Weekly Market Pulse - Week ending March 5, 2021
After a volatile week, markets managed to retrace some of their prior losses. The technology sector continued to drag on the market as bond yields rose. Fed Chairman Jerome Powell spoke last week and appears to be taking a wait and see stance. He was unfazed by the pace or rising interest rates and highlighted the continued weakness in labour markets as a reason for the Fed to remain stimulative. He said he would only be concerned by “disorderly conditions in markets or persistent tightening in financial conditions.” The S&P 500 rose 0.81%. The S&P/TSX Composite rose 1.78%.
Yields continued to rise on expectations of a strong economic recovery. The U.S. Treasury 10-year yield rose 16 basis points to 1.57%. The Government of Canada 10-year yield rose 15 basis point to 1.50%.
Oil prices surged 7.46% as OPEC surprised markets by holding production unchanged. Copper prices were unchanged, while gold continued selling off, falling 1.93%.
Performance (price return)
As of March 5, 2021
Canada – Manufacturing PMI expands; GDP rises
The IHS Markit Canada Manufacturing PMI rose to 54.8 in February from 54.4 in January. Demand continued to improve as new orders and backlogs rose. Firms added to their workforce to accommodate the increase as capacity pressures rose. Cost pressures continued to intensify as input price inflation accelerated, with firms reporting having passed costs along to customers.
Real GDP expanded 0.1% in December, following the 0.8% increase in November. The output of goods rose 0.6% while services fell 0.1%. For the fourth quarter, real GDP grew 2.3% quarter-over-quarter, or 9.6% annualized. Household spending fell 0.4% quarter-over-quarter, while government expenditures rose 1.5%. Investment rose 2.3% led by machinery and equipment and residential investment, which rose 7.0% and 4.3% respectively. Trade continues to improve, with imports rising 10.8% and exports increasing 5.0%. Overall net exports dragged on the reading as imports outpaced exports. For the year 2020, real GDP contracted 5.4%.
U.S. – Factory orders increase; Nonfarm payrolls rise
Factory orders rose 2.6% in January, following the 1.6% increase in December. The gain was driven by strong demand in the capital goods which rose 8.4%.
Nonfarm payroll employment rose 379K in February. The unemployment rate was unchanged at 6.2%. The gain was driven by the services sector, where employment rose 513K. Employment in leisure and hospitality increased by 355K as restrictions eased. However, employment in the sector is still down about 3.5M. Other service sectors where employment increased include retail trade, professional and business services, and education and health services. The goods-producing sector shed 48K jobs and government employment fell 87K. In the goods sector, employment rose in manufacturing, but fell in construction and mining. Overall, employment is still down 9.5M from February 2020 levels.
International – South Korea exports rise; China PMI weakens; Eurozone CPI unchanged; Eurozone retail sales drop; Germany factory orders rise
South Korea exports rose 9.5% year-over-year in February. Demand for semiconductor remains strong, with exports growing 13.2% year-over-year and automobile exports continuing to pick up, rising 47% year-over-year. By country, exports to China and Europe are up 26.5% and 48.2% year-over-year, respectively.
The Caixin China General Composite PMI fell to 51.7 in February from 52.2 in January. Business activity moderated but still continues to grow. The Manufacturing PMI fell to 50.9 from 51.5 while the Services PMI fell to 51.5 from 52.0. Both sectors reported softer increases in output and new orders, while export demand declined. Backlogs also declined and employment fell. Input cost pressures continue to rise sharply. Firms passed costs onto customers, which to some extent has been transmitted to the demand side.
Eurozone CPI was unchanged at 0.9% year-over-year in February. Food prices rose 1.5%, services increased 1.4%, and non-energy goods rose 1.5%. Energy dragged on the reading with prices falling 4.2%. Core CPI, excluding energy and food, rose 1.1%.
Eurozone retail sales fell 5.9% in January, following the 1.8% increase in December. The largest drop was in non-food product sales which declined 12.0% due to lockdown restrictions. Mail and Internet orders rose 7.1%, partially offsetting the decline.
Germany factory orders rose 1.4% in January, following the 2.2% decline in December. The increase was driven by strong demand for capital goods which rose 3.3%, while demand for consumer goods fell 6.3%.
Quick look ahead
Canada – Bank of Canada meeting (March 10); Labour Force Survey (March 12)
At the Bank of Canada meeting, markets will watch for changes to quantitative easing, since the central bank has hinted that tapering may come. Recent data releases have surprised on the upside and the central bank has said it predicts a sharp bounce-back if restrictions are reduced in the second quarter, which is looking increasingly likely.
Employment is expected to have risen in February as lockdowns have eased. Market consensus is for a 100K increase in jobs.
U.S. – NFIB small business sentiment (March 9); CPI (March 10)
Small business sentiment is expected to rise on prospects for fiscal stimulus and easing lockdowns.
CPI is estimated to have risen 0.4% in February. Energy prices have surged and supply chain constraints should also contribute. On the other side, the dollar should put some broad downward pressure.
International – China exports (March 7); Germany industrial production (March 8); China CPI (March 9); ECB meeting (March 11)
China exports are predicted to have risen 40% YTD year-over-year in February, due to the low base in 2020. China CPI will also be released, with markets expecting a decline of 0.3%. Declining food prices, led by pork, and a high base will drag on the reading.
Germany industrial production is expected to fall slightly in January. A shortage of semi-conductors is expected to hit automobile production.
At the ECB meeting, markets will watch for comments from President Christine Lagarde on rising yields, which have resulted in tighter financing conditions. An updated economic projection will also be released.