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Weekly Market Pulse - Week ending November 19, 2021

Market developments

Equities:

Equities rose for the week. The S&P 500 Index rose to a new high Thursday, ending the week just under that record. U.S. President Joe Biden signed a US$1.2T infrastructure package into law and strong earnings continued, thanks in large part to some big tech names. Strong macroeconomic releases also helped. The S&P/TSX Composite Index lagged on lower material and energy prices. Rising COVID-19 cases in Europe generated some weakness on the potential of another lockdown.

Fixed income:

Yields fell slightly for the week, ahead of the release of U.S. Federal Reserve and Europe Central Bank minutes. These minutes may provide insight on how central banks plan to taper and navigate this period of higher inflation. European yields declined further on the rising possibility of renewed restrictions.

Commodities:

Oil prices dropped on news that the U.S. and China discussed the possibility of a joint release of some of their oil reserves to temper rising prices

Performance (price return)

Performance table

  As of November 19, 2021

Macro developments

Canada – CPI rises; Retail sales declines

The country’s consumer price index rose 0.7% in October, following a 0.2% rise in September. Prices rose in all eight major CPI components for the month, with transportation leading the increase with a 5.0% surge in gasoline prices. Excluding energy, prices rose 0.4% for the month. On a year-over-year basis, CPI accelerated to 4.7% from 4.4%.

Retail sales declined 0.6% seasonally adjusted in September, following the 2.1% increase in August. The reading was dragged by declining motor vehicle sales of 1.6%, on continued semiconductor shortages impacting supply, and falling clothing store sales of 5.9%. E-commerce, on the other hand, saw sales rise 5.1%. StatsCan estimates that retail sales rose 1.0% in October, according to preliminary numbers.

U.S. – Empire State manufacturing conditions improve; Retail sales rise; Industrial production recovering from Ida

The Empire State Manufacturing General Business Conditions Index rose to 30.9 in November, from 19.8 in October. Business activity improved as new orders and shipments rose. Hiring increased at an even stronger pace. The prices paid and received index rose, continuing to signal ongoing increases in prices.

U.S. retail sales rose 1.7% seasonally adjusted in October, following a 0.8% gain in September. The increase was driven by non-store retailer sales, which rose 4.0%. Other areas of strength include gasoline stations (+3.9%), electronics stores (+3.8%), and motor vehicles dealers (+1.8%).

Industrial production rose 1.6% in October, recovering the 1.3% decline in September. Half of the gain reflected the recovery from Hurricane Ida. Manufacturing output rose 1.2% on stronger motor vehicle production. Mining output jumped 4.1% as oil production returned following the hurricane, and utilities output rose 1.2%

International – Chinese activity improves; Japan core machine orders fall short; U.K. CPI accelerates

Chinese retail sales rose 4.9% year over year in October, compared to 4.4% in September. The increase was driven by spending for goods, which rose a solid 5.2% year over year. Restaurant sales meanwhile rose just 2.0%.

China’s industrial production rose 3.5% year over year in October, compared to 3.1% in September. Production rose on higher mining (+6.0%) and power (+11.1%) output. Manufacturing production lagged, rising just 2.5%.

Japan’s core machine orders were flat in September, following the 2.4% decline in August. The reading missed market consensus, where a recovery of 1.5% was expected. Foreign orders, which are excluded from the reading, also declined 14.2%. The good news is that the Q4 forecast shows that domestic core orders are expected to rise 3.1% and foreign orders to surge 18.7%.

Japanese real GDP shrank 0.8% seasonally adjusted in the third quarter. Weak consumer demand saw private consumption decline 1.1%. Government consumption rose 1.1%, providing some offset.

U.K. CPI rose 1.1% in October, following a 0.3% increase in September. Goods prices rose 1.5%, while services prices rose just 0.6%. Within goods, energy (+7.8%), vehicles (+2.1%), and industrial goods (+2.0%) led the increase. On a year-over-year basis, CPI accelerated to 4.2% from 3.1%.

Quick look ahead

Canada – Small business sentiment (November 25)

It will be a quiet week for Canada in terms of macroeconomic data, with just the November update of the Canadian Federation of Independent Business’s Business Barometer.

U.S. – Markit PMI (November 23); Durable goods orders, personal income and spending, University of Michigan consumer sentiment, and FOMC minutes (November 24)

The first major U.S. release of the week is the monthly update of the Markit Purchasing Managers’ Index readings, which are expected to remain near currently elevated levels as demand continues to outpace supply. The usual concerns of supply constraints and labour shortages will likely remain.

Durable goods orders for the month of October will be released. Transportation orders are expected to lag, due to a decline in plane orders, which are volatile. Market consensus is nonetheless for a 0.2% increase on higher equipment spending.

Personal income is expected to have grinded slightly higher (+0.2%) in October, as wages outpace the phasing out of emergency support programs. Personal spending in the meantime is expected to rise 1.0%, with higher spending on goods that should once again drive the increase.

U.S. consumer sentiment, measured by the University of Michigan Consumer Sentiment Index, has fallen drastically since June. Sentiment has been impeded by the Delta variant and higher inflation concerns, with consumers viewing the buying conditions and the state of the overall economy less favourably.

Lastly, the Fed’s Federal Open Market Committee minutes will be the highlight. Markets will be on the watch for what indicators committee members are considering when it comes to tapering and what could adjust the pace of tapering. Fed officials are split with some recently having called for a faster taper as inflation accelerates.

International – Eurozone and Japanese PMI (November 23); Germany’s ifo survey (November 24); ECB minutes (November 25)

The eurozone and Japanese PMI surveys will provide an update on how firms are faring. European activity has been moderating, with Germany having been hit especially hard given its large automobile industry. Japan on the other hand has seen activity turn expansionary last month, and the ongoing election cycle is looking to push more stimulus that could see economic sentiment move higher.

Germany’s ifo Business Climate index has fallen every month since peaking in June. Supply chain constraints have weighed on activity, and a resurgence in cases further hamper business conditions.

Lastly, we have the ECB minutes, which will be of considerable interest to investors. The minutes will be analyzed carefully for hints of how policymakers could move in future months, as ECB President Christine Lagarde signaled that the Pandemic Emergency Purchase Programme would end in March and had said previously that any formal tapering announcement would be made at the December meeting..

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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.