Weekly Market Pulse - Week ending February 19, 2021
Markets stalled last week. Despite strong retail sales and PMIs that were firmly optimistic, weakness in the tech sector dragged down the market. The vaccine rollout faced setbacks as extreme cold weather in Texas delayed shipments. The S&P 500 fell 0.71%. The S&P/TSX Composite fell 0.41%.
Bond yields continued to rise on expectations of the eventual recovery, with U.S. and Canada government issues rising to 1-year highs. The U.S. Treasury 10-year yield rose 13 basis points to 1.34%. The Government of Canada 10-year yield rose 18 basis point to 1.21%.
Copper prices rose 7.55% on the current strong demand expected to significantly increase as economies reopen. Oil prices initially surged on supply constraints with the cold snap in Texas but were relatively unchanged for the week as refineries look to resume operations. Gold prices fell 2.19% on rising yields.
Performance (price return)
As of February 19, 2021
Canada – Retail sales decline; CPI and manufacturing sales increase
Retail sales fell 3.4% seasonally adjusted in December, compared to StatsCan’s preliminary estimate of 2.6%. Sales fell in 9 of 11 subsectors as provincial governments reintroduced social distancing measures. The survey reports that approximately 15% of retailers were closed during December. For the year, retail sales were down 1.4% compared to 2019. StatsCan estimates that retail sales fell another 3.3% in January.
CPI rose 0.6% in January, following the 0.2% decline in December. The increase was led by higher gasoline and goods prices.
Manufacturing sales rose 0.9% in December, reversing the 0.6% drop in November. The gain was led by the wood product, transportation equipment, and petroleum and coal product industries. On a constant dollar basis, sales were down 0.4% indicating a lower volume of goods sold.
U.S. – Markit PMI holding high; FOMC sees inflation risks skewed to downside; Strong retail sales; Industrial production steady
The IHS Markit Flash U.S. Composite PMI rose to 58.8 in February, from 58.7 in January. The Services PMI rose to 58.9 from 58.3 while the Manufacturing PMI fell to 58.5 from 59.2. Service activity picked up as virus-related restrictions were partially eased and inflows of new business picked up. Manufacturing output moderated but is still high. The slowdown was blamed on extreme weather and supply shortages. Input costs and backlogs rose as demand outpaced supply within both services and manufacturing. Employment growth was muted as firms remain cautious on the near-term outlook, but overall business confidence remains upbeat.
Retail sales rose 5.3% in January, following the 1.0% drop in December, beating market expectations of 1.1%. The gains were broad-based with sales rising in all sectors, likely supported by the most recent round of U.S. stimulus cheques and easing restrictions. The strongest increases were seen in furniture, electronics, and non-store retailers.
Industrial production rose 0.9% in January, following the 1.3% increase in December. By industry groups, manufacturing and mining output rose 1.0% and 2.3%, while utilities fell 1.2%. Capacity utilization rose 0.7% to 75.6%. Industrial production and capacity utilization remain 1.9% and 1.4% below pre-pandemic levels, respectively.
The FOMC minutes reiterated that the Fed’s dual mandate goals will “take some time for substantial further progress to be achieved” and said the Fed expects monetary policy to remain accommodative. The overall view of inflation has become more “balanced,” but the risks remain skewed to the downside.
International – ECB sees temporary boost to inflation; Japan GDP rises; Japan PMI rises; Eurozone PMI unchanged
The outlook was relatively unchanged in the ECB minutes. For the first quarter, “the intensification of the pandemic posed some downside risks to output” but there are strong prospects for a recovery in 2021. Inflation is expected to pick up in the near-term on strong global demand and high commodity prices, but the minutes noted that “such a temporary boost to inflation should not be mistaken for a sustained increase.” Medium-term inflationary pressures remain subdued and a convergence towards the ECB’s inflation target remains a challenge.
Japan GDP rose 3.0% in Q4. Business investment rebounded 4.5%, reversing the 2.4% decrease in Q3. Private consumption rose 2.2% and government expenditure also supported the economy, rising 2.0%. Export demand was strong over the period with net exports adding 1.0% to the reading.
The IHS Markit Flash Eurozone Composite PMI rose just slightly to 48.1 in February from 48.0 in January. Eurozone business activity contracted for a fourth consecutive month. The Manufacturing PMI rose to 57.5 from 54.8, while the Services PMI fell to 44.7 from 45.4. The services sector continues to weaken on coronavirus restrictions. Manufacturer activity meanwhile accelerated, led by Germany and the surging demand for raw materials, which led to supply constraints and rising price pressures. Employment rose in manufacturing while declining in services as a result. Business expectations grew more optimistic primarily on hopes of a successful vaccine rollout.
The au Jibun Bank Flash Japan Composite PMI rose to 47.6 in February from 47.1 in January. The Manufacturing PMI turned expansionary, rising to 50.6 from 49.8, while the Services PMI fell to 45.8 from 46.1. Manufacturers reported expanding output, exports, and orders, while services providers reported output and inflows further declining. Employment grew and optimism on growth prospects strengthened.
Quick look ahead
Canada – CFIB Business Barometer (February 25)
A quiet week in Canada with an update on small business sentiment.
U.S. – Durable goods orders (February 25); Personal income and spending (February 26)
Durable goods orders are expected to extend growth into January, with the recent PMI readings showing strong demand in manufacturing.
Personal incomes are expected to show a large increase in January with the US$600 stimulus cheques. Market expectations are for a gain of 9.5%. Spending should also have increased as retail sales data has shown the pent-up demand of consumers as they receive stimulus money and restrictions ease.
International – Germany ifo survey (February 22); Japan industrial production (February 25)
In Germany, we will get an updated iteration of the ifo survey for February. Business sentiment is unlikely to show large changes as the country stays in lockdown. Japan industrial production is expected to have rebounded in January. Corporate plans had pointed to an increase also reflected in the most recent PMI readings, but there is the downside risk with Japan having extended the state of emergency.