Weekly Market Pulse - Week ending April 9, 2021

Market developments

Equities:

Equities rallied on strong job numbers. Employment numbers in the U.S. and Canada came in significantly stronger than markets were anticipating, and there is good progress on the vaccination front in the U.S. According to the CDC, 20% of the U.S. population is fully vaccinated. The S&P 500 rose 2.71%. The S&P/TSX Composite rose 1.25%.

Fixed income:

Yields fell as the minutes from the latest meeting of the U.S. Federal Reserve show policymakers are unconcerned about the recent rise in yields, with no mentions of tapering. Data is improving but risks remain elevated, and the labour market has lagged the recovery. The U.S. Treasury 10-year yield fell 6 basis point to 1.66%. The Government of Canada 10-year yield fell 1 basis point to 1.50%.

Commodities:

Oil fell 3.47% on renewed worries over COVID-19 and as markets prepare for a potential slowing recovery, including concerns that travel may be further delayed. Copper fared better, rising 1.24% on the encouraging employment data.

Performance (price return)

Performance - Price return

As of April 9, 2021

Macro developments

Canada – Employment surges as restrictions loosen; Exports and imports decline

Employment rose 303K in March, following the 259K increase in February, compared to the market consensus of a gain of 100K. The unemployment rate fell by 0.7 of a point to 7.5%. The gains were led by services sectors as restrictions eased in the month, where employment surged 260K. Retail trade jobs increased 95K, culture and recreation rose 62K, and accommodation and food services gained 21K. Compared to pre-pandemic levels, there were 296K fewer people employed in March compared to the peak decline of 3M.

Merchandise trade data show that exports fell 2.7% and imports declined 2.4% in February. The supply of semiconductor chips fell short of global demand and began to show in motor vehicles and parts, as manufacturers were forced to curb production. Exports of motor vehicles and parts declined 10.2% while imports fell 7.8%. Other areas of weakness include exports of metal and non-metallic mineral products, which fell 10.9%, and metal ores and minerals, which decreased 26.7%. Energy exports provided some offset, increasing 18.3%.

U.S. – Fed sees increased risk of inflation; Jobs rise on services; Factory orders decline

The latest FOMC minutes suggest policymakers are not concerned about an overheating economy. The uncertainty surrounding the outlook is still viewed as elevated, as “the path of the economy would depend significantly on the course of the virus, including progress on vaccinations,” with new strains posing considerable risks. Financial conditions are viewed as accommodative, and the Fed was unconcerned about rising bond yields. Market participants attributed the rising longer-term yields to increased investor optimism about the economic outlook and expectations of higher Treasury debt issuance. Inflation was once again characterized as transitory. Risks of upside inflationary pressures have increased, but the risks to the inflation outlook are “broadly balanced.” The labour market has been improving but remains far from a full recovery.

Nonfarm payrolls rose 916K in March, following the upwardly revised 468K increase in February. The unemployment rate declined by 0.2 of a point to 6.0%. Job growth was widespread, once again led by the services sector. Leisure and hospitality employment grew 280K, education and health services rose 101K, and professional and business services increased 66K. In the goods sector, construction jobs rose 110K and manufacturing grew 53K. Government employment rose 136K on the back of education jobs.

Factory orders declined 0.8% in February, following the 2.7% rise in January. Orders for durable goods fell 1.2%, led by transportation equipment declining 1.8%, machinery decreasing 0.8%, and metal products falling 0.8%.

International – Eurozone unemployment rate unchanged; China CPI rises; Germany factory orders and Germany industrial production

The eurozone unemployment rate seasonally adjusted was 8.3% in February, unchanged from the upwards revised rate of 8.3% in January from 8.1%. Unemployment rose 48K in the month. China CPI rose 0.4% year-over-year in March, following the 0.2% drop in February. The strongest contributor was gasoline prices which rose 11.5% year-over-year. Food prices fell again in March, with the decline in pork prices accelerating to 18.4% from 14.9%. 

Germany factory orders rose 1.2% in February, following the 0.8% gain in January. Domestic orders rose 4.0% while foreign orders fell 0.5%. Foreign orders were solid from the euro area increasing 2.7%, while declining 2.3% elsewhere.

By product, capital goods orders rose 2.1%, while consumer goods orders fell 1.9%.

Germany industrial production fell 1.6% in February, following the 2.0% decline in January. Markets had expected a 1.5% rise. Production in industry fell 1.8%, dragged by capital goods declining 3.2% and intermediate goods decreasing 1.0%. The production of consumer goods rose a slight 0.2%. Energy production fell 1.0% and construction declined 1.3%.

Quick look ahead

Canada – Bank of Canada Business Outlook Survey (April 12); Manufacturing sales (April 15)

The Bank of Canada will release its quarterly Business Outlook Survey. The report will unveil details on the current condition and outlook of firms. Some key points to watch are hiring intentions, capital expenditure intentions, and inflation expectations.

The February manufacturing sales reading will provide an update on how firms have fared during the lockdowns.

Manufacturers have been strong throughout the pandemic, but foreign readings have shown recent weakness. Market consensus is for a decline of 1.0%.

U.S. – CPI (April 13); Fed Beige Book (February 14); Philadelphia Fed Business Outlook Survey, retail sales, and industrial production (April 15)

The March CPI reading is highly anticipated. Demand is expected to surge as the economic recovery progresses. At the same time, supply issues should contribute to upwards pricing pressures. Markets forecast an increase of 0.5%, which would translate to 2.5% year-over-year in part due to a low base reading last year.

An updated iteration of the Fed Beige book will be released, which should reflect improved sentiment in the U.S., and the Philadelphia Fed Business Outlook Survey will provide the first glimpse of how manufacturers have fared so far in April.

Retail sales are expected to have surged 5.5% in March as stimulus cheques were sent out. Spending in February was also subdued due to the cold weather.

Similarly, industrial production should have picked up in March, reversing losses due to the harsh winter storms in February.

International – Japan machine orders and China exports (April 13); China GDP, retail sales, and industrial production (April 15)

Japan machine orders are expected to rise in February following the 4.5% decrease in January. There is a risk the extension of the state of emergency order could have reduced capital spending.

We receive a slew of Chinese data for March, which is all expected to come in strong. GDP is expected to have expanded 18.6% in Q1 compared to the same period last year. A low base reading due to the shutdown last year will influence the reading, but at the same time it reflects a strong recovery and the continued strength of the Chinese economy. The data is expected to show a strong recovery from the production side as data has been strong so far this year. There are also signs that consumption has picked up due to the lifting of pandemic restrictions.

Aviso Wealth Inc. (“Aviso Wealth”) is the parent company of Credential Qtrade Securities Inc. Aviso Wealth is a wholly-owned subsidiary of Aviso Wealth Limited Partnership, which in turn is owned 50% by Desjardins Financial Holdings Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and the CUMIS Group Limited.

Online brokerage services are offered through Qtrade Investor, a division of Credential Qtrade Securities Inc., a wholly owned subsidiary of Aviso Wealth Inc. and Member of the Canadian Investor Protection Fund.

Northwest & Ethical Investments L.P (“NEI” or “NEI Investments”) is a subsidiary of Aviso Wealth; and NEI Funds are related issuers of Credential Qtrade Securities Inc.

This material is for informational purposes only. While this material has been compiled from sources believed to be reliable, Qtrade Investor does not guarantee the accuracy, completeness, timeliness or reliability of this information. Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. All investments are subject to risk, including the possible loss of principal.