Weekly Market Pulse - Week ending April 1, 2021

Market developments

Equities:

The S&P 500 rallied to an all-time high for a second straight week as U.S. President Joe Biden announced a US$2.25T infrastructure stimulus package. News of a large fund blow-up also swept markets as specific stocks were hit hard as banks offloaded large blocks to de-risk. There are worries of domino effects, but for now markets look to have absorbed the hit. The S&P 500 rose 1.14%. The S&P/TSX Composite rose 1.27%.

Fixed income:

Yields were unchanged for the week as investors weighed concerns of a third COVID-19 wave against additional stimulus. The U.S. Treasury 10-year yield fell 1 basis point to 1.67%. The Government of Canada 10-year yield rose 1 basis point to 1.51%.

Commodities:

Oil rose slightly on OPEC+ forecasts that demand will continue to increase and its plans to gradually increase output over the next few months. Copper fell 2.16% even as Biden announced an infrastructure stimulus plan, overshadowed by demand concerns from China and Europe. Gold was unchanged.

Performance (price return)

Performance - Price return

As of April 1, 2021

Macro developments

Canada – GDP rises; Manufacturing PMI indicates strong demand

Real GDP rose 0.7% in January, following the 0.1% gain in December. Output at goods-producing industries increased 1.5%, while the services industries rose just 0.4%. Wholesale trade grew 3.9%; mining, quarrying, oil & gas rose 2.7%; and manufacturing increased 1.9%. Stay-at-home orders and other restrictions continue to drag on the economy. Retail trade contracted 1.7% and accommodation and food services fell 3.0%. Total economic activity remails 2.6% below pre-pandemic levels. StatsCan estimates GDP rose 0.5% in February based on preliminary data.

The IHS Markit Canada Manufacturing PMI rose to 58.5 in March from 54.8 in February. Manufacturing new orders surged, with reports of greater demand on domestic and foreign fronts. Even as manufacturers boosted output and increased their work force in March, manufacturers were unable to keep up with demand and backlogs rose. Firms continue to report a strained supply chain, as material shortages and border restrictions remain, contributing to the build-up of outstanding work. Input prices rose as a result, but the strong demand environment allowed firms to pass on the costs.

U.S. – Conference Board Consumer Confidence (March 30)

The Conference Board Consumer Confidence Index surged to 109.7 in March from 90.4 in February. Consumer confidence rose to its highest level since the pandemic began as assessments of business conditions and job prospects were increasingly optimistic. Purchasing intentions for homes, autos, and big-ticket items rose, as well as short-term inflation concerns.

International – Eurozone CPI surges; China PMI expands; South Korea exports accelerate

Eurozone CPI rose 0.9% in March according to the preliminary reading, following the 0.2% increase in February. The increase was driven by goods. Energy rose 2.6% and industrial goods rose 2.2%. Services prices rose just 0.2%. On a year-over-year basis, prices rose 1.3%.

The official China Composite PMI rose to 55.3 in March from 51.6 in February. The Manufacturing PMI increased to 51.9 from 50.6, while the Non-manufacturing PMI rose to 56.3 from 51.4. Within manufacturing, production and new orders rose with export orders rebounding. The employment reading turned expansionary for the first time since April 2020. In non-manufacturing, both construction and services posted notable increases. Overall, new orders rose and the pace of job loss slowed as social distancing measures loosened. The construction sector also has the tailwind of fiscal policy support flowing through.

The Caixin China General Manufacturing PMI declined to 50.6 March, from 50.9 in February. The report has similar readings to the official reading, showing expanding production and sales driven by exports. Vendor performance continued to deteriorate with delivery times lengthening. Input costs rose amid rising material prices and were passed along. Manufacturer optimism rose to the highest level in seven years.

Korea exports accelerated to 16.6% year-over-year in March, from 9.5% in February. Ship and vessel exports soared 63.9% year-over-year, petrochemicals surged 48.5%, automobile exports increased 15.3%, and steel products rose 12.8%. Another encouraging indicator is that machinery exports increased 6.9%, signalling improving capital expenditure intentions.

Quick look ahead

Canada – International Merchandise Trade (April 7)

A quiet week with just import and export data.

U.S. – Nonfarm payrolls (April 2); Factory orders (April 5); FOMC minutes (April 7)

March nonfarm payrolls are expected to post a net gain of 650K as the economy continues to reopen. The vaccine rollout is well underway, and the pace continues to accelerate.

Factory orders are expected to post a slight decline of 0.5% in February, as manufacturers were hit by the harsh winter storms. The reading may also show signs of supply chain strains and semiconductor shortages.

Lastly, we have the FOMC minutes. At the last meeting Fed Chairman Jerome Powell was unfazed by rising yields, which the Fed attributes to strong growth expectations as opposed to inflation. Although Powell said it was not yet time to think about tapering, the minutes may shed light on how the Fed may go about tapering and what requirements must be met.

International – Eurozone unemployment rate (April 6); China CPI and Germany factory orders (April 8); Germany industrial production

February unemployment rates for the eurozone will be released, expected to be unchanged at 8.1% as member countries lag behind the U.S. and UK with their vaccine rollouts.

China CPI is expected to accelerate to 0.2% year-over-year in March, from -0.2% in February. Demand is improving, and PMIs are starting to indicate an upturn in the services sector as restrictions ease.

Following that, Germany factory orders and industrial production for February will be released. Markets expect increases of 1.3% and 1.5%, respectively, as manufacturing activity looks to have strengthened in February.

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