Weekly Market Pulse - Week ending March 26, 2021

Market developments

Equities:

The S&P 500 rallied to an all-time high as the pace of the vaccine rollout in the U.S. rapidly accelerated. The Suez Canal, where an estimated 12% of global trade passes through, was blocked by a container ship, putting even more pressure on the already strained global supply chain. PMI readings were optimistic, even in Europe where concerns of a third pandemic wave are growing. The S&P 500 rose 1.57%. The S&P/TSX Composite fell 0.54%.

Fixed income:

Yields retreated as Fed Chairman Jerome Powell continued to brush off risks of an overheated economy. He reiterated the Fed expects a temporary increase in inflation that won’t be sustained due to labour market slack. The U.S. Treasury 10-year yield fell 4 basis points to 1.68%. The Government of Canada 10-year yield fell 9 basis points to 1.50%.

Commodities:

Oil and copper prices declined slightly amid concern over demand, a third wave, and renewed lockdowns. Gold prices fell 0.73% on a stronger U.S. dollar.

Performance (price return)

Performance - Price return

As of March 26, 2021

Macro developments

Canada – CFIB small business sentiment rises

The CFIB Business Barometer Index rose to 68.2 in March, from 62.5 in February. Small business sentiment is optimistic, but the report notes that other business indicators have not shown signs of improvement yet. The report says “Staffing plans and general business health are stagnant; while investment plans are only modestly better in March.”

U.S. – Markit PMI increases; Personal income and spending decline on stimulus timing; Durable goods orders fall

The IHS Markit Flash U.S. Composite PMI declined to 59.1 in March from 59.5 in February. The Services PMI rose to 60.0 from 59.8, and the Manufacturing PMI rose to 59.0 from 58.6. New orders supported by exports continue to rise. Manufacturing output was constrained by extensive supply shortages and supplier delays. Producers were unable to keep pace with the increased demand even as strong business led firms to expand their workforce. Backlogs of work rose, and input cost inflation accelerated to the fastest on record since the series began. Looking ahead, firms are highly optimistic that encouraging progress of the vaccine rollout will allow firms to fully reopen, also supported by the additional fiscal stimulus.

Personal income declined 7.1% in February, following the 10.1% surge in January. Personal spending also declined 1.0%, following the solid 2.4% increase in January. The decline in income was due to the timing of the US$600 stimulus cheques in January. The loss of the stimulus boost also hit spending, which was also hurt by the cold spell.

Durable goods orders fell 1.1% in February, following the 3.5% increase in January. This release marks the first decline recorded since April 2020, mainly reflecting disruptions caused by harsh winter storms as orders in every major sector apart from electrical equipment posted declines. Motor vehicles and parts orders plummeted 8.7%, suggesting the global semiconductor shortage may have also played a role.

International – Japan PMI unchanged; Eurozone PMI surges; ifo Business Climate index rises

The au Jibun Bank Flash Japan Composite PMI was little changed at 48.3 in March, from 48.2 in February. The Manufacturing PMI rose to 52.0 from 51.4 and the Services PMI rose to 46.5 from 46.3. In the manufacturing sector, output growth softened but new orders volume expanded. Manufacturers remain cautious, reluctant to take on additional staff as job shedding continued. The services sector continues to deteriorate though at a slower pace. New business fell but the pace of job creation rose to the fastest in 22 months, suggesting firms were confident that activity would pick up.

The IHS Markit Flash Eurozone PMI rose to 52.5 in March, from 48.8 in February. The Manufacturing PMI rose to 62.4 from 57.9 and the Services PMI rose to 48.8 from 45.7. Manufacturing saw a broad-based upturn led by Germany. New business surged, supported by export orders. The order inflow caused backlogs to rise and hiring to pick up as firms looked to boost capacity. Costs rose at the fastest pace in a decade as supply chain delays and shortages led to suppliers hiking prices. Services were hit once again by virus-related restrictions, but the rate of contraction moderated in March. Optimism waned slightly over concerns of a third wave.

The ifo Business Climate Index rose to 96.6 in March from 92.7 in February. German firms were notably more optimistic despite the rising rate of infections. Optimism rose in all sectors: manufacturing, services, trade, and construction.

Quick look ahead

Canada – GDP (March 31); Manufacturing PMI (April 1)

We will get the official reading for GDP in January, which StatsCan had previously estimated had risen 0.5%. More importantly, we will also get a preliminary estimate for the February number, which will show the effect of some provincial lockdowns being lifted.

Following that, March data for the Markit Manufacturing PMI will be released. The report should reflect similar themes of the PMIs of other countries released last week, showing orders outpacing output and similar supply chain disruptions.

U.S. – Conference Board Consumer Confidence (March 30); Nonfarm payrolls (April 2)

Consumer confidence is expected to rise in March as job prospects improve as the economy opens. The economy is increasingly closing in on a return to normal with the rollout of the vaccine. The news of the fiscal stimulus should also improve consumer finances.

March nonfarm payrolls are expected to post a net gain of 635K as the economy continues to reopen. The vaccine rollout is well underway, and the pace continues to accelerate, having now surpassed 2.5M doses administered a day.

International – Eurozone CPI, China PMI, and South Korea exports (March 31)

The eurozone preliminary CPI release is expected to come out at 1.0% for March. The year-over-year reading is expected to accelerate to 1.4% from 0.9% in February. Higher energy prices should contribute to the reading, as well as improving demand in COVID-affected services.

Then we have the China PMI readings for March. The first two months have shown strong production and exports in the country, and globally, manufacturing sectors have improved, which should support demand for Chinese goods.

Korea exports are projected to accelerate to a 20.0% year-over-year increase in March from 9.5% in February. Strong demand for semiconductors is expected to have led the gain.

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