Weekly Market Pulse - Week ending March 12, 2021

Market developments


Equities rose in a broad-based rally as the US$1.9T Covid-19 relief bill was signed by U.S. President Joe Biden. The package includes direct aid to Americans as well as measures to support the recovery such as accelerating the vaccine production and distribution. President Biden set May 1st as a target to have all adults eligible for the vaccine. The S&P 500 rose 2.64%. The S&P/TSX Composite rose 2.56%.

Fixed income:

Yields continue to rise on high economic expectations. All eyes will be on the Fed next week as markets watch for comments on the recent substantial rise in rates. The U.S. Treasury 10-year yield rose 6 basis points to 1.62%. The Government of Canada 10-year yield rose 8 basis point to 1.59%.


Copper continues to climb 1.43% on high growth prospects while gold rose 1.56% on heightened inflation worries on the passing of the U.S. stimulus package. Oil prices cooled a bit following the impressive rally the previous week.

Performance (price return)

Performance - Price return

As of March 12, 2021

Macro developments

Canada – Bank of Canada sees excess capacity in labour market; Employment rises

The Bank of Canada left rates unchanged and continues its commitment to the quantitative easing program at its current pace of at least $4B per week. The near-term outlook has strengthened as the economy is proving to be more resilient than anticipated. However, the recovery has been uneven and “continues to require extraordinary monetary policy support.” The central bank noted that the labour market is a long way from recovery and the excess capacity continues to exert downwards inflationary pressures.

Employment rose 259k in February, following the 213K decline in January. The unemployment rate fell by 1.2% to 8.2%.

The gains were almost entirely in the services sectors as restrictions eased in the month. Retail trade jobs increased 122K and accommodation and food services rose 65K.

U.S. – CPI rises; NFIB small business optimism increases

CPI rose 0.4% on a seasonally adjusted basis in February, following the 0.3% increase in January. Gasoline prices surged 6.4% and food prices increased 0.2%. Core CPI, excluding food and energy, rose 0.1%. The indexes for shelter, recreation, medical care, and motor vehicle insurance increased, while airline fares, used cars, and apparel declined. On a year-over-year basis, CPI rose 1.7%.

The NFIB Small Business Optimism Index rose to 95.8 in February, from 95.0 in January. Plans to hire and capital spending intentions marginally increased. Expectations of a better economy and positive earnings trends also showed improvement but remain negative on net.

International – ECB to ramp up asset purchases; China exports rise; China CPI declines; Germany industrial production falls

The European Central Bank kept policy unchanged. ECB President Christine Lagarde said that the sizeable and persistent increases in rates could lead to premature tightening, damaging the recovery. In response, the central bank decided to increase the pace of the purchases under the Pandemic Emergency Purchase Programme over the next quarter. Growth and inflation expectations were largely unchanged. The economic outlook is more positive, but the view remains that risks are skewed to the downside. Inflation expectations are expected to increase this year on pent-up demand, but this transient effect is not expected to last.

China exports rose 60.6% YTD compared to the same period last year in February. The strong increase is skewed by the low base in 2020, but also highlights strong demand. The data shows high demand for medical equipment and work-from home related equipment.

China CPI fell 0.2% year-over-year in February, a slight rise from the 0.3% decline in January. Food continues to drag on the reading with pork prices falling 14.9% from a year ago. Excluding food and energy, CPI was unchanged.

Germany industrial production fell 2.5% in January, following the 1.9% increase in December. Construction output fell 12.2% reversing consecutive gains in previous months. Manufacturing & mining output also dragged with a 3.0% decline in consumer goods. Production remains 4.2% below February 2020 pre-pandemic levels.

Quick look ahead

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

Manufacturing sales are expected to increase a solid 2.7% in January. CPI looks to have sharply risen in February as gasoline prices surge, with market consensus for a 0.7% increase non-seasonally adjusted.

Retail sales are expected to have fallen in January due to provinces maintaining social distancing measures. StatsCan had previously estimated a decline of 3.3% and will also provide a preliminary estimate for February.

U.S. – Empire Manufacturing survey (March 15); Retail Sales (March 16); Fed meeting (March 17)

The Empire Manufacturing survey will give the first glimpse of how manufacturers are faring in March followed by retail sales numbers for February. Markets anticipate a slight decline of 0.5% on the colder than usual weather.

Lastly and most importantly, markets will be keenly watching the Fed on any hints of tapering going forward as well as comments on the recent rally in yields.

International – China retail sales and industrial production (March 14); Germany ZEW survey (March 16); Bank of England meeting (March 18); Bank of Japan meeting (March 19)

China will release retail sales and industrial production numbers for February. Similar to the exports reading last week, a strong base will support the reading, but strong demand will also be reflected.

In Europe, an updated iteration of the ZEW survey will be available, gauging the opinion of professionals. The reading should show some improvement as restrictions ease and increased expectations for the reopening.

Finally, we have the Bank of England and Bank of Japan meetings. For the Bank of England, markets will be watching for forward guidance as well as any reaction from the central bank on the recent rise in yields. The Bank of Japan meanwhile will release findings from a review of its framework, which may have significant impact on the central bank’s commitment to yield curve control and quantitative easing policies.

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