Weekly Market Pulse - Week ending February 12, 2021

Market developments

Equities:

Markets continued to rally with the S&P 500 and S&P/TSX rising to new highs. Expectations for the US$1.9T stimulus package are high and the vaccine rollout continues to make progress as investors look ahead. The S&P/TSX Composite rose 1.79%. The S&P 500 rose 1.23%.

Fixed income:

Yields continue to rise on expectations of a solid recovery given the vaccine rollout and stimulus prospects. The U.S. Treasury 10-year yield rose 4 basis points to 1.21%. The Government of Canada 10-year yield rose 3 basis point to 1.03%.

Commodities:

The reflationary trade continues with copper and oil extending gains of 4.47% and 4.61, respectively. Gold rose a slight 0.56%.


Performance (price return)

Performance - Price return

As of February 12, 2021


Macro developments

Canada – Wholesale trade sales decline

Wholesale sales fell 1.3% in December, posting the first decline since April. The three largest subsectors, motor vehicles and parts, machinery and equipment, and food, beverages and tobacco, all reported lower sales. Even with this recent decline, sales are still 3.0% higher than levels seen before the pandemic.

U.S. – CPI rises on gasoline prices; Consumer sentiment deteriorates

CPI rose 0.3% in January on a seasonally adjusted basis, following the 0.2% increase in December. Gasoline prices rose 7.4%, which accounted for most of the increase. Core CPI, excluding food and energy, was flat. On a year-over-year basis, CPI increased 1.4%.

The University of Michigan Index of Consumer Sentiment fell to 76.2 in February from 79.0 in January. Consumer sentiment continues to deteriorate despite the expected passage of the stimulus bill. The Current Economic Conditions Index fell to 86.2 from 86.7, while the drop in the Consumer Expectations Index was more pronounced, falling to 69.8 from 74.0. The prospects for the economy continued to be viewed as negative, both over the year ahead and over the next five years. Unemployment expectations also declined slightly. The report notes “although one might have anticipated greater gains due to Biden’s prospective stimulus, it may signal concerns about continued covid infections due to the new variants and slower progress in making the vaccinations widely available.”

International – Germany industrial production unchanged; China CPI falls; UK GDP rises

Germany industrial production was unchanged in December, following the 1.5% gain in November. By sector, the production in manufacturing and mining grew 0.9%, while construction and energy fell 3.2% and 2.9% respectively.

China CPI fell 0.3% in January on a year-over-year basis, compared to the 0.2% gain in December. The drop was partly attributed to a higher base, but also reflects weak demand within services, where prices fell 0.7%.

UK GDP rose 1.0% in Q4. The growth was driven by government expenditure and business investments, while household consumption fell slightly. For the year, GDP fell 9.9% and remains 7.8% below the Q4 2019 level.


Quick look ahead

Canada – Manufacturing sales (February 15); CPI (February 17); Retail sales (February 19)

The first data release next week is manufacturing sales for December, likely to be dragged lower by the restrictions introduced in the month. The January CPI reading is expected to post a slight gain, supported by rising oil prices. Lastly, we have retail sales. StatsCan had provided an advanced estimate for a decline of 2.6% in December and will release a preliminary estimate for January.

U.S. – Retail sales, industrial production, and FOMC minutes (February 17); Markit PMI (February 19)

Retail sales are expected to rebound in January, with market expectations of a gain of 1.0% following the 0.7% decline in December, as the US$600 stimulus checks should help push sales higher. Similarly, industrial production for January is also expected to post a 0.4% increase. PMI numbers show continued strength in manufacturing even amid supply disruptions.

The FOMC minutes are unlikely to reveal any new information but will be scrutinized as usual for any hints on forward guidance, as markets expect the Fed to start developing a framework for scaling back asset purchases.

The last release is the preliminary PMI readings for February, expected to stay solidly in expansionary territory.

International – Japan GDP (February 15); ECB minutes and Japan PMI (February 18); Eurozone PMI (February 19)

Japan GDP growth is expected to continue its strong rebound seen in Q3, with markets forecasting a rise of 10.2%. Consumption, exports, and private investment are expected to support the reading.

At the last ECB meeting, President Christine Lagarde said that output likely shrank in Q4 and uncertainty remains high. The minutes should provide more context as to the central bank’s view of risks to the economy. 

Finally, we get a refresh on Japan and eurozone PMIs through the preliminary February readings.

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