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Weekly Market Pulse - Week ending October 22, 2021

Market developments


The rally in equities extended another week on strong corporate earnings, countering concerns of elevated inflation. Almost a quarter of S&P 500 Index companies have reported in, with 84% beating expectations. Earnings season is ramping up, with another third set to report results in the coming days. The S&P 500 Index recovered from the losses experienced during the volatility of September and early October, with the benchmark hitting a new all-time high.

Fixed income:

Yields rose during the week as inflation worries intensified. At a panel discussion, U.S. Federal Reserve Chairman Jerome Powell said inflation risks had escalated due to longer and more persistent bottlenecks. A slew of central banks will meet in the coming days, including the Bank of Canada, Bank of Japan, and European Central Bank.


Oil prices rose for another week, on energy supply concerns in Europe and Asia, markets both heavily dependent on imports. Copper prices declined as China posted marginal growth in Q3, dragged by weak industrial production. Markets are also becoming increasingly concerned about the growth impact from high inflation.

Performance (price return)

Performance table

  As of October 22, 2021

Macro developments

Canada – Bank of Canada Business Outlook Survey shows widespread optimism; CPI increases; Retail sales rise

The Bank of Canada business outlook survey reported broad-based positive sentiment. Most firms continue to anticipate stronger demand as pandemic conditions improve. However, at the same time widespread capacity pressures are also being reported, with a large number of firms noting that intensifying supply constraints and labour shortages could limit sales and increase costs. These demand pressures and supply challenges are driving capital expenditures in machinery and equipment to help alleviate capacity pressures and labour shortages. Businesses also continue to expect higher growth in input and output prices for the year ahead. Inflation expectation rose further, with almost half of respondents anticipating rates above 3% for the next two years.

Canada’s Consumer Price Index rose 0.2% in September, continuing at the same pace as in August. The increase was driven by clothing prices (+1.5%), shelter (+0.3%), and food (+0.3%). Gasoline prices meanwhile declined 0.1%. On a year-over-year basis, CPI accelerated to 4.4%, the fastest pace since 2003.

Retail sales rose 2.1% in August, following the revised 0.1% decline in July. The gain was widespread, driven by food and beverage stores (+4.8%), gasoline stations (+3.8%), and clothing stores (+3.9%). On the other hand, sales fell at furniture stores (-2.4%), as a result of supply constraints, and electronics stores (-1.6%).

U.S. – Industrial production declines; Fed sees moderate growth; Markit PMI rises on services upturn

Industrial production fell 1.3% in September, following a 0.1% decline in August. Manufacturing output declined 0.7%, due to a 7.2% decline in automobile production because of semiconductor shortages. Utilities output declined 3.6% on subsiding demand following a warm August. Mining output declined 2.3% due to the lingering effects of Hurricane Ida. Overall, Hurricane Ida is estimated to have contributed to about 0.6% of the total decline.

The Fed Beige Book noted that the economy grew moderately. The pace of growth slowed, however, constrained by supply chain disruptions, labour shortages, and Delta-variant uncertainty. Employment grew moderately in an environment of uncertainty and caution among businesses. Although demand was high, supply was low and worker turnover was high as employees left for other jobs or retired. High turnover was generally attributed to COVID-related causes, such as child-care issues and vaccine mandates. The demand/supply imbalance led to wage growth to attract and retain talent. As for inflation, widespread price increases were driven by demand for goods and high shipping costs.

The IHS Markit Flash U.S. Composite Purchasing Managers’ Index rose to 57.3 in October, from 55.0 in September. The Manufacturing PMI held strong at 59.2, from 60.7, while the Services PMI surged to 58.2, from 54.9. Overall, business activity continued at a solid pace, strengthened by the services sector, which saw a sharp upturn in output. Firms reported stronger growth on higher sales and new work, adding further capacity pressure on top of shortages in supply and labour. Employment rose at a faster pace in response, but inflation pressures continue to rise. Input and selling prices rose at a record pace.

International – China’s GDP rises slightly; Eurozone PMI declines; Japan’s PMI turns expansionary

Chinese real GDP rose 0.2% quarter over quarter in Q3, or 4.9% year over year. The reading is a significant slowdown from the Q2 reading of 7.9% year over year. Although consumption was solid, industrial production had slowed significantly during the quarter. Fixed asset investments also moderated. Pandemic lockdowns, a slowdown in real estate, and the more recent energy crunch all look to have contributed to the slowing growth.

Chinese retail sales rose 4.4% year over year in September, compared to 2.5% in August. By category, sales of jewelry, electronics, and petroleum rose. Automobile sales meanwhile continued to slow. Chinese industrial production slowed to 3.1% year over year in September, from 5.3% in August. The slowing production was due to manufacturing production, which slowed to 2.4% from August’s 5.5%, likely a result of energy shortages that affected factories. By product, demand for cement and steel continued to decline on real estate troubles.

The IHS Markit Flash Eurozone PMI fell to 54.3 in October, from 56.2 in September. The Manufacturing PMI was relatively unchanged at 58.5, from 58.6, while the Services PMI contracted to 54.7, from 56.4. Business activity continues to cool from the 15-year high in July. Factory output declined, as supply bottlenecks and transportation problems worsened. Nonetheless, hiring rose strongly in both manufacturing and services, as strong demand saw backlogs rise at an elevated pace. By country, growth slowed significantly in Germany and France.

The au Jibun Bank Flash Japan Composite PMI rose to 50.7 in October, from 47.9 in September. The Services PMI rose to 50.7, from 47.8, and the Manufacturing PMI rose to 53.0, from 51.5. The services sector saw activity become expansionary as months-long restrictions were lifted, while manufacturing business conditions improved, marking expanding economic conditions for the first time in five months. 

Quick look ahead

Canada – Bank of Canada meeting (October 27); GDP (October 29)

The Bank of Canada is set to meet this week, with another potential announcement on tapering its bond purchases. As the quantitative easing is nearing its end, markets are expecting further guidance on the reinvestment phase that will follow before a rate liftoff. Other central bankers have started to increasingly voice further concerns over inflation, so any inflation talk from BoC Governor Tiff Macklem will garner investor interest. GDP data for August will follow the meeting; StatsCan had provided a preliminary estimate of a 0.7% increase.

U.S. – Conference Board consumer confidence (October 26); GDP (October 28); Personal income and spending (October 29)

Consumer confidence has subsided recently, indicating a worsening state of the economy and lower consumer willingness to spend. The Conference Board will provide an updated reading for October.

The first reading of Q3 GDP will be released. Economic recovery likely slowed in the quarter, dragged by a resurgence in COVID and supply chain disruptions. Consumption growth likely deteriorated significantly as a result. Market consensus is for 2.8% annualized growth during the quarter.

We will also receive September’s numbers for consumer income and spending. Income levels are expected to post a slight decrease as pandemic income support programs are phased out, partially offset by wage increases. Meanwhile, we might see a continued rise in spending activity.

International – Germany ifo survey (October 25); ECB and Bank of Japan meetings (October 28); Eurozone inflation and GDP (October 29)

The German ifo survey may provide more insight into the country’s recovery. Growth momentum has started to wane since the summer, thanks to supply constraints.

Investors will look to the Bank of Japan for an update on growth and inflation forecasts. There are otherwise limited expectations for any additional significant news. There are no policy changes expected from the European Central Bank. ECB President Christine Lagarde had previously stated that any further decisions to taper asset purchases would be made at the central bank’s December meeting, so investors will watch for hints as the ECB adjusts its asset purchases, as well as for any comments on inflation.

Lastly, many member states of the eurozone will release GDP and inflation readings. Q3 growth is expected to have accelerated in aggregate across the eurozone, on broad vaccine progress and an upturn of services spending. Manufacturing, however, is expected to exhibit a slowdown due to supply constraints; the impact on Germany will be of considerable interest. Inflation expectations for October are for a 0.4% increase, which would see the year-over-year reading accelerate to 4.4%. Higher energy costs will have contributed to this number as gas prices have soared.

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This material is for informational purposes only. While this material has been compiled from sources believed to be reliable, Qtrade Investor does not guarantee the accuracy, completeness, timeliness or reliability of this information. Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. All investments are subject to risk, including the possible loss of principal.