when presented inside the next Federal budget, will make it a confidence vote, which could end the current Liberal minority government’s rule and cause a spring electionVideo of the announcement from CBC is found at https://www.cbc.ca/player/play/1825866819963 

Public health measures are being renewed and strengthenedA summary can be found at https://www.theglobeandmail.com/canada/article-coronavirus-rules-by-province-physical-distancing-open-closed/  

The public health success against Covid-19 domestically and internationally will continue to affect financial markets as 2021 unfoldsMuch success in vaccine development has occurredUnfortunately, the predicted vaccination schedule has been too optimistic. 

Vaccinating those most at risk like healthcare workers, the elderly and those with severe, existing health issues, will require additional calendar time, delaying vaccinations for the rest of the populationUntil herd immunity is effectively achieved a return to everyday life will elude usWithout a return to everyday life pressure on many businesses that comprise indices will persist. 

Essentially, two approaches are available for investors; 1) remain patient or 2) focus on investments that can withstand additional downturns and could benefit from the eventual success against the pandemicRegardless of your chosen approach, I recommend a conversation to confirm plans and strategies since we have concluded the most difficult year in decades, if not a century.

Last Week in the Markets: December 14 – 18, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

News regarding vaccine development pushed North American and international equity indices upward at the beginning of the week. By Friday, the optimism for the end of the pandemic had faded as the number of cases, hospitalizations and deaths continued to escalate. Growing concerns regarding the manufacture, storage, delivery, administration, tracking, dosing and staff training for the largest global medical effort slowed markets after the initial excitement of emergency approvals waned.

Another significant negative influence on markets in the U.S. is the lack of a new stimulus deal from Congress to assist American families and businesses. Negotiations between the Republican-controlled Senate and the Democrat-led House are expected to run through the holiday season. https://www.theglobeandmail.com/opinion/editorials/article-the-vaccines-are-here-is-canada-ready/
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-world-stocks-subdued-by-brexit-us-stimulus-doubts/

In Brussels, Brexit negotiations between the EU and the U.K. have not reached an agreement with the ultimate deadline of December 31st looming. Without trade treaties that facilitate labour mobility and trade, the pandemic ravaged economies of Europe will suffer further damage.  https://www.cbc.ca/news/world/boris-johnson-eu-post-brexit-trade-talks-to-continue-1.5839560

The Bank of Canada (BoC) kept the overnight rate unchanged at ¼ % with interest rates at the bottom end of their effective range and our economy suffering from the pandemic. The BoC will also continue to purchase bonds at the rate $4 Billion per week to maintain liquidity in capital markets. Interest rates are projected to stay at very low levels until “the 2 percent inflation target is sustainably achieved. In our October projections, this does not happen until into 2023”.  https://www.bankofcanada.ca/2020/12/fad-press-release-2020-12-09/

What’s ahead for this week and beyond?

In Canada, October’s manufacturing and retail sales will provide insight into our economic recovery at the industrial and personal level. November’s Consumer Price Index that tracks inflation for households is expected to reflect the low level of economic activity associated with pandemic restrictions.

In the U.S. this Wednesday, it will be the Federal Reserve’s turn to announce monetary policy. A number of economic indicators displaying November data are also on the schedule; housing starts and building permits, import and export price indices, industrial production and capacity utilization, and retail sales.

 

Last Week in the Markets: December 7 – 11, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

News regarding vaccine development pushed North American and international equity indices upward at the beginning of the week. By Friday, the optimism for the end of the pandemic had faded as the number of cases, hospitalizations and deaths continued to escalate. Growing concerns regarding the manufacture, storage, delivery, administration, tracking, dosing and staff training for the largest global medical effort slowed markets after the initial excitement of emergency approvals waned.

Another significant negative influence on markets in the U.S. is the lack of a new stimulus deal from Congress to assist American families and businesses. Negotiations between the Republican-controlled Senate and the Democrat-led House are expected to run through the holiday season. https://www.theglobeandmail.com/opinion/editorials/article-the-vaccines-are-here-is-canada-ready/
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-world-stocks-subdued-by-brexit-us-stimulus-doubts/

In Brussels, Brexit negotiations between the EU and the U.K. have not reached an agreement with the ultimate deadline of December 31st looming. Without trade treaties that facilitate labour mobility and trade, the pandemic ravaged economies of Europe will suffer further damage.  https://www.cbc.ca/news/world/boris-johnson-eu-post-brexit-trade-talks-to-continue-1.5839560

The Bank of Canada (BoC) kept the overnight rate unchanged at ¼ % with interest rates at the bottom end of their effective range and our economy suffering from the pandemic. The BoC will also continue to purchase bonds at the rate $4 Billion per week to maintain liquidity in capital markets. Interest rates are projected to stay at very low levels until “the 2 percent inflation target is sustainably achieved. In our October projections, this does not happen until into 2023”.  https://www.bankofcanada.ca/2020/12/fad-press-release-2020-12-09/

What’s ahead for this week and beyond?

In Canada, October’s manufacturing and retail sales will provide insight into our economic recovery at the industrial and personal level. November’s Consumer Price Index that tracks inflation for households is expected to reflect the low level of economic activity associated with pandemic restrictions.

In the U.S. this Wednesday, it will be the Federal Reserve’s turn to announce monetary policy. A number of economic indicators displaying November data are also on the schedule; housing starts and building permits, import and export price indices, industrial production and capacity utilization, and retail sales.

 

Last Week in the Markets: November 30 – December 4, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a record-setting week for American equity indices. The S&P500 and the NASDAQ reached new all-time highs as the Dow breached the 30,000 level again. The TSX with less lofty achievements did reach year-to-date returns of nearly 3% and continues to edge toward its peak in February.

Federal Finance Minister, Chrystia Freeland, provided an economic update. Additional stimulus of $70-100 Billion has been planned for the next three years set to begin once the pandemic is under control.  Further details will be released in the 2021 Federal Budget in late February or March. The projected budget deficit for this year has been updated to $381 Billion. Video of the announcement from CBC is found at https://www.cbc.ca/player/play/1825866819963

The latest details of the current Canada’s Covid-19 Economic Response Plan are available here: https://www.canada.ca/en/department-finance/economic-response-plan.html#industry

The major Canadian banks beat analyst expectations as they delivered their quarterly financial reports.  Profits have declined from the same period one year ago, but bested analyst projections with lower loan-loss provisions since the delinquency and default rates have been better than anticipated. It appears that Canadians have been more financially resilient to this point in the pandemic. https://www.theglobeandmail.com/business/article-td-profit-tops-forecasts-as-loan-loss-provisions-ease-wholesale-unit/

The unemployment rate in the U.S. has fallen slightly to 6.7% as 245,000 jobs were added in November, which was the seventh consecutive month of job increases since the onset of the pandemic. Recovery remains elusive without a stimulus package agreed at the legislative level and as nearly 5 million more Americans are unemployed compared to February.  https //www.bls.gov/news.release/jec.nr0.htm https://www.nytimes.com/video/us/politics/100000007486804/pelosi-coronavirus-stimulus-deal.html

What’s ahead for this week?

In Canada, the Bank of Canada will announce its latest interest rate decision on Wednesday. Governor Macklem indicated in the last decision that the rate will remain low until we have recovered economically from the pandemic.  Further measures could be taken regarding market liquidity.

In the U.S., the most important economic information scheduled will be the inflation numbers contained in the Consumer Price Index and the Producer Price Index from November.

 

Last Month in the Markets: November 2 – 30, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened in November?

After two consecutive months of “all red” grids, markets returned to the performance displayed in August when increasing values dominated and gold was the only indicator that lost value.

During November, North American and global equity indices surged ahead by 10 to 12 percent. Allowing the TSX to end the month with both its Year-to-Date and Year-over-Year back in positive territory, the first time it has been achieved since late February. The Dow bested the NASDAQ in monthly returns, which has not occurred since September 2019. This indicates a positive relativity for major U.S. corporates compared to technology stocks, especially when the Dow’s slight November “win” is held in context of the Dow and NASDAQ’s Year-to-Date performance of 3.86% and 35.96%, respectively.

(source: Bloomberg https://www.bloomberg.com/markets and ARG Inc. analysis)   

This improving market performance for equities occurred during the backdrop of the U.S. elections of November 3rd and the advance of the pandemic.

  • As predicted, the outcome of the presidential election was delayed. The result hinged on the counts and recounts in Wisconsin, Pennsylvania, Michigan, Arizona and Nevada.
  • Also, as predicted, Donald Trump promoted his own legal challenges by questioning absentee, advance and mail-in voting procedures in several states. A sitting President, who is seeking re-election, contesting the results created fear for many that turmoil, political unrest and violence would result. Thankfully, the unfounded allegations have been dismissed in courts across the U.S. and it appears that a peaceful, smooth and delayed transition has finally commenced.
    • For markets, especially equities in the U.S., this turmoil followed by increasing calm, albeit slow to arrive and small in stature, has given markets a boost.
  • Infections, hospitalizations, and deaths continue to rise globally, particularly in the United States where daily rates are approaching and surpassing the peaks of late spring and summer.
  • AstraZeneca provided positive vaccine development news to counter disease spread, adding to announcements by other vaccine makers. Earlier in the month Moderna announced that their coronavirus vaccine, which utilizes a similar RNA-based process as Pfizer, was equally effective at a 95% level of efficacy. The success of the first two companies who are using similar technologies lends credence to each other’s efficacy claims. The results from dozens of additional vaccine efforts have not been shared and their success could further support this early progress.
  • Unfortunately, the vaccines are not available immediately. At this point in their development, both the Moderna and Pfizer solutions require extreme refrigeration and two separate doses to be safe and effective. The logistics surrounding the production, shipping, delivery, storage and administration of the vaccine is daunting. https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-global-stocks-head-for-record-high-on-recovery-vaccine/
    https://www.nytimes.com/2020/11/18/health/pfizer-covid-vaccine.html
    https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-world-stocks-catch-breath-after-vaccine-euphoria/

What’s ahead for December and beyond?

On Monday, November 30th Finance Minister, Chrystia Freeland, provided an economic update.  Additional stimulus of $70-100 Billion has been planned once the pandemic is under control and is expected to continue for the next three Federal fiscal years. Details will be released in the 2021 Federal Budget in late February or March. The projected budget deficit for this year has been updated to $381 Billion, $121 Billion for 2021/22 and $50 Billion for 2022/23. The stimulus package, when presented inside the next Federal budget, will make it a confidence vote, which could end the current Liberal minority government’s rule and cause a spring election. Video of the announcement from CBC is found at: https://www.cbc.ca/player/play/1825866819963

The public health success against Covid-19 domestically and internationally will continue to affect financial markets as we conclude 2020. In the next several weeks expect updates and confirmations to key tax filing dates, government payment amounts and RRIF withdrawals for 2021.

 

Last Week in the Markets November 23 – 27, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Despite elements of turmoil elsewhere, especially the political and legal kinds, it was a relatively lighter week as the American Thanksgiving holiday was observed on Thursday. U.S. markets were closed on Thursday and operated with limited hours on Friday. Two competing forces affected market values last week: the expanding spread of the coronavirus and optimism regarding the progress of vaccine development. Infections, hospitalizations and deaths continue to rise globally, particularly in the United States where daily rates are approached and surpassed the peaks of late spring and summer. AstraZeneca provided positive vaccine development news to counter disease spread, adding to earlier announcements by Moderna and Pfizer that a viable vaccine has been proven effective and relatively safe.

At the moment the positive news is besting the negative effects of the pandemic’s spread as the major indices in North America made solid gains of more than 2% last week. The Canadian dollar strengthened in tandem with the price of oil, which are both signs of international confidence in Canada.

Canadians are facing similarly dire Covid-19 news across the country. In addition to the public health measures new federal financial support for individuals and commercial tenants has been announced. The latest details of Canada’s Covid-19 Economic Response Plan: https://www.canada.ca/en/department-finance/economic-response-plan.html#industry

What’s ahead for this week?

In Canada, the Federal Finance Minister, Chrystia Freeland, will deliver an economic update. The overall health of the government and the spending to-date on coronavirus release will be outlined, but the detail is expected to be more focused on the next few months and year, than the last 8 months when Bill Morneau ran this portfolio. https://www.theglobeandmail.com/business/article-heres-what-to-look-for-in-ottawas-coming-fiscal-update/

The schedule for releases for the next few weeks includes September’s Gross Domestic Product, October’s building permits and raw materials price index and November’s employment report. Collectively the statistics will provide additional insight into Canada’s economic health.

In the U.S., pending home sales, durable goods orders, construction spending and the trade balance, all for October, will be released along with November’s employment report.

 

Last Week in the Markets November 16 – 20, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

For the second consecutive Monday positive vaccine news drove North American and global equities upward initially, and then delivered mixed results by week’s end. The TSX, oil and the Canadian dollar gained last week, which is welcome news for most Canadian investors as the promise of re-opening and recovering economies will depend on coronavirus vaccines in the long run.

Moderna announced that their coronavirus vaccine, which utilizes a similar RNA-based process as Pfizer, was nearly 95% effective. Pfizer provided another update lasty week on its vaccine that equaled the efficacy of Moderna’s. The success of the first two companies that are using similar technologies lends credence to their efficacy claims. We have not heard results from dozens of additional vaccine efforts, which could also support this early progress.

Unfortunately, the vaccines are not available immediately. At this point in their development, both the Moderna and Pfizer solutions require extreme refrigeration and two separate doses to be safe and effective. The logistics surrounding the production, shipping, delivery, storage and administration of the vaccine is daunting. If the good news continues it will likely be late 2021 before significant numbers of people have been vaccinated to allow daily life and economic activity to resemble “normal”.
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-global-stocks-head-for-record-high-on-recovery-vaccine/
https://www.nytimes.com/2020/11/18/health/pfizer-covid-vaccine.html
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-world-stocks-catch-breath-after-vaccine-euphoria/

Measures have been renewed, and in some provinces and cities they have been strengthened. It is necessary to remain informed and current for your province, region and city, and in your destination for domestic travel.  A summary of the latest measures can be found at https://www.theglobeandmail.com/canada/article-coronavirus-rules-by-province-physical-distancing-open-closed/

What’s ahead for this week?

In Canada, no important economic data is scheduled for release. Coronavirus news will dominate as the Federal Government will release details of new and refreshed programs to counteract the reintroduction of measures to slow the spread of the coronavirus.

In the U.S., expect the news on the pandemic to continue its current trajectory as October information is released on personal income and spending, new home sales, and durable goods orders.

 

Last Week in the Markets November 9 – 13, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

North American equities benefited from more certainty regarding the outcome of the U.S. elections and progress toward a vaccine. Monday benefited from Pfizer’s positive news from its vaccine trial. The headline “90% effective” pushed markets ahead all week long. Some of the vaccine optimism waned once distribution challenges were examined and discussed. Jerome Powell, Federal Reserve Chair agreed that the news regarding a vaccine was positive in the medium and long term and reminded everyone that the short term would remain challenging. Equity markets responded positively in the very short term with gains last week. The NASDAQ, heavy in technology stocks, was the only equities index in our grid that lost ground. Earnings expectations have been high for technology stocks, and when revenue and earnings disappoint downward movement usually ensues.  https://www.theglobeandmail.com/investing/markets/inside-the-market/article-before-the-bell-what-every-canadian-investor-needs-to-know-today-496/    https://www.nytimes.com/live/2020/11/13/world/covid-19-coronavirus-updates

The Bank of Canada (BoC) changed its direction on monetary policy, federally and provincially, last week.  It will end purchases of provincial money-market securities and reduce purchases of federal treasury bills.  Both programs involved short-term debt (>12 months) that governments rely upon to fund day-to-day operations. The BoC indicated that these decisions were enabled by “improvements in the functioning of short-term funding markets and financial markets more generally”, which is good news. https://www.theglobeandmail.com/business/article-bank-of-canada-further-reduces-money-market-operations-as-market/

Unfortunately, the news surrounding Covid-19 in Canada has been negative lately as new cases, hospitalizations and deaths are rising. Provincial governments and local health authorities are responding to pandemic failings with renewed restrictions which will slow, if not reverse economic progress that had been achieved.  https://www.theglobeandmail.com/canada/article-coronavirus-rules-by-province-physical-distancing-open-closed/

What’s ahead for this week?

In Canada, October inflation through the Consumer Price Index (CPI) will be released along with housing starts for the same period. Retail sales for September will provide some insight into our recovery.

In the U.S., more presidential election angst is anticipated as a broad array of October data is scheduled for release; industrial production and capacity utilization, existing home sales, housing starts and building permits, and import and export price indices.

 

Last Week in the Markets November 2 – 6, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was an “all green” week for the grid (above) as the election results gathered momentum in favour of Joe Biden, eventually declared the winner by news outlets over the weekend. The Electoral College vote remains, as well as lawsuits that will challenge the vote in many U.S. states. For equities it was the first “all green” week since the end of August, and the best 5-day session since the first full week of April.

It appears that the markets are rewarding the prediction that gridlock will return to Washington, and not cause major changes. A Democrat president and a Republican Senate will stalemate one another, and this lack of mandate and power will cause the trajectory to continue for equities. An alternate reason could be that “things haven’t gotten much worse”, but in the short-term markets have performed well. Expect volatility to continue as legal action succeeds and fails over the next weeks. election source

The pace of recovery around the world and in North America is slowing. The gains in employment have been the low-hanging-fruit during the reopening. The next layers of jobs will be harder to achieve and could be reversed with the number of Covid-19 cases rising.

  • In Canada, 83,600 new jobs were added last month which moved the unemployment rate down slightly by 0.1% to 8.9%. Jobs growth has slowed significantly from August and September when 246,000 and 378,000 were added, respectively. Despite recovering nearly 80% of the lost jobs, about 635,000 fewer people are employed now than before the pandemic began. Cda jobs source
  • The U.S. employment report released on Friday by the Bureau of Labor Statistics showed that 638,000 jobs had been added in October and unemployment fell to 11.1 million or 6.9%. Both of the last two numbers are roughly double their February levels of 5.8 million unemployed and a rate of 3.5%. US jobs source

What’s ahead for this week?

In Canada, it will be a quiet week for economic releases, but will likely include some limited acts of diplomacy as election results in the U.S. are analyzed, contested and confirmed, or delayed and denied.

In the U.S., October’s inflation numbers are scheduled for release through the Consumer Price Index (CPI) and the Producer Price Index (PPI).

 

Last Month in the Markets October 1 – 31, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened in October?

Last month was particularly unkind to North American equity investors. A minor peak before mid-month started a week-long slide in equity values. The five trading days ending October 30th was the worst week for the major indices in North America since March 20th. October’s second-half and overall drop was driven largely by the pandemic’s resurgence. After declining numbers of new cases through September, the U.S. reported higher new cases during the last week of October than the peaks of 74,000+ per day in July. Canadian cases began to rise earlier, at the start of September, and continued throughout October reviving the need for business and social restrictions across our country. covid source 1  covid source 2  covid source 3

In March, more than six months ago, we faced a great deal of unknowns regarding the virus, the disease, and measures to treat it, as well as slow its spread. Governments around the world, and in Canada, are struggling with the appropriate balance of public health measures and economic recovery actions.

(source: Bloomberg https://www.bloomberg.com/markets and ARG Inc. analysis)                                                         

Seemingly a long time ago, sensational coronavirus news arrived at the beginning of October when President Trump contracted the coronavirus. The lack of credible information regarding his condition fueled uncertainty in markets on October 2nd. After gains on Wednesday and Thursday of that week, Trump’s announcement in the early hours of Friday contributed to losses on the last day of that week when the NASDAQ dropped 2.2% of its value during a single trading session.  Trump covid source

Negative U.S. employment news also intensified the drop on October 2nd.  Only 661,000 American jobs were added during the month of September. This left 12.6 million Americans still unemployed and the unemployment rate at 7.9%. For comparison, in February before the pandemic, 6.8 million Americans were unemployed and the unemployment rate was just 4.4%, a historically low level. US employment source

Canada’s recovery has also slowed. Gross Domestic Product (GDP) grew 6.5% in June and only 3% in July. June’s strong rebound was slowed in July. Again, for comparison, July’s Canadian GDP was 5.8% below the output measured in February. July GDP source

On Tuesday, October 13th the International Monetary Fund (IMF) revised its prediction for global economic recovery, predicting 2020 economic activity as a 4.4% contraction compared with 2019. The IMF predicted that the Canadian economy would shrink 7.1% in 2020 and then grow 5.2% in 2021. The IMF placed our performance below global numbers and for other developed economies. IMF source

October 18th was Nancy Pelosi’s self-imposed deadline to agree on a new stimulus package to support Americans. As the Democrat’s House leader, she and Steve Mnuchin, Secretary of Treasury negotiated past the deadline until the end of the week. No compromise was reached. Nancy Pelosi was portrayed as inflexible and the White House was viewed as focused on political games. Both positions were and continue to be unhelpful for struggling Americans, the economy and capital markets. Stimulus deal source

On an individual level, highly punitive taxes on the recently introduced Canada Recovery Benefit for self-employed individuals were enacted. It could provide a disincentive to taking on additional work. A conversation with your licensed tax practitioner is recommended to better understand this development for those working for themselves. CRB source

What’s ahead for November and beyond?

Canadian investors will face two major issues for the balance of the year and into 2021:

  • The Canadian, North American and global progress against the coronavirus will be a guiding influence for markets, especially equities. Until economies return to production and employment levels that approach pre-Covid days, companies will have their revenue, earnings and, ultimately, share values trimmed. The triangle defined by the cities of Buffalo, Pensacola and Fargo is seeing the highest levels of new infections as the pandemic moves to less populated areas and smaller cities across the United States. In 2016 Donald Trump received high enough levels of support from these geographically large, yet sparsely populated areas to win electoral votes and the presidency while losing the popular vote. Covid source
  • On November 3rd, the outcome of elections for Congressional Senators and Representatives, as well as for President, will determine the nature of any economic stimulus response and public health measures against the coronavirus. During the early days of November, and perhaps for weeks to follow, the results of the election may be unclear and contested. Uncertainty provides fuel for market volatility. election source

The next few weeks and months will likely be a bumpy ride, unless one side wins a landslide victory, and the pandemic is controlled effectively and quickly.

 

Last Week in the Markets October 26 – 30, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

After reviewing months of Weekly Market Updates, North American equities had their worst week since March. A major contributor to the downturn is the resurgence of the coronavirus pandemic in the United States as daily cases reached all-time high levels.

On Wednesday the Bank of Canada (BoC) provided an update on its monetary policy. The “overnight rate” is unchanged and remains at the effective lower boundary of 0.25%. The BoC has predicted that the rate will stay at low levels until 2023 when inflation has regained its target level of 1-3%. Also, bond purchases will be trimmed to $4 Billion per week from $5 Billion and be focused on maturities of 3 to 15 years. Canadian Gross Domestic Product rose by 1.2% in August and is projected at 0.7% for September.  The predicted slowdown in recovery accounts for sectors, like tourism, that will require significant time to regain their former performance. BoC source 1 BoC source 2  BoC source 3

In another forward-looking speech last week, Finance Minister Chrystia Freeland provided clues regarding the governing Liberals’ direction for federal finances. She is positioning her party as moving away from spending until rising inflation generates pressure on the economy. However, Minister Freeland did not indicate that spending would slow, either. Middle ground is being staked-out prior to the next budget cycle. Spending will be greatly influenced by the low interest rate environment which has reduced the debt servicing costs to about 7% of government revenues. This is far below 30% debt service to revenue ratios of the late 1970s and 1980s when high interest rates made government borrowing very expensive.  Expect stimulus spending to continue, while it is needed, and interest rates remain low.  Freeland source

What’s ahead for this week?

In Canada, October’s employment report is an important economic announcement scheduled for release. Also, each day’s domestic and international coronavirus trends will play an important role.

In the U.S., Election Day is Tuesday, November 3rd.  The results are typically known (and conceded) around midnight Eastern time, but the 2020 Presidential Election could have us waiting for days or weeks. There are pros and cons for Canadian investors regarding each candidate. This is especially true if you ask them to discuss their own strengths and their opponent’s weaknesses.

 

Last Week in the Markets October 19 – 23, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

StatsCan announced that September inflation has risen to 0.5% from July and August levels that both measured 0.1% rises in consumer prices. All are far below the target level of inflation, 2% per year, which allows and accounts for economic expansion. Inflation is essential for an economy to grow, and this small increase to a still very low level is an encouraging sign for the Canadian economy.   September inflation source

Tuesday was Nancy Pelosi’s self-imposed deadline to arrange a new stimulus package to support Americans during the pandemic. As the Democrat’s leader in the U.S. House of Representatives, she has been negotiation with Steve Mnuchin, Secretary of Treasury. By the end of the week, no compromise had been reached, and nearly all the time available for a deal before the election has expired. Nancy Pelosi is being portrayed as being unable to compromise and the White House is said to be focused on political games, not helping working Americans. Both positions are unhelpful. Stimulus deal link

The second and final Presidential Debate occurred between incumbent President Trump and former Vice-President, Joe Biden. This debate was, perhaps, less entertaining than their first exchange. Ultimately, the performance of each candidate will be judged on November 3rd, which is one week away.

It was also an action-packed week for other reasons in the U.S. with the World Series beginning on Tuesday night. The Tampa Bay Lightning and Los Angeles Lakers have already won the Stanley Cup and the NBA Championship, respectively, so either the Tampa Bay Rays and the LA Dodgers will make their city a two-sport winner in this year’s pandemic-shortened pro sports season.

What’s ahead for this week?

In Canada, on Wednesday the Bank of Canada will announce its latest interest rate decision and update on monetary policy. August Gross Domestic Product will also be announced, which will provide some guidance on how well the economy was rebounding before our latest pandemic setbacks.

In the U.S., a number of important indicators for September will be released in the next week or so; new home sales, pending home sales, personal income, personal spending, and durable goods orders. The U.S. announces economic news about one month sooner than Canada providing more current guidance for fiscal and monetary decisions.

 

Last Week in the Markets October 12 – 16, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

On Tuesday the International Monetary Fund (IMF) revised its prediction for global economic recovery, predicting 2020 economic activity as a 4.4% contraction compared with 2019. This is a less pessimistic stance than June when the loss in economic output was pegged at a 5.2% reduction. The IMF predicts that the Canadian economy will shrink 7.1% in 2020 and then grow 5.2% in 2021. Like the global numbers, the predictions for Canada have been upgraded since June, but our outlook is well below the global numbers and for developed economies.     https://www.theglobeandmail.com/business/economy/article-imf-sees-global-economy-contracting-44-in-2020-the-worst-plunge/

The coronavirus continues to wreak havoc on the U.S. economy, directly and indirectly:

New, highly punitive taxes on the Canada Recovery Benefit for the self-employed have been enacted. It could provide a disincentive to taking on additional work according to economists. A short conversation with your licensed tax practitioner is recommended to better understand this development. https://www.theglobeandmail.com/business/article-the-hidden-cost-of-ottawas-new-benefit-for-the-self-employed/

What’s ahead for this week?

In Canada, we will get a better understanding of our rebound this summer with the release of Canadian retail sales figures for August. Inflation for September through the Consumer Price Index will also be announced.

In the U.S., housing data will dominate the upcoming releases with housing starts, building permits and existing home sales for September scheduled.

 

Last Week in the Markets October 5 – 9, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

In a speech to the Global Risk Institute, Bank of Canada Chair, Tiff Macklem, said, “A full recovery from the pandemic will take a long time, and many risks remain.”  The rate of recovery in Canada and globally is slowing, and levels of infection are rising, which will slow recovery furtherThe Bank of Canada and all central banks have little room to manoeuvre with interest rates without going into negative territoryHis expectation is that interest rates will remain low for several years to contribute to economic recovery.
https://www.bankofcanada.ca/2020/10/covid-19-and-the-financial-system/
https://www.theglobeandmail.com/business/economy/article-bocs-macklem-warns-coming-months-crucial-in-gauging-how-canadian/

Covid-19 case counts are rising again across CanadaWith more than 70% of Canadians living in major metropolitan areas, and less than 2% of residents of the five largest cities living in low-risk neighbourhoods, Canada is not escaping the second wave of the pandemicSchool boards are contemplating closures, again, to protect students, staff and vulnerable family membersExpect closures to negatively affect our economic recovery in the short term, but with a shortening and flattening of the curve and effects in the longer term.
https://www.theglobeandmail.com/canada/article-surge-of-cases-in-coronavirus-hot-spots-threatens-closure-of-major/
https://www150.statcan.gc.ca/n1/daily-quotidien/190328/dq190328b-eng.htm

With some surprising results, new research suggests that home ownership is not necessarily the best way to increase your net worth based on long term returnsThe analysis measured buying and holding a home for 30 years against investing the original down payment and surplus between renting and owningSince 2003, it has been more financially advantageous to rent than own your homeMany assumptions were needed to reach this conclusion, but it should be noted that deep financial analysis should underly important financial decisions.
https://www.theglobeandmail.com/investing/personal-finance/retirement/article-since-2003-canadians-would-have-been-better-off-renting-than-buying/  

What’s ahead for this week? 

In Canada, existing home sale data for September is scheduled for release, which will likely show that Canadians were continuing to bid up the price of homes during the pandemic. 

In the U.S., inflation numbers for September will be released with the Consumer Price and Producer Price indicesIndustrial production and capacity utilization, which show “made-in-America” output and whether businesses are running close to their maximum levels, will show how U.S. enterprises have been affected and how they are recovering from the pandemic. 

Last Week in the Markets September 28 – October 2, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The most sensational news was President Trump revealing early Friday that he had contracted the coronavirusThe lack of additional substantial information regarding his condition, fueled uncertainty in markets to end the weekAfter gains on Wednesday and Thursday, Trump’s announcement contributed to losses on the last day of the week when the NASDAQ dropped 2.2% on Friday.
https://www.theglobeandmail.com/investing/markets/inside-the-market/article-trumps-covid-19-adds-another-big-twist-for-markets-ahead-of-uncertain/

Negative U.S. employment news for September also intensified to Friday’s equities’ drop661,000 jobs were added during the monthleaving 12.6 million Americans unemployed and unemployment fell to 7.9%Each of these indicators have had their improvement slow compared with AugustFor further comparison, in February 6.8 million were unemployed and the unemployment rate was 4.4%.
https://www.bls.gov/news.release/pdf/empsit.pdf

Despite the negative news and an 8% drop in the price of oil the TSX performed well last week rising nearly 1%, which included a gain on Friday as other indices droppedCanada’s Gross Domestic Product grew 3% in July, down from a 6.5% gain in June, which shows both a strong rebound, and that our recovery is slowingCanadian GDP is 5.8% below the output measured in February before the onset of the pandemicConcerns regarding our ability recover are rising along with the case counts.
https://www.theglobeandmail.com/business/economy/article-canadian-economy-posts-july-gain-but-second-wave-of-covid-19-puts-fall/

What’s ahead for this week?

In Canada, we will receive our employment report for September that will show how many individuals are still suffering the economic effects of the pandemicAt the other end of the spectrum (for confident families who have not had their income and wealth diminished) the statistics for housing starts will be announced. 

In the U.S., confidence in economic recovery will be expressed by ISM’s Purchasing Managers Indices for SeptemberIn this comprehensive report the opinions of those who buy on behalf of companies declare whether they are optimistic or pessimistic about their firm’s business outlookIt is a leading indicator for future economic performance. 

Last Month in the Markets – September 1 – 30, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened in September? 

Equities reversed five consecutive monthly gains with losses in SeptemberThe last time the major North American indices lost value for an entire month was back in MarchCanada’s TSX lost value for five weeks in late February and into March before its five-month winning streakWith the turmoil that has occurred since mid-March it is difficult to believe that each month from April to August had delivered month-to-month gains.

(source: ARG analysis and Bloomberg)

Despite the losses for the month, it ended positivelyEach of the North American equity indices, above, hit their lowest values in September on the 23rd. Thankfully, by September 30th relief was delivered as the TSX, S&P 500, Dow and NASDAQ gained 1.9%, 3.9%, 3.8%, 5.0%, respectively.

The most recent Throne Speech was delivered on September 22nd in the House of Commons and presented an opportunity for the governing Liberals and other parties to demonstrate their willingness to work together while still representing their core beliefs. If compromises were not reached to allow a temporary coalition, the Liberal minority government would fall if a non-confidence vote passed. The leader of the NDP, Jagmeet Singh and Prime Minister, Justin Trudeau, negotiated a compromise centred on sick leave allowing the Liberals to stay in power.
https://www.theglobeandmail.com/politics/article-liberals-avert-fall-election-strike-deal-with-ndp-on-paid-sick-leave/
https://www.theglobeandmail.com/politics/article-federal-throne-speech-sept-23-explainer/ 
 

What’s ahead for October and beyond?

Most of us had hoped that we would be enjoying a greater return to normalcy by autumnThanksgiving will be celebrated in less than two weeks, occurring just a month after many students at all levels have returned to in-person classesThe amount of indoor activity and inability to physically distance has risen dramatically recentlyUnfortunately, case counts across Canada and around the world began rising in September.

The most recent example of the virus’ invasiveness is from the White HouseOn October 2nd at about 1 am Eastern President Trump and First Lady, Melania, announced that they had both tested positive for the coronavirusWhite House aide, Hope Hicks, had also tested positive one day earlierIt is not clear how or when they were infected, or who else has been exposed at the highest levels of the U.S. government.

Election Day in the U.S. is only one month away, on November 3rdand it is expected that the campaign will intensify greatly over the next monthHowever, Trump’s health will certainly affect his ability to attend campaign events, and it will be necessary for him to quarantine to protect members of the ExecutiveJudicial and Legislative branches from infection.

Since the Canadian economy is tightly linked to American interests, it is necessary to follow economic and political developments in the U.S. Uncertainty regarding the U.S. political situation wacontributing to the market volatility before the Trumps tested positiveTheir positive tests caused European markets to drop sharply immediately after the news was announcedMarkets prefer predictability, to allow both good and bad news can be “priced in” to the value of securitiesSeveral situations were already causing markets to react:

  • the shape and speed of the economic recovery, especially unemployment, which stands at 7.9% for Septemberhttps://www.bls.gov/news.release/pdf/empsit.pdf
  • the House of Representatives, Senate and White House have failed to provide a new round of relief to individuals and companies or a comprehensive stimulus package
  • the predicted legal battles over election resultsregardless of the margin of victory
  • election related civil disobedience, which will be viewed alongside and as a continuation of the racially motivated protests and riots that occurred during the summer

The hope is that the heightened level of uncertainty (and volatility) will end with 2020, but we will first need to understand the effects of Trump’s illness.
https://www.theglobeandmail.com/investing/investment-ideas/article-as-the-us-election-looms-investors-see-uncertainty-they-dont-like/
https://www.nytimes.com/live/2020/10/02/world/covid-19-coronavirus#news-that-the-president-contracted-the-virus-leaves-the-world-shaken

In the short-term avoiding an election here seems to be in the best interests of most, but not necessarily all, CanadiansAvoiding the distractions of a campaign promotes focus on Covid-19 recoveryThe latest details from the Canadian Federal government on stimulus are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

Last Week in the Markets September 21 – 25, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Citizens in democracies often complain about their government’s actions and effectiveness, and Canadians are no exceptionOur system is far from ideal, but much better than some, especially when cooperation among legislators is neededThe most recent Throne Speech was delivered on Wednesday in the House of Commons and presented an opportunity for the governing Liberals and other parties to demonstrate their willingness to work together while representing their core beliefsIf compromises were not reached, the Liberal minority government would fall if a non-confidence vote passedThe leader of the NDP, Jagmeet Singh and Prime Minister Trudeau reached a negotiated solution centred on sick leave to allow the Liberals to remain in powerMore details will emerge as the Throne Speech is debated in the House of Commons this week.
https://www.theglobeandmail.com/politics/article-liberals-avert-fall-election-strike-deal-with-ndp-on-paid-sick-leave/
https://www.theglobeandmail.com/politics/article-federal-throne-speech-sept-23-explainer/

The lack of cooperation between the Republicans and Democrats is on full display as a replacement on the Supreme Court is named by TrumpBased on the comments by several senators, confirmation seemed certain even before the nominee is named.
https://www.nytimes.com/2020/09/22/us/politics/ruth-bader-ginsburg-republicans.html

Covid-19 will dominate economic and business news as colder weather and indoor activities arrive in the Northern Hemisphere9 of the 10 of largest economies (Canada is 10th largest) that collectively comprise 65.5% of global Gross Domestic Product lie north of the EquatorSeven of the ten economies have daily case counts far exceeding their July 1st levels as restrictions are reimposed.
https://coronavirus.jhu.edu/map.html
https://www.investopedia.com/insights/worlds-top-economies/

What’s ahead for this week?

In Canada, we will better understand the effects of our shut-down and early reopening efforts as July’s Gross Domestic Product data will be releasedPrices and inflation for industrial products and raw materials for August we will also be announced. 

In the U.S., a number of important indicators are planned for the upcoming week with the release with August’s personal income and spending, construction spending and durable goods ordersSeptember’s employment reports will provide further insight into the recovery in the U.S. 

Last Week in the Markets: September 14 – 18, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Economic recovery, within each country and globally, will rely heavily on monetary policy of central banks and each government’s fiscal stimulus actionsWith interest rates at the bottom end of their effective range, which limits monetary policy actions, fiscal measures are increasingly importantPrime Minister Trudeau and the leaders of the opposition parties (Singh, O’Toole, Blanchet and May) have begun consultations for the upcoming Throne Speech to build a renewed Canadian stimulus solutionOur leaders are actively negotiating, with the governing Liberal minority clinging to their mandate and their allies simultaneouslyUnfortunately, in the U.S. Congress has not yet reached an agreement on new stimulus measures as each party has had their plans rejectedA bi-partisan proposal put forth by centrist members from both parties was quickly rejected by leadership on both sides of the aisle.
https://globalnews.ca/news/7340592/justin-trudeau-opposition-leaders-throne-speech/
https://www.nytimes.com/2020/09/15/us/politics/bipartisan-stimulus-bill.html

Like the Bank of Canada did on September 9ththe U.S. Federal Reserve held its benchmark interest rate unchangedThe federal funds rate remains at the range of 0 to ¼%In the announcement from Federal Reserve Chair, Jerome Powell, included The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”  During the press conference that followed the announcement Powell mentioned the need for fiscal action several times.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200916a.htm
https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20200916.pdf

When our government’s $3.6 Billion in retaliation for tariffs placed on imports of Canadian aluminum the Americans relentedThe President’s national-security rationale evaporated when faced with a multi-billion price tag from Canada.
https://www.theglobeandmail.com/politics/article-us-backs-down-on-aluminum-tariffs-directed-at-canada/

What’s ahead for this week?

In Canada, the Throne Speech will be delivered in Parliament and will generate a Confidence voteThe Prime Minister has stated that he does not want an election, which bodes well for constructive negotiations among the governing Liberals and the other parties.
https://globalnews.ca/video/rd/6970f5c8-f850-11ea-8aff-0242ac110004/?jwsource=cl

In the U.S., the Federal election date is now less than 50 days awayThe significance of this deadline will be cannot be understated for interpretation of economic releases and motivation for legislative action. 

Last Week in the Markets: September 7 – 11, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

As expected, the interest rate announcement by the Bank of Canada (BoC) held its overnight interest rate unchanged at ¼% on WednesdayIt is necessary to keep interest rates at low levels to support Canadian Gross Domestic Product (GDP) growth, which has fallen 13% in the first half of 2020The BoC will continue its interest rate and quantitative easing measures by buying at least $5 Billion in Government of Canada bonds until our “economy moves from reopening to recuperation”Tiff Macklem, BoC Chair, warned in a speech on Thursday that the greatest threat to our full economic recovery is the rising inequality of jobs and incomeThe workers most at-risk are women, youth and low-wage earners who may opt of the labour force if they stay unemployed, become discouraged and lose skills over time.
https://www.theglobeandmail.com/business/article-bocs-macklem-warns-rising-inequality-in-jobs-income-poses-the/
https://www.bankofcanada.ca/2020/09/fad-press-release-2020-09-09/  

In addition to the massive drop in GDP during the first half of 2020, Canadians added $127 Billion to savings and chequing accounts and term deposits over the same periodThis is four times the amount added during the first halves of 2017, 2018 and 2019This level of liquidity and the promise of future spending from savings, not credit, could provide additional economic activity during any delays in our recoveryShould these funds be released from savings and converted to spending, in effect a deferral, could help us regain our pre-Covid GDP levels.
https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-savers-stashed-127-billion-in-2020-it-may-just-rescue-the-economy/  

What’s ahead for this week? 

In Canada, August inflation via the Consumer Price Index along with July’s manufacturing sales, wholesale sales and retail sales will be released. 

In the U.S., it will the Federal Reserve’s turn to make an interest rate decision on WednesdayImport and Export Price indices, retail sales and housing starts for August are scheduled.

Last Week in the Markets August 31 – September 4, 2020  

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was another volatile week for equities with North American indicesThe peak for the week occurred on Wednesday and then Thursday and Friday showed losses across all four indicesThe TSX lost ground widely as all of its sectors showed losses for the week by dropping 3% during the last two days of the weekThe fall in the price of oil, 7.5% for the week, was especially damaging for the Energy sector, the second largest sector in the TSX. 

The S&P 500 dropped 4% during Thursday and Friday’s trading sessionsThe top five constituents of the S&P 500 comprise 23% of the indexLast week, Apple, Facebook, Google, Amazon and Microsoft, led the index downward just as they have driven it upward recentlyThese five firms lost 8-10% at the end of the week and helped drive the overall value of the S&P 500 downward through these narrow lossesWith a similar heavy concentration of technology stocks as the S&P 500 the NASDAQ also had a difficult week losing over 3¼% for the week.
https://www.slickcharts.com/sp500  

Our success against Covid-19 will continue to be reflected in markets as schools, colleges and universities reopen across North AmericaThe U.S. education calendar is several weeks ahead of Canada’s scheduleDisturbing trends are emerging from American schools and campuses that may foreshadow public health performance here, and market performance everywhere.
https://www.nytimes.com/interactive/2020/us/covid-college-cases-tracker.html
https://www.theglobeandmail.com/canada/article-the-curve-isnt-flattening-its-creeping-upward/  

What’s ahead for this week? 

In Canada, we will see the Bank of Canada’s latest interest rate announcement on WednesdayWith the benchmark rate at a historically low level, there is little room to navigate, but there may be some indications of future moves revealed in the announcement. 

In the U.S., August inflation will be released through the Consumer Price IndexThis is an important economic indicator, since Federal Reserve has recently announced that inflation may now float above 2% as long as the average inflation does not exceed 2%. 

Last Month in the Markets – August 3 – 31, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened in August? 

Equities continued their positive momentum during the month of August by achieving the fourth consecutive month that all four North American indices made gains.  The NASDAQ and the S&P 500 have bested their February peaks, regaining all of their Covid-related losses.  The Dow is within 3% of its February peak, while the TSX is 6½% below its value in mid-February. 

The TSX is fulfilling its traditional moderate behaviour relative to the U.S. indices by rebounding more slowly and with less enthusiasm than its American peers.  However, it should be noted that the Canadian dollar has been strengthening against the U.S dollar, especially in July and August.  These foreign exchange gains indicate that Canadian investments are worth more against American investments than their Canadian-dollar prices indicate. 

Globally the All Country World Index (ACWI) in our grid reached a 52-week high during August, which demonstrates that equity markets have surpassed the difficulties of the last six months.

(source: ARG analysis and Bloomberg)

The most recent positive influence for American equity markets was the announcement by the Federal Reserve that it will be suppressing interest rates by viewing employment levels and inflation differently.  At its annual Jackson Hole Symposium, Jerome Powell announced that the Fed will now encourage greater levels of employment, which formerly served as a signal that inflation could occur.  Previously, the threat of inflation based on high employment has caused the Fed to increase interest rates in the past.  Additionally, Inflation will now be a calculated average (not a monthly figure), that will allow periods of inflation over 2% to be offset by periods below 2%. This policy change will cause interest rates to remain low for longer periods of time as higher levels of employment will be encouraged and inflation will be allowed to float over 2%.  The Fed is emphasizing the need for employment and lessening its concern over high inflation during periods of economic growth.
https://www.nytimes.com/2020/08/27/business/economy/federal-reserve-inflation-jerome-powell.html
https://www.nytimes.com/reuters/2020/08/27/business/27reuters-usa-fed-jacksonhole-framework-explainer.html 

What’s ahead for September and beyond? 

The rhetoric and analysis of the economic effects of the upcoming U.S. elections will increase dramatically over the next two months.  The traditional views that’s Republicans are pro-business and Democrats are pro-spending will continue to be spoken.  Within the U.S., the effects of the coronavirus will also be included in this discussion since the current Republican controlled Senate and President continue to delay stimulus and minimize the healthcare and economic crisis. 

Across Canada, schools will be opening with new safety protocols instituted to prevent the spread of Covid-19.  The success of these measures will be a test of whether typical activities that cut across the entire society and across demographics can resume safely.  The U.S. is ahead of us in re-opening activities and provide insight to the potential results of our actions.  Jerome Powell, Chair of the Federal Reserve said, “the thing that matters more than anything else is the medical metrics, frankly.  It’s the spread of the virus”.  Since our economy is closely tied to the U.S., we will be influenced by the U.S. election results and success against the virus.  Also, our government officials and public health officers will continue to monitor our metrics closely as schools reopen this fall.
https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economic-recovery-from-coronavirus-pandemic/  

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at https://www.canada.ca/en/department-finance/economic-response-plan.html 

 

Last Week in the Markets August 24 – 28, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

At its annual Jackson Hole Symposium, the U.S. Federal Reserve announced a significant change in its monetary policy guidelines on Thursday. The Fed will now encourage greater levels of employment, which formerly served as a signal that inflation could occur. This threat of inflation based on high employment has caused rate increases in the past.  Also, inflation will be a calculated average, that will allow periods of inflation over 2% to be offset by periods below 2%. 

It will cause interest rates to remain low for longer periods of time as higher levels of employment will be encouraged and target inflation level will be a calculated average. The Fed is emphasizing the need for employment and lessening its concern over high inflation during periods of economic growth.  https://www.nytimes.com/2020/08/27/business/economy/federal-reserve-inflation-jerome-powell.html  https://www.nytimes.com/reuters/2020/08/27/business/27reuters-usa-fed-jacksonhole-framework-explainer.html 

At the same Federal Reserve conference, Tiff Macklem, Bank of Canada Chair, spoke on the need for central banks to engage directly with citizens, not just to provide transparency to markets. This precedes the scheduled renewal of its 5-year inflation mandate, where it is seeking public input for the first time.Expect independence, but with some influence from the Fed’s change. https://www.theglobeandmail.com/business/economy/article-macklem-urges-central-banks-to-better-engage-with-average-citizens/ 

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html 

What’s ahead for this week? 

In Canada and the U.S., over the next few weeks we will see how well these two economies are recovering from the effects of pandemic-induced closures.  After seeing each economy shrink by about one-third in the second quarter, (based on annualized rates from Statscan and U.S Federal Reserve estimates) Gross Domestic Product is rising again.  Also, employment, inflation and manufacturing will show whether the reopening of economies have been successful. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-before-the-bell-what-every-canadian-investor-needs-to-know-today-443/  

 

Last Week in the Markets August 17 – 21, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?   

In somewhat surprising news Bill Morneau resigned as Finance Minister and as an MP.  Either the fallout from the WE scandal, or his stated reasons, drove this decision.  He will be replaced by Chrystia Freeland, who will become Canada’s first female Finance Minister.  Despite rumours of a growing rift between Morneau and the Prime Minister, Trudeau supports Morneau as the next secretary-general of the Organization for Economic Co-Operation and Development. https://www.cbc.ca/news/politics/bill-morneau-justin-trudeau-decision-1.5689890 

Canada’s inflation for July was announced at 0.1% on Wednesday through the Consumer Price Index (CPI).  One year ago July inflation was 0.7% for the month.  This drop and low figure represents the extreme price pressure many industries have been facing, namely gasoline and airline travel.  The Bank of Canada has no intention to change interest rates until inflation rises to their target rates. https://www.theglobeandmail.com/business/economy/article-canadas-annual-inflation-rate-falls-to-01-in-july/ 

More details are emerging for upgraded Employment Insurance benefits as the window to receive “the CERB” is closing.  In the U.S. no national agreement for additional support and stimulus has been negotiated in Washington as each party has their quadrennial convention. 

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at https://www.canada.ca/en/department-finance/economic-response-plan.html 

What’s ahead for this week? 

In Canada, the most important announcement will be June’s Gross Domestic Product (GDP), which represents our economy’s output.  It will indicate how severely Covid-19 damaged our overall economic health. 

In the U.S., it will be a cloudier picture with new home sales and pending home sales for July, along with durable goods orders for the same period.  Personal income and spending (which contributes a great deal to GDP) will provide insight into consumer confidence. 

 

Last Week in the Markets:  August 10 – 14, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Again, Canada’s TSX was the laggard among equities indices in North America, and in some measure, also globally.  It struggled to overcome the losses in its Materials sector as the gold’s lustre as a safe haven lost its sheen.  Investors moved away from gold and back to equities as encouraging economic and pandemic news was announced in the U.S. last week.

  • Unemployment insurance claims, new Covid-19 cases and hospitalizations fell.
  • Retail sales rose for the third consecutive month and are at the level of February. The rate of increase is slowing and may be a sign that the resilience of consumers is waning.  It appears that the stimulus checks accomplished their short-term goal by keeping individuals and families afloat, and spending.
    https://www.nytimes.com/2020/08/14/business/retail-sales-coronavirus.html

The TSX had some stiff competition from American equities, even as the Canadian dollar has been on a 5-week winning streak gaining nearly 2 cents against the U.S. dollar.  The S&P 500 ended the week within one-half of 1% of its best closing value from February.   About 80% S&P 500 firms have completed their seasonal earnings reports and more than half have beaten expectations.  https://www.theglobeandmail.com/business/article-canadian-corporate-profits-on-the-mend-after-pandemic-hits-earnings/

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, two important indicators will be released; June’s retail sales and July’s Consumer Price Index (CPI).  Retail sales will provide insight into the negative effects of Covid-19 and the CPI will help us understand how our cost-of-living has been impacted.

In the U.S., housing and construction information will dominate with July’s housing starts, building permits and existing home sales begin announced.

 

Last Week in the Markets: August 3 – 7, 2020

ARG Market Update Chart August 3-7, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Despite a week filled with mixed and contradictory news, it was a strong week for equity investors.  The TSX was led by the Energy sector as the price of oil continued to advance as the U.S. equity indices gained 2½ to nearly 4% on the following news:

  • In both Canada and the U.S. the jobs market shows some signs that economic growth is occurring. We are still far behind our trajectory of February, but jobs are being added.
  • Congress continued to negotiate a new stimulus package while Trump continues to sign Executive Orders to promote a rebound. President Trump’s actions rely on individual states approving his actions, which will not provide consistent support across the country as states face their own budget crises while they await Federal aid from Washington. https://www.nytimes.com/2020/08/09/us/politics/trump-stimulus-bill-coronavirus.html
  • The trade rhetoric between the U.S. and Canada has begun again. Trump has announced a 10% tariff on the $7.7 Billion of aluminum that we export to the U.S. each year.  The tariffs are to start on August 16th and are being billed as necessary for “national security”.  Canada has promised “countermeasures that will include dollar-for-dollar retaliatory measures” according to Prime Minister Trudeau https://www.theglobeandmail.com/canada/article-president-trump-announces-10-per-cent-tariff-on-canadian-aluminum/

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, as summer drags along it will be a light week for economic announcements with June’s manufacturing sales and July’s housing starts as the main data points.

In the U.S., July figures for retails sales, industrial production and capacity utilization will accompany the inflation indicators of the Consumer Price Index and the Import and Export Price indices.

 

Last Month in the Markets: July 1 – 31, 2020

(source: ARG analysis and Bloomberg)

What happened in July?

In Canada much of the press’s focus on the federal government has been aimed at the Liberals’ approval of “the WE deal” to manage its student volunteer/aid program. Both Prime Minister Trudeau and Finance Minister Morneau did not recuse themselves from the discussion and decision despite existing beneficial arrangements for them individually and their immediate family members. It could have been somewhat reassuring to return to more normal issues; unfortunately, the time and energy wasted on this scandal should have been directed at the pandemic. Quickly the contract was cancelled, money paid ($30 million) is being returned, major corporate sponsors have ended their relationships with the WE charity, the charity’s leaders and their leadership are under intense scrutiny, and politicians have been chastised publicly during Question Period in the House of Commons. All of this occurred while the coronavirus pandemic continues to ravage lives, families and economies.

In a financial snapshot released by Minister Morneau last month, the federal deficit has been projected to be $343 Billion for fiscal 2020-21 (a ten-fold increase since the last projection made in December 2019), the overall debt has been projected to be $1.2 Trillion, and 2020 GDP is expected to fall by 6.8%. https://www.canada.ca/content/dam/fin/publications/efs-peb/homepage/EFS2020-eng.pdf

Our elected officials have had to make major decisions based on incomplete information. With their leadership, Canadians have fared well from a public health perspective, despite 120,000 Covid-19 cases and 9,000 deaths. Creating a scandal that could have been easily avoided in the middle of a pandemic will be remembered, especially during the next federal election campaign.

Despite the WE distraction and rising case counts and deaths in the United States, it was an all-green month for our grid above. Not only did equities finish July ahead of its start, but our dollar, gold and oil also gained. During the month, equities suffered some choppiness. Generally, indices peaked in the middle of the month, and then struggled to regain those levels over the last two weeks.

The TSX regained 4% more of its March losses in July but has still lost 5% year-to-date. The S&P 500 rose 5½% last month and moved above its year end levels. The NASDAQ has gained more than 19% this year after posting a gain of almost 7% last month. It has also surpassed its February peak, and reached new all-time highs. The Dow is currently the laggard among major indices in North America, falling behind our TSX in July gains, year-to-date performance and 1-year returns. The Dow is comprised of 30 large corporations that trade on American stock exchanges. It is not difficult to imagine that large firms that are less agile have suffered more than technology or smaller companies. https://finance.yahoo.com/quote/%5EDJI/components/

All of this occurred as the price of gold reached a new high at over $2,000 USD. Even as equities rose, the demand for a safe-haven investment like gold drove its price

(source: ARG analysis and Bloomberg)

What’s ahead for August and beyond?

The course of the pandemic will ultimately guide our economic and investment performance. To start August there appears to be some optimism despite the most recent news in the U.S.  Ongoing political debate has ended weekly support payments for individuals as a new program is contested. Daily case counts may be falling slightly, but they are well above April peaks.  Community-spread has reached smaller cities and rural areas. In 2016 Trump won “the counties” outside major urban areas by wide margins to win the Presidency. A direct threat on his base of support could cause a change in political tactics that may also benefit public health. https://www.nytimes.com/2020/08/04/opinion/covid-rural-hospitals.html

The dependence of the Canadian economy on the United States cannot be overstated. The U.S. is Canada’s largest trading partner. A faltering American economy cannot be replaced by Canada in the short term, and perhaps never in the long term. We need the U.S. to recover so that we can, too. The border between the U.S. and Canada closed on March 21st and will be closed until at least August 21st, when reopening beyond essential travel could occur.

In response to all of the negative news for individuals, families and businesses, the latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: July 27 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

If a single indicator was needed to represent the uncertainty of Covid-19, the price of gold could be it. Gold is often used as a safe-haven investment when other investments seem too volatile, unstable or risky. The price of gold driven by the need for safety reached its all-time record high last week, besting the previous record of nine years ago. This uncertainty is based on:

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, the employment report for July will be released. It will show the effect of Covid-19 on workers and employers and the net effectiveness of our stimulus to-date.

In the U.S., July employment numbers will be announced along with construction spending, durable goods orders and trade balance for June.

 

Last Week in the Markets: July 20 – 24, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

A renewal in the ongoing animosity between the U.S. and China occurred last week as the Chinese Consulate in Houston, TX was ordered closed. China retaliated by demanding the same action for the American consulate in Chengdu.

These actions more than trumped the optimism surrounding vaccine development around the world. Governments, including ours, are purchasing supplies (disinfectant swabs, band-aids, syringes) to increase readiness for the eventual release of a vaccine. Unfortunately, it is evident that many U.S. states have re-started their economies unsafely. Over the weekend hospitalizations reached nearly 60,000, within 300 of the peak reached in April. The number of new cases per day has averaged about 65,000 for the past week; an increase of 50% since June. https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html

At home, May retail sales in Canada rebounded well, but still lag pre-Covid levels. Standard&Poor’s announced that the Canadian government was retaining its AAA credit rating, making it easier for some major institutional investors to continue to invest in Canada.

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, we will see the latest measurement of our economy with the release of May’s Gross Domestic Product numbers. Price changes will also be announced through the industrial and raw materials price indices for June.

In the U.S., the Federal Reserve will release its interest rate decision on Wednesday. There is little room to maneuver on interest rates, but the comments may provide some insights into the central bank’s optimism for economic recovery. June’s personal income and spending, an important bellwether that shows consumer confidence, will also be announced.

 

Last Week in the Markets: July 13 – 17, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

The Bank of Canada held its benchmark lending rate steady on Wednesday. Bank Chair, Tiff Macklem, announced that the Canadian economy is expected to shrink by nearly 8% in 2020, and grow by 5% and 4% over the subsequent two years. He expects the pandemic to “have largely run its course by the middle of 2022”, which is two years away based on the development of an effective vaccine.. https://www.bankofcanada.ca/2020/07/opening-statement-150720/

The case numbers, hospitalizations and deaths are on the rise across the U.S. Cases are up about 40% over the past 2 weeks and have averaged nearly 70,000 new cases per day recently.  However, the promise of a vaccine has created enough optimism to power a recovery on equity markets. It is unclear whether vaccine optimism will counteract the resurgence of the virus.  https://www.nytimes.com/2020/07/15/business/economy/economic-recovery-coronavirus-resurgence.html

One surprise was the drop of the NASDAQ, while the other three major North American indices gained. This last occurred in October of 2018. Apple moved ahead after winning a $15 Billion tax case, but Facebook, Amazon, Netflix and Google pulled the NASDAQ down on their losses.

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, the effects of Covid-19 will be represented in two economic releases this week; May retail sales will show consumer spending has changed and June’s Consumer Price Index (CPI) will show how prices have moved.

In the U.S., it will be a lighter week for announcements with new and existing home sales for June and Markit’s Purchasing Managers’ index for July scheduled. For the last indicator, purchasing managers are canvassed and ask if they expect to be buying more raw materials, goods and services for their companies, which is a leading indicator of future, actual purchases.

 

Last Week in the Markets: July 6 – 10, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

It was another positive week for North American and global equities despite the distressing news that the U.S. is setting records for new Covid-19 cases nationally and in several states. More than 68,000 people tested positive on July 10th in the world’s largest economy. It’s gotten so bad that President Trump wore a mask during a visit to a military hospital.

In Canada our cautious approach to reopening was reinforced after Quebec saw a small surge related to patrons congregating closely in restaurants and bars in that province.

Finance Minister, Bill Morneau, released a Fiscal Snapshot outlining the spending to-date on the Federal government’s response to Covid-19, and its effect on the 2020/21 deficit and debt. The response is expected to generate $343 Billion deficit related to additional spending and lowered government revenue during the current fiscal year that ends March 31, 2021. This is a tenfold increase in the deficit since the last update in December 2019, and the debt is predicted to be $1.2 Trillion.

Unemployment that peaked at 14% in April and is expected to hover around 10% for the remainder of 2020 and settle around 8% for 2021. Canadian Gross Domestic Product (GDP) is predicted to contract by 6.8% this year and regain 5.5% next year.
https://www.theglobeandmail.com/politics/article-morneau-expected-to-reveal-federal-deficit-in-excess-of-300-billion/

https://www.cbc.ca/news/politics/bill-morneau-fiscal-update-budget-deficit-1.5641864

What’s ahead for this week?

In Canada, the Bank of Canada will announce its latest interest rate decision on Wednesday.  There is little room to manoeuvre downward, so the news may focus on liquidity linked to access to credit. Also, May figures for manufacturing and wholesale trade will be released.

In the U.S., a robust week for economic data is planned with the Consumer Price Index, Import and Export Price Indices representing June’s inflation to be announced.  Also for June retail sales, industrial production, capacity utilization, housing starts and building permits are scheduled.

 

Last Week in the Markets: June 29 – July 3, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

In a shortened trading week on both sides of the border, due to our Canada Day and Independence Day in the U.S. we had an all-green week for our grid. Equities, the Canadian dollar, gold and oil moved upward despite conflicting news:

What’s ahead for this week?

In Canada, housing starts and our employment report for June will be released.

In the U.S., a similarly light week for economic announcements follows their national holiday with wholesale inventories for May and the Producer Price Index for June scheduled for release.

 

Last Month in the Markets: June 1 – 30, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in June?

Almost everyone has grown weary of Covid-19. The economic uncertainty it has created, the necessary health precautions, the personal isolation, and most of all the deaths that have devastated families. It is as important as ever to practice safety measures and to continue to withstand all of the pressures that everyone has faced to-date, and will continue to face.

It is apparent, based on the U.S. example, that the virus has not tired, but we have. We must limit our exposure to others and to places, we must physically distance and wear masks and wash our hands fastidiously. Confusing and contradictory advice is plentiful, please use trusted sources for information, like Health Canada who has released the following guidelines: https://www.canada.ca/en/public-health/services/diseases/2019-novel-coronavirus-infection/prevention-risks/measures-reduce-community.html#fi

June 2020 started typically enough with the Bank of Canada holding its overnight rate steady at 0.25%, and the markets rose with the beginning of economic reopening in many American states. One month ago, predictions of a rapid economic recovery were almost universal. For example, the Markit Purchasing Managers’ Index (PMI) for Canada, the U.S., Eurozone and globally have regained their pre-Covid levels. The PMI measures the optimism of purchasing managers, and whether they believe their businesses are expanding or contracting. https://www.markiteconomics.com/public

The dependence of the Canadian economy on the United States cannot be overstated. The U.S. is Canada’s largest trading partner. A faltering American economy cannot be replaced in the short term, and perhaps never in the long term. We need the U.S. to recover so that we can too.  Unfortunately, by the end of June any progress against the virus had been lost. Many U.S. states, and internationally, daily records for new cases were set. As July begins 50,000 new cases each day are diagnosed, 40 out of 50 U.S. states have new cases increasing and the hospitalization rates are rising to overwhelm capacity.
https://www.nytimes.com/2020/07/02/world/coronavirus-updates.html https://www.nytimes.com/aponline/2020/07/02/business/bc-eu-virus-outbreak-global-1st-ld-writethru.html  https://www.nytimes.com/2020/06/26/us/coronavirus-florida-texas-bars-closing.html

(source: Bloomberg and ARG Inc. analysis)

The progress equities made during June was uneven, yet they ultimately finished ahead of the end of May. The NASDAQ has surpassed the highs of February and gained 12% in the first half of the year.  The TSX and Dow are down 9% in 2020 and the S&P 500 has lost 4% this year.

The lowest valuations were achieved during the second half of March. Much progress has been made since then for all four major indices; especially the NASDAQ. Continued progress will rely on the success of measures and health outcomes on both sides of our southern border.

What’s ahead for July and beyond?

The most relevant economic information will be medical metrics of Covid-19 according to Jerome Powell, U.S. Federal Reserve Chair. Most economists and analysts are closely following the same virus data.  https://www.cbsnews.com/news/coronavirus-economy-jerome-powell-federal-reserve-chairman-60-minutes/

There are many different indicators and several interpretations of each. Excellent information on numbers of new cases and hospitalizations, the two most important indicators, can be found on the New York Times website, and on Johns-Hopkins Covid summary. https://www.nytimes.com/  https://coronavirus.jhu.edu/map.html

In response to the negative news for individuals, families and businesses, the latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: June 22 – 26, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The major North American equity indices all followed the same pattern; up on Monday and Tuesday, down on Wednesday, back up on Thursday and down on Friday to finish the week.  There is plenty of news swirling around, and there are many people available to view and read it.  The most important news affecting capital markets is the progress, or lack thereof, to contain and reduce the spread of Covid-19. Several U.S. states and the entire country saw new records for new cases in a day recorded. Most importantly and most unequivocally the number of hospitalizations is rising dramatically again after restrictions and public health measures have been relaxed; Texas and Florida have reversed their reopening plans.  https://www.nytimes.com/2020/06/28/world/coronavirus-updates.html

The Canadian economy is as tightly linked to the American economy as any country in the world is linked to its neighbour. Our economy needs the U.S. to recover and provide demand for our goods and services. As a result of this most recent failing in the U.S. the International Monetary Fund (IMF) has lengthened the depth of Covid-19’s recession and has predicted a slow recovery in 2021. https://www.nytimes.com/video/world/100000007208635/global-economy-down-imf-coronavirus.html

The latest details from the Canadian Federal government on stimulus and economic assistance to domestically fuel our recovery are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, after no major economic announcements last week, we will see the state of the economy with April’s Gross Domestic Product data being released. It will be the first full month of Covid-19’s lockdown and provide a strong prediction for May and June.

In the U.S., May figures for durable goods orders, construction spending and pending home sales will be announced along with June’s employment report.

 

Last Week in the Markets: June 15 – 19, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

It was another positive week for equities locally and globally. The optimism for a sustained and uninterrupted recovery along with the promise of additional stimulus outweighed the negative Covid-19 trends that have recently emerged in the U.S. Case counts are growing at an increasing rate in more than 20 states. Other negative news has failed to tamp-down the equities’ recovery. New trade trouble could appear as the U.S. threatens new tariffs on Canadian aluminum and Chinese purchases of U.S. farm products required by their trade agreement are lagging. North Korea destroyed an office used for intra-Korea cooperation. Chinese and Indian troops were killed in a Himalayan border dispute. Despite this negative news, North American and Western European indices all gained last week.

The Bank of Canada is expecting a two-phased approach to our economy’s recovery. Initially, a “reopening” phase will occur as consumers access goods and services that are available again and companies rehire staff. This will be followed by a “recuperation” phase that will be longer, more unpredictable and will rely upon domestic and global success against the virus.
https://www.theglobeandmail.com/business/article-bank-of-canada-sees-two-phase-recovery-for-canadian-economy-deputy/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, no major economic releases are planned. On July 8th, the minority Federal Liberals will present an economic ‘snapshot’ which will provide a short-term description of our economy.  Projections and predictions will be extremely limited.
https://globalnews.ca/news/7075388/coronavirus-liberals-economic-snapshot-july/

In the U.S., it will be a typical week for economic news with May figures for new and existing home sales, durable goods and personal income and spending scheduled for release.

 

Last Week in the Markets: June 8 – 12, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The performance of major equity indices mirrored the growing concern of a rebound or ‘second wave’ of the pandemic in the United States. Generally, the U.S. is reopening earlier, more quickly and more aggressively state by state than Canadian provinces. For example, Ontario has just entered its Phase 2, but not in areas of concern along the border and in Toronto. In the U.S. many states are two weeks ahead of this schedule and nearly half the states are beginning to see an increase in cases and hospitalizations. The sharp decline in New York and New Jersey are masking the overall rise in cases nationwide. Expect financial markets to follow total tests, cases counts, hospitalizations and deaths very closely.
https://www.nytimes.com/2020/06/14/us/coronavirus-united-states.html        https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html

It is imperative that we continue physical distancing and precautions like wearing masks, washing hands and keeping a tight social circle or we will be following in the U.S. footsteps.

U.S. Federal Reserve left its benchmark interest rate unchanged on Wednesday. The control of inflation and maintaining high employment levels are the Fed’s two fundamental objectives. Fed Chair, Jerome Powell, stated during the announcement that “We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months.”
https://www.nytimes.com/2020/06/10/business/economy/federal-reserve-rates-unemployment.html

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, inflation numbers for May will be released through the Consumer Price Index (CPI).  Coupled with April’s retail sales, a key component of consumer spending and also overall economic activity, a clearer picture of Covid-19’s effects will continue to emerge.

In the U.S., May’s retail sales will be announced along with industrial production and capacity utilization. They will give a more updated view of the U.S. economy’s performance.

 

Last Week in the Markets: June 1 – 5, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The last two weeks have followed the same pattern; equities have risen across all indices in our grid (above) along with the Canadian dollar and the price of oil with gold suffering the sole weekly loss. The more things change, the more they stay the same:

  • The Bank of Canada has a new Chairperson, Tiff Macklem, taking over from Stephen Poloz, and was merely an observer of the deliberations that kept the overnight rate, deposit and Bank Rate unchanged.
  • The TSX has risen 10 of the last 11 weeks, yet still lags American indices most weeks and in its recovery of year-to-date and year-over-year performance.
  • The Canadian dollar moved higher against its American counterpart. The upward movement is related to the rise in the price of oil.
  • The Canadian and American economies have added back jobs, which surprised economists, not the first or last time that professional analysts have erred.

The markets will follow the facts and optimism for post-Covid economic recovery:

https://www.bankofcanada.ca/2020/06/fad-press-release-2020-06-03/    https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-canadian-dollar-adds-to-weekly-gain-after-shock-jobs-rebound/

Reopening plans vary across the country, the most recent plans are summarized at https://www.cbc.ca/news/canada/here-s-what-different-provinces-territories-are-planning-for-covid-19-reopenings-1.5601572

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, the two major indicators to be released are May’s housing starts and Q1’s capacity utilization. The latter will demonstrate the very early effects of Covid-19 on output.

In the U.S., the Federal Reserve will announce its latest monetary movements through its Federal Open Market Committee. Inflation figures for May will also be released with the Consumer, Import and Export price indices.

 

Last Month in the Markets: May 1 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in May?

May 2020 will be remembered for a long time, and for devastating reasons:

  • The Covid-19 pandemic continued to take its toll in Canada and around the world.
    • Our vaunted public healthcare system had many of its shortcomings exposed with devastating consequences, especially for long-term care home residents and the most vulnerable.
    • At midday on June 1st, according to Johns Hopkins University, Covid-19 cases and deaths in Canada had reached 92,688 and 7,396, respectively. The U.S. had 1.8 million cases and 104,484 deaths, while the global cases reached 6.2 million and 373,032 deaths. Comprehensive global and country statistics are found at https://coronavirus.jhu.edu/map.html
  • The economic effects of the pandemic grew in size and its negative effects on employment, consumer and business spending, gross domestic product, government debt and deficit and monetary policy.
  • In many U.S. cities and elsewhere, including Canada, the death of George Floyd while in police custody was the ignition spark for protests and demonstrations promoting racial equality. The beginning of a work week typically lowers the number of participants, but in an era of extreme unemployment the demonstrations will likely continue at their current fury.

The next few weeks will be critical in determining both the short and long-term economic trajectories for countries and individuals. The most critical element will be the recovery from Covid-19. There are concerns from public health officials in Canada and the United States that the recent Victoria Day and Memorial Day celebrations could start a resurgence of new cases. This sentiment was held before the demonstrations of the last week of May.

People tend to seek medical assistance about one to two weeks after exposure, therefore the first two weeks of June will indicate if the large gatherings have stalled the containment and recovery of the coronavirus.

(source:  ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

The progress of equity indices in May is displayed in the figure (above) and its context year-to-date (YTD) in 2020. The tech-heavy NASDAQ (shown in red) has gained more than 5% this year. The companies that are benefiting from the Covid-19 lockdown, like Amazon, are leading its upward movement. The broad-based TSX and major U.S. firms of the Dow have each index down about 11%.

Canadian Gross Domestic Product (GDP) fell by 7.2% in March and is estimated by Statscan to have fallen a further 11% in April, which was the first month fully under Covid-19 restrictions.  April could represent the deepest low as sectors begin to reopen across the country and allow May to be an improvement. The quarantine in Canada was more severe than the U.S. and consequently caused more economic damage. Recovery will be linked to the resumption of consumer spending and whether a second wave forces new or prolonged restrictions. https://www.theglobeandmail.com/business/economy/article-canadas-economy-saw-record-decline-in-march-worse-numbers-forecast/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for June and beyond?

Outgoing Bank of Canada Chair, Stephen Poloz, is optimistic regarding Canada’s economic prospects for the second half of 2020 and beyond. As equity markets seem to, he predicts that a more rapid recovery will occur than the prevailing negative predictions.  https://www.theglobeandmail.com/business/article-canadian-economy-on-track-for-healthy-post-pandemic-recovery-poloz/

On the May 17th edition of CBS’ 60 Minutes, Jerome Powell, Federal Reserve Chair was asked what economic metrics he follows, “The thing that matters more than anything else is the medical metrics frankly, the spread of the virus. The real-time economic data that we’re seeing is just a function of how successful the social distancing measures are.” The early results of a vaccine trial, and countries beginning to reopen their economies has spurred the equities rally that we have seen during May, and will continue to do so. The full interview can be found at: https://www.cbsnews.com/news/coronavirus-economy-jerome-powell-federal-reserve-chairman-60-minutes/

 

Last Week in the Markets: May 25 – 29, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

Monday was a banking holiday in the U.S. and the shortened week along with some encouraging news pushed North American and global equities higher. The TSX finished nearly 2% ahead on its full trading week, despite gains being given back at the end of the week.

More economies and jurisdictions are reopening their economies, which is not without risk, and has caused some of the upward trajectory of last week. Americans who received stimulus cheques placed much of the money into savings since spending options were mostly limited to online purchases.  It is expected that the reopening of retail will spur consumer spending, which has driven the U.S. economy lately. Optimism for re-opening is driving stock markets. https://www.nytimes.com/2020/05/29/business/economy/coronavirus-consumer-spending.html

Canadian Gross Domestic Product (GDP) fell by 7.2% in March and is estimated by Statscan to have fallen a further 11% in April, which was the first month fully under Covid-19 restrictions.  April could represent the deepest low and as sectors begin to reopen across the country and allow May to be an improvement. The quarantine in Canada was more severe than the U.S. and consequently caused more economic damage. Recovery will be linked to the resumption of consumer spending and whether a second wave forces new or prolonged restrictions. https://www.theglobeandmail.com/business/economy/article-canadas-economy-saw-record-decline-in-march-worse-numbers-forecast/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, the next Bank of Canada interest rate decision will be announced on Wednesday.  Also, May’s employment report will be released. The effectiveness of government’s pay subsidies will be on display.

In the U.S., May’s employment report will also be released, which will dovetail with April’s construction spending and durable goods orders to show the effects of Covid-19.

 

Last Week in the Markets: May 18 – 22, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

Monday, Victoria Day, when our markets were closed American equities jumped 2-4% and oil jumped up 6%. This positive momentum continued on Tuesday for the TSX and on Wednesday morning with North American equity indices up another 1-2% and oil added another 5% to its price in early trading. By week’s end, equities indices had moved ahead steadily and maintained their gains.

On the May 17th edition of CBS’ 60 Minutes, Jerome Powell, Federal Reserve Chair was asked what metrics he follows, “The thing that matters more than anything else is the medical metrics frankly, the spread of the virus. The real-time economic data that we’re seeing is just a function of how successful the social distancing measures are.” The early results of a vaccine trial, and countries beginning to reopen their economies spurred the equities rally. The full interview: https://www.cbsnews.com/news/coronavirus-economy-jerome-powell-federal-reserve-chairman-60-minutes/

Outgoing Bank of Canada Chair, Stephen Poloz, sounded optimistic when discussing Canada’s economic prospects for the second half of 2020 and beyond. He believes that the prevailing negative predictions do not reflect the more rapid recovery that he predicts.  https://www.theglobeandmail.com/business/article-canadian-economy-on-track-for-healthy-post-pandemic-recovery-poloz/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, March’s Gross Domestic Product will be released, which will show the early effects of Covid-19. Also, the latest re-opening plans, province-by-province, are summarized here https://www.theglobeandmail.com/canada/article-coronavirus-rules-by-province-physical-distancing-open-closed/

In the U.S., Memorial Day will close American markets on Monday, May 25th. Consequently, a shortened week will limit important economic announcements to new and pending home sales, durable goods orders, and consumer income and spending, all for April.

 

Last Week in the Markets: May 11 – 15, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

All of the North American equity indices suffered losses which approximated their gains of the previous week. The reasons were many, and all are related to the pandemic;

  • several countries that had Covid-19 case counts lowering reversed their improvements
  • American epidemiologist, Dr Anthony Fauci, warned that reopening too soon could endanger lives
  • Federal Reserve Chair, Jerome Powell predicted long-term permanent harm to the economy without additional stimulus spending as the House of Representatives passed a $3 Trillion bill that Trump has promised to veto
  • tension between the U.S. president and China’s leaders is on the rise again as accusations continue that the outbreak in Wuhan was mishandled
  • Canadian government debt has reached its highest level since WWII
  • 2 million Canadians lost their job in April and the unemployment rate is 13%

Thankfully, positive progress on Covid-19 vaccine development has occurred and buoyed U.S. equity markets approximately 2-4% on Victoria Day while oil jumped nearly 6%. https://www.nytimes.com/2020/05/15/us/coronavirus-updates.html                                  https://www.theglobeandmail.com/business/article-two-million-canadian-jobs-lost-in-april-as-unemployment-rate-reaches/
https://www.theglobeandmail.com/world/article-who-chief-promises-review-of-coronavirus-response-china-defends-its/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, it will be a short trading week with a national holiday on May 18th.  On the 19th, Ontario, the largest province in population and economic activity, begins Phase I of its reopening. Inflation data for April will be released through the Consumer Price Index.

In the U.S., housing starts, building permits and existing home sales will be announced. Also, Memorial Day will close American markets on May 25th.

 

Last Week in the Markets: May 4 – 8, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

It was another strong week for the TSX, and the U.S. indices, too. The TSX has achieved a weekly gain for seven consecutive weeks, the S&P 500 is ahead of its position of 1 year ago, the NASDAQ has gained nearly 2% this year and nearly 15% since May 2019. The Dow, which is focused on the largest American firms continues to languish. The Canadian dollar strengthened along with gold and oil. However, the trouble for oil will continue, and will continue to weigh down the TSX, as long as its price hovers 60% lower than a year ago and the end of last year.

The coronavirus has entered the White House with one of the president’s valets and the VP Pence’s press secretary testing positive. The leaders of the Centers for Disease Control (CDC), the Food and Drug Administration (FDA), and Dr. Anthony Fauci are all self-quarantining as a precaution. More staff members of the Executive branch or the Coronavirus Task Force being diagnosed could threaten the confidence in containment and consequently economic recovery.  https://www.nytimes.com/2020/05/10/us/politics/white-house-coronavirus-trump.html

https://www.theglobeandmail.com/world/article-two-members-of-white-house-virus-task-force-in-quarantine/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, provinces will begin to enact their re-opening plans in earnest. Manufacturing Sales figures for March will be announced, which will indicate the early effects of Covid for that sector.  Among other things, parks, campgrounds, day-care centres, garden centres, retailers with curb-side pickup are beginning to re-open. As of May 9th, the latest plans by each province can be found at https://globalnews.ca/news/6920122/coronavirus-heres-how-provinces-plan-to-emerge-from-covid-19-lockdown/

In the U.S., similarly states will continue their plans for economic recovery while attempting to balance public health.  Some important economic indicators are scheduled for release; Consumer Price Index, Import and Export Price indices and Retail Sales, all for April.

 

Last Month in the Markets: April 1 – 30, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in April?

Despite a one-day drop at its conclusion, April 2020 was one of the most successful on record for equity indices in North America. Each of the local major indices rose more than 10%, as did the All Country World Index (ACWI) representing both developed and developing markets around the world.

Unfortunately, April followed its polar opposite of March. Technology stocks that power the NASDAQ index have regained their losses and have put nearly 10% on to their value in the past year. The more balanced S&P 500, TSX and Dow indices will require much more of the April-like performance to reach the enviable position of the NASDAQ.

(source:  ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

The price of oil remains an issue for investors in Canada. Demand has fallen significantly, while supply has not matched demand’s decline. The oversupply and resultant worries regarding storage capacity had May oil futures for West Texas Intermediate (WTI) drop well into negative territory. The Energy sector is the second largest component of the TSX, behind Financials, and the sinking price of oil and hovering at or below $20/barrel causes significant damage to the industry. Investment in discovery, development and distribution become dubious, and company profitability, a major driver of share price, becomes increasingly difficult as revenues drop.   https://www.nytimes.com/2020/04/21/upshot/negative-oil-price.html

Improving statistics for the coronavirus pandemic provided an undercurrent for equities as companies and governments announce and enact plans to re-start their economies. Several U.S. states have plans to re-open their economies, and several more have experienced protests by those who feel the timetable and breadth of the plans are not aggressive enough. https://www.theglobeandmail.com/world/article-italy-reveals-cautious-reopening-schedule-as-deaths-and-new/

What’s ahead for May and beyond?

The coronavirus will continue to dominate the news, financial markets and people’s lives for the foreseeable future. The single most important accomplishment leading to an economic recovery is ending the pandemic.

The virus can be contracted from a person displaying no symptoms. As the weeks of physical distancing continue, it is increasingly important to stay vigilant, maintain physical distancing and avoid potentially dangerous situations.

Restrictions on Canadians are beginning to be lifted. It will be a slow process that will attempt to deliver economic benefits while mitigating personal and public health threats.  https://www.cbc.ca/news/canada/coronavirus-covid19-canada-world-may4-1.5554249

Canada’s Covid-19 Economic Recovery Plan (CERP) with descriptions and details and applications can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html

In central banking news, the successor to Bank of Canada Governor, Stephen Poloz, has been announced. Tiff Macklem, former Deputy Governor and current Dean of the Rotman School of Management, will officially assume the responsibility for Canadian monetary policy on June 3rdhttps://www.theglobeandmail.com/business/article-who-is-tiff-macklem-the-new-bank-of-canada-governor/

As November and the U.S. election approaches, expect the White House to make multiple attempts to shift blame for the domestic spread of the coronavirus. The U.S. has blamed the World Health Organization (WHO) of being too close and forgiving of China, and has stopped funding pending an investigation.  Most recently, Secretary of State, Mike Pompeo, has stated that the virus originated in a Wuhan lab, and has refused to release any evidence to support this accusation.  Investors should take notice because this escalating rhetoric will pit the leadership of these two economies against one another. The trade treaties that were agreed in late 2019 could be put at-risk if the animosity escalates. Open trade between the U.S. and China will contribute significantly to any post-Covid recovery. https://www.theglobeandmail.com/world/article-mike-pompeo-links-coronavirus-to-wuhan-lab-despite-intelligence/

 

Last Week in the Markets: April 27 – May 1, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

Despite a pull-back on Thursday and Friday for North American equities, it was another strong week for the TSX. It was its sixth consecutive weekly gain, and over the last two weeks the TSX has gained while the major American indices lost more ground. However, the TSX is still down 14% this year, and 18% from its peak in late February.

By week’s end oil prices had stabilized somewhat after beginning the week with storage capacity worries causing a 25% price drop on Monday morning. Energy and Financials, the two sectors with the heaviest weighting on the TSX led the overall gain for the index.

Improving statistics for the coronavirus pandemic provided an undercurrent for equities as companies and governments announce and enact plans to re-start their economies. Several U.S. states have plans to re-open their economies, and several more have experienced protests by those who feel the timetable and breadth of the plans are not aggressive enough.

https://www.theglobeandmail.com/world/article-italy-reveals-cautious-reopening-schedule-as-deaths-and-new/

In central banking news, the successor to Bank of Canada Governor, Stephen Poloz, was announced. Tiff Macklem, former Deputy Governor and current Dean of the Rotman School of Management, will officially assume responsibility on June 3rdhttps://www.theglobeandmail.com/business/article-who-is-tiff-macklem-the-new-bank-of-canada-governor/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, we will see March building permits and April housing starts. The employment report will be released, which will show the early effects of Covid-19 on household income.

In the U.S., their employment report for April will also be released, along with March numbers for durable goods order, wholesale inventories and the trade balance.

 

Last Week in the Markets: April 20 – 24, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The TSX was one of few equity indices that did not lose any more value last week. Gold rose as a safe haven as most equities fell. The Canadian dollar fell against the U.S.; it now takes about $1.41 CDN to buy $1 USD.

Unprecedented pricing occurred for oil early last week. Demand has fallen drastically while production continues above current needs. As the delivery of May oil contracts approached, concerns about oil storage capacity reached extreme heights. Capacity to accept more is limited and predicted to be fully consumed this summer if the current over-supply continues.

On Monday, the price of a barrel of oil fell below zero! American West Texas Intermediate (WTI), was MINUS $37 USD per barrel. Physically storing oil could become a problem and the negative price indicated that holders of oil were willing to pay someone to take it off their hands! https://www.nytimes.com/2020/04/21/upshot/negative-oil-price.html  https://www.theglobeandmail.com/business/article-a-global-wave-of-money-printing-awakens-fears-of-inflation/

The typical relationship between the price of oil and the TSX did not occur last week, which in this case is good news. The Energy sector has the second highest weighting in the TSX, behind Financial Services, so oil’s performance will always be important for investors in Canada.

What’s ahead for this week?

Canadian Gross Domestic Product numbers for February will be released. It will show the trajectory of our economic growth before the full-force arrival of the pandemic arrived in March.

On Wednesday, the U.S. Federal Reserve will announce an interest rate decision with little, if any, room to operate. Personal income and spending for March will be released that will be partially affected. Full effects for most economic indicators will arrive in May.

The latest details from the Canadian Federal government on stimulus and economic assistance are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: April 13 – 17, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

Last week had some semblance of regular, pre-Covid performance. North American equity indices gained 1-3%, with the NASDAQ jumping by 6%, while the Canadian dollar and gold falling as stocks rose. Oil continued to flounder despite announcements from OPEC+ that production will slow to support the price of oil.

Tension is rising in Canada among First Ministers and the Prime Minister, and the opposition. Fortunately, Canadian Covid efforts have been rooted in science over politics. New rules to govern the House of Commons during Covid-19 are under discussion as the minority Liberals forge ahead with actions supported in varying degrees by the opposing parties.  https://www.theglobeandmail.com/politics/article-deadline-looms-for-agreement-on-reopening-house-of-commons/

The Bank of Canada’s announcement last week gave a concise summary of the economic conditions and rapid response for Covid-19. Inflation, economic growth, spending, and liquidity continue their importance, while the Bank will continue to support Canadians even as Governor Poloz’ term approaches its conclusion.  https://www.bankofcanada.ca/2020/04/opening-statement-150420/

Discussions regarding the re-opening of the U.S. economy provided positive momentum for North American and global equity indices. The growing animosity between Governors and the White House will certainly cause additional friction; especially regarding the availability of testing and surveillance testing. https://www.cnn.com/2020/04/19/politics/trump-governors-coronavirus-testing/index.html

What’s ahead for this week?

Any progress will be measured by the number of new cases, hospitalizations, deaths, and their timing. In Canada, the Consumer Price Index for March will recognize the most recent period of inflation. In the U.S., new and existing home sales, along with durable goods orders will indicate how close consumers are to business-as-usual during these highly unusual times.

The latest details from the Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: April 6 – 10, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

It was a shortened trading week that included Passover and Easter. Markets were closed on Good Friday. Thankfully, the week began well, continued in that direction and finished the week positively. North American indices rose 5-7% on Monday, held steady on Tuesday, then gained on both Wednesday and Thursday. Gold generally followed equities’ daily performance, albeit with smaller percentage gains. Our dollar turned in steady gains, while oil followed its own path finishing in negative territory again last week.

Early in the week, values were buoyed by optimistic news from Europe (Italy, France, Spain) and the U.S. (particularly New York City and state) that Covid-19 death and infection rates were beginning to slow. Tuesday began well as China reported no deaths and South Korea had fewer than 50 new cases for the second consecutive day.

Prior to Thursday’s opening, the Federal Reserve announced a $2.3 Trillion plan to support businesses, states, counties and cities by providing 4-year loans through banks, and bond purchases to spur economic activity.

What’s ahead for this week?

The Bank of Canada has an interest rate announcement scheduled for Wednesday. At the very least expect updates on the monetary measures previously announced. U.S. inflation numbers for March will be released; Consumer Price Index (CPI) and the Import and Export Price indices.

The most important data will be the growth rate of cases and deaths, unfortunately. In addition to the families most affected, it will drive performance in the markets.

The Federal government continues to adjust the elements of its economic assistance plan. More changes will emerge, and if and when a full Parliament will sit, on Saturday, 20 MPs (the minimum required for a quorum) meet to pass additional legislation, raising the wage subsidy to 75%. The latest approved details on all elements of the response plan can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: March 30 – April 3, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

Another tempestuous week befell markets last week. The only North American equity index that managed a gain was Canada’s TSX, which moved ahead 2%, while the U.S. indices lost 2-3%.  Much of the gain in Toronto is linked to the leap in the price of oil last week. West Texas Intermediate (WTI) started the week below $20, and ended the week gaining over 30%, which translated into better prices for Canadian oil. The second largest sector on the TSX is Energy, behind Financial Services, so gains in the price of oil contribute heavily to the overall index value.

Although the deadline for 2020 income taxes is more than one year away, and we all have many challenges ahead, there are advantages of working from home. Bearing in mind that the existing rules may change, or be applied differently because of the current situation. The first step is to keep track of any work-at-home expenses or those that could be attributed like office supplies and equipment and utilities. More guidance will emerge from CRA to be interpreted by tax accountants.
https://www.theglobeandmail.com/investing/globe-advisor/advisor-news/article-pandemic-led-flight-to-home-offices-brings-tax-perks/

What’s ahead for this week?

Fiscal measures by governments, along with the deep losses already taken, appear to have stabilized equity markets somewhat.

There are almost 15,000 cases and over 250 deaths in Canada. Early information in B.C. indicates that the spread of Covid-19 could be slowing in that province, providing hope that the measures taken there will prove effective across the country. Globally, the case count is nearing 1.3 million with ¼ of the cases in the United States. President Trump has extended physical distancing and isolation guidelines until the end of April.             https://www.theglobeandmail.com/canada/article-bcs-health-officer-says-decrease-in-covid-cases-heartening-2/   https://coronavirus.jhu.edu/map.html

The Federal government’s economic assistance plan, CERP, provides benefits to individuals and businesses. https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Month in the Markets: March 2 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened over the past 5 years, in 2020 and in March?

For most of 2015, equity markets made little or no headway, losing ground until a trough was reached in February of 2016.  North American equities then grew in value for the next four years, until their peak last month. The last week of February and most of March have brought us to the point where we began the Bull Market in early 2016.

(source:  ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

This has, arguably, been the most difficult time for investors individually, as families, as retirees, as workers, as Canadians. This will not change in the near future even as “unprecedented actions”, according to Prime Minister Trudeau, are undertaken nationally, provincially and around the globe.

As difficult as the past six months have been financially, it is the next six weeks and six months that will determine the trajectory of our collective health and wealth.

What’s ahead for April and beyond?

There isn’t any doubt that the coronavirus will continue to dominate the news, financial markets and people’s lives for the foreseeable future. The single most important accomplishment leading to an economic recovery is ending the pandemic. Once Covid-19 has little or no influence over health outcomes international trade companies will recover, industries will rebuild, and values can return.

There are contributions that each of us at home and at work can make to limit the spread of the disease with physical distancing, conducting only essential trips, supporting each other emotionally, and reducing the opportunity for medically vulnerable people from infection.

As of 6 pm EDT on March 31st, 241,138 Canadians had been tested for Covid-19 with 8,536 confirmed cases and 96 deaths.  Many of those who have contracted the disease display few, if any, symptoms.  However, when someone becomes seriously ill, extreme lifesaving measures are required and in 96 cases the measures were unsuccessful.

Equity markets, where Canadians have traditionally invested most of their retirement savings opened the month with a dramatic drop of 3-4% on the morning of April 1st.  Expect more volatility and uncertainty in markets that will mirror the coronavirus uncertainty.

The latest, and continuously updated, information on Covid-19 from the Federal government can be found at https://www.canada.ca/en/public-health/services/diseases/coronavirus-disease-covid-19.html

Canada’s Covid-19 Economic Recovery Plan (CERP) with descriptions and details and applications can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html

Parliament is being recalled, albeit with a minimum of MPs, to pass additional legislation to allow the economic response as announced to be supported by the necessary laws.

 

Last Week in the Markets: March 23 – 27, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

Overall North American equities fared better last week. Certainly not on Monday or Friday, and not relative to their positions a year ago, at year-end or from the recent highs of mid-February.  The volatility has also been extremely high, and nerve-wracking. When an index is +/- 10%, many of its component companies have gained or lost significantly more than 10%.

Despite the political intrigues of the U.S., which we have largely avoided, they were able to pass a $2 Trillion economic plan through the legislative and executive branches of their government.

Early Wednesday morning the House of Commons passed legislation to provide economic relief for Canadians. Full details for individuals and businesses can be found on our Federal government’s website at https://www.canada.ca/en/department-finance/economic-response-plan.html

Part of the legislation allows the governing Liberals to introduce new ‘money’ measures to counteract the effects of Covid-19 without requiring more sessions and votes in Parliament.

It is anticipated that the government will keep the most current information stored at this web location; please refer to it, not interpretation or third-party sources of information. Updates have already been made, so this web location should be the best location for the most accurate information. Links are available within to applications and detailed information for program eligibility and timing.

What’s ahead for this week?

Volatility is not expected to change until the uncertainty regarding the pandemic stabilizes. On Sunday evening, the global number of confirmed cases was about 720,000 with 34,000 deaths.  At the same hour Canada had 6,250 cases with 64 deaths, while the U.S. case count was above 137,000 and 2,400 deaths.  https://coronavirus.jhu.edu/map.html

There are a myriad of statistics and sources to follow, especially as many are self-isolating at home in-front of the tv or computer. A more manageable number of items to follow is six, as suggested by the Globe & Mail at https://www.theglobeandmail.com/investing/markets/inside-the-market/article-as-coronavirus-crisis-progresses-here-are-six-key-areas-to-monitor/

 

Last Week in the Markets: March 16 – 20, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The negative momentum in the markets has not slowed. Government and central bank actions have not effectively injected confidence back into equities, credit or economies. The uncertainty of the coronavirus is overwhelming the reaction. As long as the economic effects remain unquantified, it will be difficult to stem further losses in the markets. Once infection rates begin to slow, and the overall economic damage can be reasonably estimated, and a recovery is envisioned, the markets will begin their recovery.

As of Tuesday, over $20 Trillion in losses had been achieved as the overall market capitalization fell dramatically in response to the uncertainty of the coronavirus. And the losses have continued to grow as the week progressed.

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-global-markets-hit-with-us20-trillion-in-losses-during-coronavirus/

On Wednesday in a joint press conference with Minister of Finance, Bill Morneau, and Bank of Canada Chair, Stephen Poloz, announced fiscal measures and explained monetary manoeuvres.  The government of Canada has totalled $93 Billion in measures, representing more than 3% of our Gross Domestic Product, to create liquidity, and defer expenses and taxes.  https://www.theglobeandmail.com/business/article-canadian-policy-makers-move-to-shore-up-financial-system-cushion/

https://www.theglobeandmail.com/politics/article-trudeau-unveils-82-billion-in-aid-tax-deferrals-for-coronavirus/

By Sunday evening, Johns-Hopkins University tallied the global number of covid-19 infections at 329,935, with deaths at 14,379. The U.S. is experiencing the greatest growth rate in cases at the moment, with over 32,000 cases and 409 deaths. https://coronavirus.jhu.edu/map.html

What’s ahead for this week?

On Sunday morning, in his daily press briefing, Prime Minister Trudeau indicated that the $93 Billion in fiscal stimulus and tax deferments are the first waves of assistance. Parliament is being recalled on Tuesday to pass emergency legislation. In the United States, legislators are negotiating a recovery package with a total cost and benefit of approximately $1 Trillion. Markets will respond to these actions once they have been passed.

 

Last Week in the Markets: March 9 – 13, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?      

It was a second consecutive week with extremely high volatility and losses.

  • On Monday, North American commodity markets took a major beating. The TSX lost 10.3%, S&P 500 shed 7.6%, the Dow dropped 7.8%, its largest single day point-drop, and the NASDAQ gave back 7.3%. Oil lost 25% or $10.37 USD/barrel and the Canadian dollar lost nearly 1 ½ cents or 1.8%. The lone gainer was gold, which managed only a $4.80 USD increase worth 0.3%. The losses were so severe that U.S. exchanges halted trading, as their rules require, for 15 minutes after a loss of 7% had been experienced.
  • On Tuesday after a rally in Europe, the TSX regained 3% of Monday’s losses and the American indices each gained back nearly 5%.
  • On Wednesday, the World Health Organization declared the coronavirus a pandemic. At that time the virus had infected 118,000 people in 114 countries and killed 4,291. https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19—11-march-2020
    • The reaction from markets was swift, with North American indices losing 5-6%.
  • On Thursday, the Bull Market became a Bear Market. Everyone who has had investments, especially since 2008 or before, understands the feeling this inflection point causes. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-rosenberg-a-significant-bear-market-is-just-starting/
  • To finish the week, on Friday, the TSX gained 9.7%, S&P 500 and NASDAQ rose 9.3%, the Dow clawed back 9.4%; largely in response to Trump declaring a national emergency and freeing about $50 Billion in aid.

What’s ahead for this week?

  • Markets will respond to the actions taken by domestic and foreign governments as well as central banks. Sunday, the U.S. Federal Reserve set the federal funds rate to 0 to ¼%; a cut of 50 basis points. It also announced new quantitative easing and bond measures to support the U.S. economy. Other countries are following the same course of action. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm

 

Last Week in the Markets: March 2 – 6, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

It was a volatile week for equity markets as the COVID-19 spread and governments reacted. As of this writing, more than 100,000 people are infected, and nearly 4,000 have died.

Based on the headlines, one might have expected our grid (above) to be all-red and for the drops to be very large. Aside from the TSX, which lost ½% of its value equities gained this week, and most importantly, stopped the precipitous drop that happened during the last week of February.

On any given day, or week, there can be significant volatility, which should promote a long-term investment strategy of buying vehicles with the appropriate amount of anticipated gain balanced with the risk necessary to earn the gain.

Last week demonstrated significant volatility. The highlights included:

  • On Friday, the U.S. Bureau of Labor Statistics released the jobs report for February. 273,000 new non-farm jobs were created, and the unemployment rate stayed at 3.5%. The coronavirus had yet to impact job creation. Despite the strong labour numbers, the S&P 500, the Dow and NASDAQ lost 1.71%, 0.98%, and 1.87%, respectively, while the TSX dropped 2.29%. https://www.bls.gov/news.releasne/pdf/empsit.pdf
  • Oil also saw significant volatility during the week as OPEC nations led by Saudi Arabia met to bolster prices by limiting supply to match decreased demand, but still lost another 8%, and has lost a third of its value in year-to-date after ending 2019 over $61 USD/barrel.
  • During the first week of March, gold has risen $105.70 and 6.75% as it fulfilled its safe-haven investment role.

What’s ahead for this week?

  • In Canada, January’s building permits and February’s housing starts and house sales will be announced, as most watch global coronavirus coverage.
  • In the U.S., inflation news will dominate scheduled economic releases with February’s Consumer and Producer Price Indices (CPI and PPI, respectively) and Import Price Index on the calendar.

 

Last Month in the Markets: February 3 – 28, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in February?   

During the first three weeks, February had been acting like most months over the last four years.  Then equity investors suffered a major reversal during the last week. By the end of February year-to-date gains for equities had moved into negative territory around the world. Despite a reasonable start to February with gains realized over the first three weeks, the month’s decline was between 6% and 10% for Canada’s TSX and the three major U.S. indices.

The losses at the end of February were large enough to significantly reduce the gains made during the bull market that has been running since early 2016. The technical term for a drop of more than 10% is “correction,” and from their high points on February 18th and 19th, between 10 and 12% of equity value was lost across major North American indices.

(source:  ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

Most, if not all, of the market correction, is attributed to the coronavirus that has spread to 6 of 7 continents. The number of new cases and deaths spiked across western Europe, especially in Italy. Its infection and mortality continue to increase, although there is some disagreement about those rates, especially when Washington is discussing the domestic situation. The U.S. had its first two coronavirus deaths by March 1st. After some promising news midmonth, the number of infections has exceeded 83,000 cases and killed about 3,000 people, globally.   https://www.theglobeandmail.com/investing/markets/inside-the-market/article-before-the-bell-what-every-canadian-investor-needs-to-know-today-320/

The effects of the virus were felt in Canada when the TMX halted trading on February 27th due to a technical problem related to capacity during one of the busiest days of 2020. Traders were not able to enter, modify or cancel open orders. At day’s end, the TSX was down 2% at its early closing time, while the S&P 500, Dow and NASDAQ each lost 4½% on a full day of trading.  https://www.theglobeandmail.com/investing/markets/inside-the-market/article-frenzied-trading-sends-sp-500-into-correction-territory-and-halts/

The market news was unchanged on Friday, the last day of trading for February. The TSX opened by dropping over 500 points, and the U.S. markets were down similar proportions.

What’s ahead for March and beyond?

The coronavirus will continue to dominate the news and financial markets. The Organization for Economic Development and Cooperation (OECD) has reduced the global Gross Domestic Product (GDP) projections for 2020. Based on the assumption that the outbreak will peak this quarter and be relatively mild and contained, the annual GDP growth rate has been lowered from 2.9% to 2.5%. If the disease runs rampant, economic growth will fall to just 1.5%.

In response, expect governments to introduce economic stimulus packages and central bankers to lower interest rates. Unfortunately, lowering interest rates to spur economic growth is difficult since the rates are already very low. The U.S. Federal Reserve lowered rates three times in 2019 to protect their economy from the effects of the trade dispute with China. Lower interest rates reduce the cost of borrowing, and lower borrowing costs are meant to increase purchases. Unfortunately, lower prices are not the only consideration at this point with personal safety reducing business travel, for example.

At the beginning of March, the Federal Reserve is taking a wait-and-see approach as they monitor economic indicators closely, the Bank of Japan has promised to take the necessary steps to “stabilize markets jolted by the coronavirus outbreak”, G7 finance ministers are discussing a coordinated approach. The Bank of Canada has its latest interest rate announcement scheduled for Wednesday, March 4th.

https://www.theglobeandmail.com/business/international-business/article-oecd-warns-coronavirus-outbreak-could-cut-global-growth-by-half/

https://www.nytimes.com/reuters/2020/02/28/business/28reuters-china-health-centralbanks-analysis.html

https://www.nytimes.com/reuters/2020/03/02/world/asia/02reuters-health-coronavirus-japan.html

This downward economic shock will not be reversed until the underlying health crisis has ended.  Currently, Health Canada, Centers for Disease Control (CDC) and the World Health Organization (WHO) have yet to officially classify the coronavirus as a “pandemic”. However, the U.S. is seeking $2.5 Billion to fight its spread, even while some experts suggest that $15 Billion is a more appropriate number to fight the disease’s spread. https://www.nytimes.com/2020/02/29/opinion/sunday/corona-virus-usa.html?action=click&module=Opinion&pgtype=Homepage

 

Last Week in the Markets: February 24 – 28, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

What’s ahead for this week?

  • In Canada, coronavirus news and reaction will be the dominate influence for markets until it is contained. The Bank of Canada will announce its latest interest rate decision on Wednesday. The decision and announcement will include the influence of the virus.
  • In the U.S., the recent death and growing number of infections will undoubtedly have an effect as the virus increases its strength. February’s employment report and job creation will likely reflect the virus’ impact in the short-term.

 

Last Week in the Markets: February 17 – 21, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

  • Family Day in Ontario closed the Toronto equities exchange on Monday, February 17th. In the U.S., it was Washington’s Birthday (also known as President’s Day) that closed their markets on the same day. During the short trading week in Canada and the U.S., several local and global events influenced markets:
    • Our earnings season is underway. It is an important time for the widely held Canadian big banks, both inside funds, and as an individual holding. Royal Bank announced that Q1 profit was 11% ahead of last year’s first quarter and raised their dividend by 3% to $1.08 per share. This strong performance bodes well for the other major banks who report results next week. Source.
    • The number of new coronavirus cases dropped midweek and then rose again, causing an up-and-down reaction. There are over 76,000 cases in China and the death toll there is approaching 2,500. Italy, which has relatively low levels of Chinese contact compared to some countries has confirmed 152 cases so far. The potential for significant outbreaks elsewhere based on higher levels of tourism, transit, and trade is a real concern that is moving markets downward. Source. 
    • The increase in coronavirus cases around the world has moved gold to a 7-year high as safe-haven investment ended the week on a positive note. The price of oil also rebounded allowing the Energy and Materials sectors of the TSX to finish the week virtually “flat”, while the U.S. indices each lost over 1% of their value.

What’s ahead for this week?

  • In Canada, December’s Gross Domestic Product (GDP) numbers will be the most important release of domestic economic data this week.
  • In the U.S., fourth quarter GDP and January’s Durable Goods orders, January’s new and pending home sales, and personal income and spending are scheduled for release.

 

Last Week in the Markets: February 10 – 14, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

  • The equity markets around the world began a recovery over the past week. A recent trough occurred on January 31st, and again on February 7th. Since then the dire news regarding coronavirus, its death toll and the infection rate has been overcome by the Chinese government’s stimulus package, measures to contain the spread of the virus and the remarks from Jerome Powell, U.S. Federal Reserve Chair, declaring the strength of the American economy.
  • The performance of the Canadian economy is a more significant concern for most Canadian investors. The sectors that will take most of the economic shock in the short term will be travel and tourism, and energy. The manufacturing sector had planned for the annual Lunar New Year celebration, which causes a pause in economic activity, and will therefore be affected less than had it occurred at any other time of the year. Overall the effect on our economy is expected to be small and temporary, slowing our growth only slightly during the first quarter of 2020. In China the effect won’t be as short-lived, but the stimulus has been designed to counteract, if not overcome, negative performance of their manufacturing sector. https://www.theglobeandmail.com/canada/alberta/article-bill-morneau-warns-coronavirus-will-have-significant-impact-on/

What’s ahead for this week?

  • In Canada, manufacturing and retail sales figures for December will be released. The retail numbers along with the Consumer Price Index for January will provide insight into the buying behavior and purchasing power for Canadian households.

 

Last Week in the Markets: February 3 – 7, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

  • Equity markets have begun a recovery despite the somber news that the death toll in China from the coronavirus exceeds the number killed there by SARS in 2002/2003.
  • The Chinese government announced an economic stimulus package to counteract the losses due to the outbreak of this disease. Their monetary and fiscal actions have calmed markets in North America and around the world.

What’s ahead for this week?

  • In Canada, the economic data will be dominated by construction with December’s building permits and January’s housing starts on the schedule.
    • The RRSP contribution deadline to reduce your 2019 taxable income is approaching soon on March 2nd. Setting up a Pre-Authorized Credit (PAC) that can make contributions throughout the year will avoid the last-minute rush.
  • In the U.S., inflation will be the focus for economic news with the Consumer Price Index, the Export Price and Import Price Indices, all for January, scheduled for release. Also, retail sales, capacity utilization and industrial production for the same period will be announced.

 

Last Month in the Markets: January 1 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in January?

The first month of a new year and a new decade did not disappoint those who wanted more surprises, unpredictability and change. The variety and depth of news and developments that affect economies, markets and societies seemed to reach a new pinnacle as 2019 became 2020.

January was only the third month of the last 18 months that delivered such volatile and negative results in the equity markets, caused mostly by the emerging and strengthening effects of the coronavirus. The steep decline occurred during the last week, when indices began their reversal by close of markets on January 24th, regaining some lost ground by the 30th, before tumbling further on the last day of the week and month.

(source:  ARG analysis and Bloomberg)

The results in North America are severely muted compared to the equity indices in China. On the first day of trading in February on Monday the 3rd, losses on the Shanghai Composite Index totalled nearly 8%, a loss equivalent to about $400 Billion in market capitalization. The Chinese stock markets had been closed since January 24th for the Lunar New Year celebration and in response to the coronavirus outbreak. This steep loss, in only one day, reflects a week’s worth of sentiment that the health crisis will severely affect the Chinese economy.

The death toll in China is approaching 400, with nearly 40,000 cases confirmed or suspected.  Over the next weeks and months, the effect of measures to contain the virus will be felt, and likely reflected in the global economy and equity values worldwide. https://www.theglobeandmail.com/world/article-as-china-markets-plunge-and-virus-continues-to-spread-beijing-praises/

In much more positive news regarding China, a Phase I trade deal was signed with the United States on January 15th in Washington, D.C. Understanding the details of the agreement will grow as it is implemented, and the reaction from trade experts has been mixed. It appears that the long-term gain could be experienced by China, not the U.S. Nonetheless, an agreement that promotes and requires trade between these two nations, versus restricting it, is good news for each country’s economy and the global economy.

Negotiations have begun on the second phase of the agreement, which is intended to expand trade between the two countries further. The coronavirus will likely delay an already uncertain schedule for negotiations set to address state-sponsored industrial espionage and economic advantage by China and the removal of U.S. tariffs on Chinese imports. https://www.bloomberg.com/news/articles/2020-01-15/u-s-china-sign-phase-one-of-trade-deal-trump-calls-remarkable

Brexit is finally a reality. The European Parliament voted last Wednesday to approve the exit of Britain from the EU two days later on January 31st. Although separation has now occurred and the U.K. is no longer an EU member, there is a transition period that will end on December 31, 2020. Negotiations on agreements between Britain and EU nations, separately and collectively, will proceed earnestly as that deadline approaches.

What’s ahead for February and beyond?

By late evening of January 31st, it appeared that the Impeachment trial of Donald Trump would conclude with no action or penalty against Trump. Several Republican senators concluded that the misdeeds committed by Trump were not severe enough to require his removal. The matter will likely be decided on Election Day in November against the Democrats presidential nominee.

More substantially for financial markets, the coronavirus will dominate the business news for months. For example, in Nova Scotia the annual $500 Million lobster trade with China abruptly ended with cancelled shipments. Layoffs have begun for fishers. Expect more in other industries. https://www.theglobeandmail.com/canada/article-nova-scotias-lobster-industry-fears-prolonged-effects-of-coronavirus/

The effect globally will be much greater than the losses on the locally important Atlantic fishery.  “International companies that rely on Chinese factories to make their products and depend on Chinese consumers for sales are already warning of costly problems”, according to a New York Times article. https://www.nytimes.com/2020/02/03/business/economy/SARS-coronavirus-economic-impact-china.html

 

Last Week in the Markets: January 27 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?   

  • The effect of the coronavirus gained momentum in both human and financial terms. The death toll in China, and infection rate there and around the world jumped significantly. Equity values, which rely on corporate performance, are suffering from the nascent threat of a global health crisis. The overall effects on the movement of goods, services, labour and money are still not certain, but appear to be negative in the very short term. The duration and severity of the health crisis will guide its influence on financial markets.
    • With the uncertainty of the health crisis growing the price of gold, a safe haven, has increased over the past two weeks. The price of oil, which relies on the demand for it, has declined over 12% over the same period.
  • Monetary policy decisions are also providing their own influences.

What’s ahead for this week?

  • In Canada, the most important indicator released will be the Employment Report for January. It will likely provide some insight into the most recent interest rate announcement from the Bank of Canada.
  • In the U.S., a wider expression of economic performance will arrive via December’s Construction Spending, Durable Goods Orders, Trade Balance and Wholesale Inventories. Also, January’s Employment Report and the Ism Purchasing Managers Index will provide significant evidence of the U.S. economy’s strength.

 

Last Week in the Markets: January 20 – 24, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?   

What’s ahead for this week?

  • In Canada, Gross Domestic Product (GDP) for November, which informed last Wednesday’s BoC rate announcement, and Industrial Products and Raw Materials Price Indices for last month are scheduled for release.
  • In the U.S., it will be the U.S. Federal Reserve’s turn to announce their latest interest rate on Wednesday. Additionally, December’s Durable Goods Orders, New Home Sales and Personal Income and Spending along with 4th quarter GDP will be announced.  The signing of the Phase I trade agreement between the U.S. and China is scheduled for Washington on Wednesday. The earnings season continues and the fortunes of the NASDAQ will be heavily influenced this week as Facebook, Apple and Amazon report their results this week.

 

Last Week in the Markets: January 13 – 17, 2020

Source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?    

  • Last week left little doubt that free and open trade tends to lead to rises in stock markets as the major Canadian and American indices rose to new records again.
    • The Phase I China/U.S. trade deal was signed in Washington on Wednesday. The U.S. also removed its “currency manipulator” designation from China further lessening trade tensions. The removal of trade uncertainty is an extremely positive accomplishment, although more disagreements could arise as negotiations proceed. To prevent difficulties during negotiations a tighter, more frequent schedule of meetings for Phase II has been announced. Despite all this good news, there is growing criticism that China will be the long-term beneficiary of the agreement. https://www.nytimes.com/2020/01/15/opinion/china-trade-deal-trump.html?action=click&module=Opinion&pgtype=Homepage
  • Even more positive trade news occurred last week for North America. On the same day that the House of Representatives formally delivered the Articles of Impeachment, the U.S. Senate approved the United States/Mexico/Canada (USMCA) treaty. Canada is the only signatory to the agreement that has not ratified this agreement at the legislative level. Prime Minister Trudeau’s minority government will be negotiating over the next few weeks to pass it through our Parliament.

What’s ahead for this week?

  • In Canada, the Bank of Canada will announce its latest interest rate decision on Wednesday. November’s wholesale trade, manufacturing and retail sales along with December’s new housing price index and the Consumer Price Index are scheduled to be released in the next few days. Also, the fourth quarter earnings season begins where corporate profitability and projections will influence short term equity prices and provide a bellwether for 2020. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-solid-q4-earnings-reports-expected-to-justify-canadian-stock-markets/
  • In the U.S., it will be a relatively light week for economic announcements due to the Martin Luther King, Jr Day, which also closes U.S. markets on Monday. The schedule includes December’s existing home sales and January’s Purchasing Manager Index.

 

Last Week in the Markets: January 6 – 10, 2020

(source: Bloomberg)

What happened last week?      

  • It was a very difficult week for Canadians last week as the U.S./Iran tensions spiked to a new height which created the environment for a passenger airliner filled with our citizens, residents and students being shot down by an Iranian surface-to-air missile. Everyone aboard died, including 57 Canadians and about another 100 more with Canadian ties who were connecting through Kiev from Tehran to towns and cities across the country. More than 30 of those killed had Edmonton as their destination.
    • The Iranians shot down the Ukrainian Airways plane during the confusion and tense hours immediately following the firing of Iranian ballistic missiles toward two American occupied air bases in Iraq. The missiles were retaliation for the assassination of Gen. Suleimani, the second most powerful person in the country.
      • Both the Iranians and Americans “stood down” following the ballistic missiles and plane crash. Further escalation was avoided, at least temporarily, and easing tensions buoyed stock markets worldwide and caused the price of oil to drop dramatically by the end of the week.
      • During all of this turmoil it was also confirmed that the Phase I portion of a new U.S./China trade agreement would be completed next week in Washington, further lifting stock markets. It appears that the effect on equities by the tragedy in Iran has concluded, at least for now.

What’s ahead for this week?

  • In Canada, it will be a light week for economic announcements with the Bank of Canada’s Business Outlook for Q4 2019 and December’s existing home sales on the schedule.
  • In the U.S., inflation numbers will be released via the Consumer, Producer, Import and Export Price Indices all for December. Retail sales, housing starts, building permits, industrial production and capacity utilization will also be released for December.

 

Last Month in the Markets: December 1 – 31, 2020

(source: Bloomberg)

What happened in December?

International trade agreements, tensions, tariffs, threats and optimism were the major influences for equity values in December and for most of 2019. Typically, the profitability prospects of individual firms along with their economy’s overall outlook for expansion provide the impetus for changes to its share price and overall value. Last year corporates’ profits and accompanying share price was tied to progress or tension on the trade negotiations between the United States and China.

(source:  ARG analysis and Bloomberg)

  1. On Monday, May 13th China announced retaliatory measures on the importation of U.S. goods in response to Trump’s announcement during the previous week to increase tariffs from 10% to 25%.
  • For the next two days, as equity markets tumbled negotiators and leaders from both countries hinted at more negotiations and progress toward reaching a new agreement.
  • The American rhetoric also included a threat to subject Chinese telecommunications manufacturer, Huawei, to U.S. tariffs drove markets down since any disruption to its $11 Billion of trade would be notable.
  • The week concluded with the U.S. ending the steel and aluminum tariffs and Canada and Mexico cancelling their retaliatory actions. All legal actions by the three countries at the World Trade Organization (WTO) have also ended.
  1. In early August, President Trump issued more threats to impose additional tariffs on Chinese imports.
  1. Finally, some good news. On Friday, October 11th, President Trump announced that a Phase 1 deal had been reached. The fine details would be written over the next few weeks and signing planned for the following month. Increased sales of American agricultural products and protections of intellectual property have been granted by the Chinese in exchange for a delay/elimination of tariffs on Chinese imports that were planned for October 15th.
  2. The momentum continued to the end of the year as Trump indicated in December that he was planning to travel to China to support the successful negotiation of Phase II agreement between the two countries.

What’s ahead for January and beyond?

Trade issues will likely continue to dominate economic and market influences. After the re-election and strong mandate received by British PM Boris Johnson and his Tories, expect Brexit to finally conclude. Until the final phases of negotiations between the U.S. and China are agreed and implemented, news in this area could provide upward and/or downward momentum.

Closer to home the US/Mexico/Canada trade agreement is expected to be ratified by all three governments early in 2020 and provide renewed free trade across North America boosting the overall economy and the prospects of growth here.

 

Last Week in the Markets: December 30 – January 3, 2020

(source: Bloomberg)

What happened last week?  

  • The New Year’s holiday closed markets in the middle of the week, creating a 4-day trading session. During the Monday to Thursday period, and prior to Friday, North American indices advanced on 2 of the 3 of the trading days. Then the strength of political influence on financial markets was well demonstrated at week’s end.
    • The U.S. used a drone-strike to assassinate Iran’s second most powerful person, General Suleimani. This action drew the natural and expected Iranian reaction, and has brought a new heightened level of instability to the complicated Middle East political situation. Iran could escalate this to a full-scale war, since the attack was not aimed at a recognized terrorist, but at a leader of a sovereign nation’s military. Also, the Iraqi legislature has voted to expel U.S. troops from their country. https://www.nytimes.com/2020/01/04/opinion/trump-suleimani-iran.html?action=click&module=Opinion&pgtype=Homepage
    • North American equity indices responded on Friday by all suffering losses of about 1% (the TSX lost the least on Friday) after the U.S. airstrikes accomplished their deadly goal of eliminating an Iranian leader in retaliation for his prior actions.
  • On a more positive note the U.S./China “Phase I” trade agreement remains on schedule for a mid-January signing by President Trump. He indicated his intention to travel to China to encourage and support negotiations for the next phase.
    • A potential problem could be looming with Iranian oil exports to their largest customer, China. The Iranians may attempt to influence negotiations in “Phase II”.

What’s ahead for this week?

  • In Canada, now that the holiday season has fully concluded we will receive November’s international merchandise trace, industrial product and raw materials indices and building permits. Also, December’s housing starts and employment report are scheduled.
  • In the U.S., November’s trade balance, durable goods orders and wholesale inventories will be released along with December’s employment report.

 

Last Week in the Markets: December 9 – 13, 2019

(source: Bloomberg)

What happened last week?  

  • As the end of 2019 approaches our grid had an all-green week and all positive returns for year-to-date and year-over-year for the first time in 2019. Trade talk dominated the news.
  • The U.S. Federal Reserve held its benchmark rate steady at 1½ – 1¾% based on their economy’s performance and prospects. https://www.federalreserve.gov/monetarypolicy/fomcpresconf20191211.htm

What’s ahead for this week?

  • In Canada, October’s manufacturing, wholesale and retail sales and November’s Consumer Price Index (inflation) are scheduled for release.
  • In the U.S., November’s existing home sales, housing starts and building permits will be released along with industrial production and capacity utilization for the same period.

 

Last Week in the Markets: December 2 – 6, 2019

(source: Bloomberg)

What happened?     

What’s ahead for this week?

  • In Canada, it will be a light week for economic announcements as October’s building permits and November’s housing starts are the two most important indicators scheduled for release.
  • In the U.S., the Federal Reserve will announce its latest interest rate decision on Wednesday. Rationale for the decision by the Federal Open Market Committee will be posted here https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.  Also, November’s Consumer and Producer Price indices and Import and Export Price indices which will also be announced.

 

Last Month in the Markets: November 1 – 29, 2019

(source: Bloomberg)

What happened in November?

The last week of the month could not have been much better for equities. The TSX, S&P 500, Dow, NASDAQ and the ACWI each set new all-time highs. The monthly gain for the four North American indices in our grid surged between 3½ and 4½% in November.

Much of the gains can be attributed to improving trade relations between the U.S. and China.  Unfortunately, no new deal has been agreed on and the road to achieve a near-deal has been rough. Even during the last week of November, when record highs were set, the back and forth and positive and negative commentary continued. In particular, President Trump signed into law new legislation that supports the autonomy of Hong Kong, and China accused the U.S. of meddling in its domestic affairs and promised retaliation.

For the month the North American indices rose to new heights despite the rhetoric.

(source: ARG analysis and Bloomberg  https://www.bloomberg.com/markets)                           

Domestically, the month was set up on Wednesday, October 30th when the Bank of Canada kept its benchmark interest rate at 1.75%. Although our Gross Domestic Product (GDP) growth is below expectations, it is improving with employment data trending positively and inflation being at the target rate of 2%. A one-minute video explaining the central bank’s rationale can be found at.  https://www.bankofcanada.ca/2019/10/mpr-2019-10-30/

On the same day, the U.S. Federal Reserve lowered its Federal Funds rate by ¼ of a percentage point; this is the third rate cut this year. This action was taken to “keep the U.S. economy strong in the face of global developments and provide some insurance from ongoing risks” as Chairman Powell outlined in his remarks at the FOMC press conference. https://www.federalreserve.gov/monetarypolicy/files/monetary20191030a1.pdf

The Bank of Canada and the Federal Reserve vaguely signaled in their announcements (linked above) that new o