Weekly Market Pulse - Week ending June 11, 2021

Market developments


Stocks ended the week slightly higher. The NASDAQ Composite Index fared better than the S&P 500 Index as inflation expectations further moderated with the release of May’s Consumer Price Index reading. Underlying CPI data show that the index’s increase was driven by discretionary spending associated with a broad reopening of the economy. Markets are becoming more receptive to U.S. Federal Reserve Chairman Jerome Powell’s narrative that inflation is transitory and will soften in the second half of the year.

Fixed income:

Yields fell as inflation expectations continue to moderate ahead of the upcoming Fed meeting. The U.S. Treasury 10-year yield fell 10 basis points to 1.45%. The Government of Canada 10-year yield fell nine basis points to 1.37%.


Oil extended gains of 1.85% on bullish forecasts by OPEC and the U.S. Energy Information Administration, as well as continued oil inventory drawdowns. Gold prices fell 0.74% as the dollar rose following the CPI release.

Performance (price return)

Performance - Price return

As of June 11, 2021

Macro developments

Canada – Bank of Canada sees activity rising over summer; Capacity utilization rises

The Bank of Canada left monetary policy unchanged this week. The central bank noted that the increased pace of vaccinations and easing provincial restrictions should lead to the Canadian economy rebounding strongly over the summer, driven by consumer spending. In terms of inflation, the central bank stated that “while CPI inflation will likely remain near 3% through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure.”

Capacity utilization rose to 81.7% in Q1 2021, compared to 79.7% in Q4 2020. Construction, mining, and oil and gas drove the increase. Construction capacity utilization rose to 92.4%, the highest level since 1990. Manufacturing capacity utilization rose to 76.5%, from 74.2%.

U.S. – CPI rises; Consumer sentiment increases

CPI rose 0.6% on a seasonally adjusted basis in May, following the 0.8% jump in April. Prices of used cars continued to sharply rise another 7.3%, accounting for about one-third of the total increase. Food prices rose 0.4% and energy prices were unchanged. Core CPI, excluding energy and food, increased 0.7% in the month. On a year-over-year basis, CPI rose 5.0%.

The University of Michigan Index of Consumer Sentiment rose to 86.4 in June, from 82.9 in May. Consumers anticipated stronger economic growth resulting in declining unemployment. Inflation remained a top concern, though the expected rate of inflation declined to 4.0%. The survey notes that two-thirds of consumers already expect higher interest rates in the year ahead.

International – ECB holds steady; China’s exports soften, CPI rises; German industrial production declines; German ZEW economic sentiment falls

The European Central Bank kept monetary policy steady, continuing with its accelerated pace of asset purchases. When asked about exiting emergency asset purchase measures, ECB President Christine Lagarde responded that such a move would come “in due course”. The central bank provided a new economic forecast, with GDP and inflation in 2021 and 2022 revised upwards. GDP growth is now forecasted to be 4.6% in 2021 and 4.7% in 2022, before returning to a more normal level of 2.1%. Similarly, inflation is expected to be 1.9% in 2021 and 1.5% in 2022.

China’s exports rose 27.9% year-over-year in May, compared to 32.3% in April. A low base was a significant driver for the headline reading, but base effects were more modest this month. Exports of electronics, clothing, medical equipment, and furniture softened compared to last month.

China’s CPI rose 1.3% year-over-year in May, compared to 0.9% in April. The inflation measure’s non-food component rose 1.6% as momentum continued in consumer spending. Food prices meanwhile rose 0.3% as declining pork prices continue to drag.

Germany’s industrial production fell 1.0% in April, following the 2.5% increase in March. Construction output fell 4.3%, and manufacturing and mining fell 0.7%. Energy output provided some offset rising 6.0%.

The German ZEW Indicator of Economic Sentiment fell to 79.8 in June, from 84.4 in May. Although sentiment fell, it remains at a high level, likely due to a notable improvement in Germany’s current economic situation. Financial professionals continue to expect a strong economic recovery over the next few months.

Quick look ahead

Canada – Manufacturing sales (June 14); CPI (June 16)

The week of June 14 starts off with April manufacturing sales, which could see a slight decline as provinces went into lockdown.

CPI data will be the highlight for Canada. Inflation should have run higher in May, as the economy started to pick up speed.

U.S. – Retail sales, industrial production, and Empire State Manufacturing Survey (June 15); Fed meeting (June 16); Philadelphia manufacturing survey (June 17)

Retail sales in May are expected to have contracted. Although discretionary spending—such as dining out, traveling, and attending events—is expected to have accelerated, auto sales are expected to lag. Consensus is for a decline of 0.7%.

Industrial production is expected to extend into May, forecasted to increase 0.6%.

There are no major announcements or changes expected at the upcoming Fed meeting. We may see more concrete discussions concerning the tapering of quantitative easing, but the central bank continues to wait for a “full recovery” in the labour market. There will also likely be some discussion on inflation as it runs hot. However, Fed Chairman Jerome Powell will likely continue to view any near-term readings as transitory.

Lastly, we will see some soft data in the form of manufacturing surveys. The monthly updates of the Empire State and Philadelphia surveys are likely to hold as the economy recovers. Once again, the key indicators of interest will be price pressures and updates on supply chain disruptions.

International – China’s retail sales and industrial production (June 16); Japan’s CPI (June 17); Bank of Japan (June 18)

China will release May activity data. Retail sales and industrial production have been trending upwards, and are expected to have further increased in May.

Japan’s inflation is expected to extend its deflationary trend this year. CPI is expected to have fallen 0.2% year over year as restrictions limit consumer demand.

There are virtually no surprises expected out of the Bank of Japan’s meeting. The BoJ is expected to maintain stimulus as the country may be on the verge of another COVID-induced recession as restrictions remain in place. There is a possibility that increased stimulus may be introduced, as some think the BoJ could do more to support the corporate sector.

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