Weekly Market Pulse - Week ending April 16, 2021
The equity rally continued with strong economic data overshadowing vaccination rollout disruptions. Retail sales in the U.S. soared on discretionary spending support by a reopening economy and stimulus cheques. Rollout of the Johnson & Johnson vaccine was paused in the U.S. and EU due to cases of blood clots. Moderna announced it would cut its vaccine deliveries to countries including Canada and UK due to a shortfall in production. The S&P 500 rose 1.37% and the S&P/TSX Composite gained 0.64%, both ending the week at all-time highs.
Yields were mixed last week. Yields in the U.S. fell even as strong economic data came in. The Bank of Canada and ECB meetings are set to meet this week. The U.S. Treasury 10-year yield fell 8 basis point to 1.58%. The Government of Canada 10-year yield rose 4 basis point to 1.54%.
Copper prices rose 3.17% on strong economic data in the U.S. and China. Similarly, oil prices gained 6.42% on data showing strong Chinese imports and falling U.S. stockpiles.
Performance (price return)
As of April 16, 2021
Canada – Ontario extends lockdown; Business outlook brightens; Manufacturing sales fall
After market close on Friday, Ontario announced an extension to its stay-at-home order by an additional two weeks to May 20 and said it would strengthen its enforcement of lockdown measures. The province is struggling to contain the virus as infection and hospital rates continue to rise.
The Bank of Canada Business Outlook survey shows strengthening business sentiment with the report highlighting that 64% of firms have indicated sales have reached or exceeded pre-pandemic levels. Future sales expectations also rose. Investment and hiring intentions were supported by signs of healthy demand and the need for additional capacity. However, not all firms shared the same outlook, particularly for those in high-contact services, where the outlook of the industry remains uncertain. Inflation expectations rose with firms widespread expecting upward pressures, with the most indicated sources to come from commodity-related prices and elevated shipping costs. Firms indicated they intended to pass cost increases to their customers.
Manufacturing sales fell 1.6% in February, following the 3.4% increase in January. The decline was led by transportation equipment, where motor vehicle and parts manufacturers have faced a semiconductor shortage. Higher sales in petroleum and coal, chemical, and wood products provided some partial offset.
U.S. – Fed Beige Book sees economy picking up; CPI rises; Retail sales soar; Industrial production increases; Philadelphia Fed Business Outlook Survey optimistic
The Fed Beige book notes that economic activity had accelerated since late February and consumer spending strengthened. Easing restrictions and increased vaccinations resulted in bolstered demand for leisure activities and travel. Outlooks were also more optimistic boosted by the accelerating rate of vaccinations. Non-financial services industries saw improvements and despite supply chain disruptions, manufacturing expanded. Job growth picked up but was generally strongest in manufacturing, construction, and leisure and hospitality. Employment expectations were generally bullish. Prices accelerated due to significantly rising input costs, specifically in metal, lumber, food, and fuel.
CPI rose 0.6% seasonally adjusted in March, following the 0.4% increase in February. In year-over-year terms, prices increased 2.6%. Gasoline prices led the increase rising 9.1% in the month. Core CPI, excluding food and energy, rose 0.3%.
Retail sales jumped 9.8% in March, following the 2.7% decline in February. The reading was supported by the latest round of stimulus cheques and an unwinding of low activity due to the cold weather in February, with a large boost in discretionary categories. Sporting goods, hobby, musical instruments, and books sales surged 23.5%, motor vehicle sales increased, 15.1%, food services and drinking rose 13.4%, and clothing grew 18.3%.
Industrial production rose 1.4% in March, following the 2.6% decline in February. By industry grouping, manufacturing output rose 2.7% and mining rose 5.7%. Utilities output meanwhile dropped 11.4% as demand for heating fell as temperatures warmed from February’s cold spell. Capacity utilization rose 1.0% to 74.4%, but remains 2.5% below pre-pandemic levels.
The Philadelphia Fed General Business Activity Index rose to 50.2 in April from 44.5 in March. Activity remains strong, with firms continuing to add to their payrolls. Firms reported ongoing upward cost pressures, resulting in firms increasing their prices. Businesses remain optimistic about future growth, expecting hiring and capital spending to increase.
International – Japan machine orders fall; China GDP rises on manufacturing and construction; China exports rise
Japan core machinery orders fell 8.5% seasonally adjusted in February, following the 4.5% decline in January. The data shows weak domestic orders, likely due to the state of emergency that was extended into March. Foreign orders, not included in the reading, however surged 76.2% showing evidence of a strong global recovery.
China Q1 GDP rose 18.3% when compared to Q1 2020. This reading however is skewed due to the low base last year as the country enforced a wide-scale lockdown. When compared to the previous quarter, Q1 GDP rose just 0.6%. Construction and industrial production continue to drive growth, while services struggled. Industrial production rose 2.01% quarter-over-quarter in Q1, and retail sales increased 1.86%.
China exports rose 30.6% in dollar terms in March compared to the same period last year. The reading is skewed due to the low base during COVID lockdowns last year. Exports of rare metals picked up in the quarter, while exports of electronic fell.
Quick look ahead
Canada – CPI and Bank of Canada Meeting (April 21)
The market consensus for the March CPI reading is expected to come out at 0.6%. Similar to the just released U.S. reading, rising commodity prices are expected to be the driver. The reading would bring the year-over-year increase to 2.3% in part due to a low base reading last year.
The Bank of Canada is set to meet, and markets will watch for any tightening or forward guidance in monetary policy.
U.S. – Markit PMI (April 23)
A quiet week of data where the main focus will be on the Markit PMI readings. The accelerating pace of vaccinations could further boost optimism.
International – UK unemployment rate (April 20); ECB meeting and Japan PMI (April 22); Eurozone PMI (April 23)
The UK unemployment rate for February will be released. The UK releases a 3M average, so the unemployment rate is expected to remain unchanged at 5.0%. The release could surprise as the UK is leading in vaccinations among the European countries.
At the upcoming ECB meeting, markets will be watching for any comments on bond purchasing after having implemented a faster roll-out of its program to counteract rising bond yields.
And lastly, we will have the updated April iteration of Japan and eurozone PMIs as early recovery indicators. Both areas face a similar issue, rising case counts could weaken domestic demand while strong foreign demand could pick up the slack.