Weekly Market Pulse - Week ending May 7, 2021

Market developments

Equities:

Equities rallied even as the U.S. and Canada released disappointing job numbers. Markets shrugged off the U.S. payrolls release, which missed expectations by a large margin and presents the risk of a slowing recovery. Investors are increasingly focused on that recovery, as the tech-heavy Nasdaq, which benefitted from people staying at home, sold off. The S&P 500 rose 1.23% and the S&P/TSX Composite rose 1.91%, both reaching new highs.

Fixed income:

Yields retreated last week. The U.S. Treasury 10-year yield fell 5 basis points to 1.58%. The Government of Canada 10-year yield fell 5 basis points to 1.50%.

Commodities:

Commodity prices rose strongly. Oil prices rose 2.08% on a large drawdown of U.S. crude stockpiles. Copper prices soared 6.41% on strong manufacturing demand. Gold prices rose 3.51% on falling yields and the U.S. dollar.

Performance (price return)

Performance - Price return

As of May 7, 2021

Macro developments

Canada – Manufacturing PMI indicates solid growth; Employment falls on restrictions

The IHS Markit Canada Manufacturing PMI fell to 57.2 in April from 58.5 in March, signaling another month of solid expansion. Output and new orders continue to show strong growth despite the COVID cases and lockdowns. Backlogs also rose even as firms added to their workforces in response to the demand. Persistent supply shortages and prolonged delivery times pushed firms to stock up on input materials. Firms passed increased prices of materials through to consumers.

Employment fell 207K in April, reversing the 303K increase in March. The unemployment rate rose by 0.6% to 8.1%. Stricter public health measures across the country were in effect with a notable impact on the services industries. Retail trade employment fell 84K, accommodation and food services contracted 59K, and information, culture, and recreation declined 26K.

U.S. – Nonfarm payrolls miss expectations; Factory orders rise 

Nonfarm payrolls rose 266K in April, following the 916K increase in March. The release disappointed, missing market expectations of a gain of 1M. Services employment gained 234K, leading the increase. Accommodation and food services rose 241K and arts, entertainment, and recreation increased 90K. The increase was offset by losses in temporary help services. The unemployment rate rose 0.1% to 6.1% as more people entered the workforce.

New factory orders rose 1.1% in March, following the 0.5% decline in February. The reading was dragged lower by transportation due to orders for aircrafts. Excluding transportation, orders rose 1.6% on strong demand for metal products.

International – Bank of England slows pace of purchases; Germany industrial production expands; China PMI rises; China and South Korea exports surge

The Bank of England revised their growth expectations upwards. The contraction in Q1 looks to be weaker than previously feared, and GDP is expected to return to pre-COVID levels by the end of the year. Inflation forecasts were also changed, now expected to rise temporarily over 2% in 2021. In response, the Bank of England left rates unchanged but opted to slow its bond purchases. The central bank noted that the change of pace of purchases would still see that the original target would still be purchased by year-end.

Germany industrial production rose 2.5% in March, following the 1.6% decline in February. The growth was driven by the construction industry, which expanded 10.8%. Energy production rose 2.4% and manufacturing and mining rose 0.7%. 

The Caixin China General Composite PMI rose to 54.7 in April from 53.1 in March. The Manufacturing PMI rose to 51.9 from 50.6, while the Services PMI rose to 56.3 from 54.3. Stronger rates of growth were reported in services and manufacturing. Manufacturing orders and production rose on improving market conditions and demand. Supply chain issues remain, with firms quoting material shortages and delays, and combined with rising material prices forced firms to pass their costs through. Services firms reported accelerating activity and stronger demand. Companies increased their workforces to alleviate capacity pressures. Optimism for the year ahead tempered slightly but remains high.

China exports rose 32.3% in April compared to the same month last year, following the 30.6% increase in March. While a low base contributed, exports to all major trade partners rose. Exports to the U.S. rose 31.2% and to the EU rose 23.8%.

Korea exports rose 41.1% in April compared to the same month last year, following the 16.6% rise in March. Base effects continue to provide a tailwind and when compared to April 2019, export have risen about 5%. Exports of semiconductors rose 30.2% and auto shipments rose 73.4% on strong demand particularly from the U.S. and EU.

Quick look ahead

Canada – Manufacturing sales (May 14)

A quiet week for Canada with just manufacturing sales as a major data release.

U.S. – CPI (May 12); Retail sales and industrial production (May 14)

Inflation is expected to rise another 0.2% in April. The roll-off of the steep decline of 0.7% from April 2020 will see the year-over-year reading surge to an expected 3.6%.

Retail sales are expected to have risen 1.0% in April, following the 9.8% increase in March due to stimulus cheques. These stimulus payments would have continued to support spending into the month.

Market consensus for April industrial production is for an increase of 0.9%. The ongoing supply chain disruptions could have held back output and are a downside risk.

International – China CPI (May 10); Germany ZEW survey (May 11); UK GDP (May 12)

China CPI is expected to have accelerated to 1.1% year-over-year in April from 0.4% in March. Food prices are expected to have continued their downward trend, while the upturn of services is expected to drive an increase.

The May iteration of the Germany ZEW survey will be released. There is currently a wide divergence between the current sentiment, weighed down by restrictions, and high future expectations due to vaccinations.

The Bank of England had said last week that Q1 GDP is expected to have fallen by just 1.5% as a lockdown was imposed early in the year. The UK economy is already beginning to show signs of recovery as schools reopen; the country is .among the fastest in terms of vaccination rollouts

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