Weekly Market Pulse - Week ending June 25, 2021
Stocks rebounded last week as comments from the U.S. Federal Reserve calmed markets. In his testimony to the House of Representatives, Fed Chair Jerome Powell reiterated his view that inflation is transitory and will abate later this year. Powell acknowledged there are risks that inflation could run hotter and persist longer than expected, but stated that the Fed would wait for hard data before any action. The S&P 500 Index ended the week at an all-time high.
Yields increased, with the U.S. Treasury 10-year yield rising nine basis points to 1.52% and the Government of Canada 10-year yield rising nine basis points to 1.45%.
Oil extended gains once again on another week of strong stockpile drawdowns. The OPEC+ coalition will meet next week, with expectations for a small increase in supply amid the strong recovery in demand. Copper prices partially recovered following a large drawdown in the prior week on concerns of a potentially less-stimulative Fed. Copper also benefited from the U.S. Senate passing President Joe Biden’s US$1 trillion infrastructure bill, which will now be passed to Congress.
Performance (price return)
As of June 25, 2021
Canada – Retail sales decline; Small business sentiment rises
Retail sales fell 5.7% in April, following a 4.5% gain in March. Provincial governments enacted lockdown measures in response to increasing daily COVID infections. Among provinces, Ontario was hit hardest, with retail sales dropping 13.4%. By industry, clothing store sales fell 28.6%, sporting goods, hobby, book, and music stores fell 26.2%, and furniture stores declined 15.0%. Statistics Canada estimates retail sales declined a further 3.2% in May.
The CFIB Business Barometer Index rose to 70.1 in June, from 66.2 in May. Hiring intentions are trending upwards and more businesses are indicating their enterprises are in good health. Firms also noted that future pricing plans are still increasing.
U.S. – Markit PMI declines; Personal income falls with spending unchanged; Durable goods orders rise
The IHS Markit Flash U.S. Composite Purchasing Managers’ Index fell to 63.9 in June, from 68.7 in May. The Manufacturing PMI rose to 62.6 from 62.1, while the Services PMI fell to 64.8 from 70.4. Firms continue to report strong growth, though the pace of expansion softened. New business growth remains strong with firms reporting a strong month of exports as key export markets loosened restrictions. Price pressures softened but remain at elevated levels, with manufacturers noting increases in raw material and fuel costs and service providers reported higher wages to attract workers. Employment issues continued into June as firms reported difficulty finding suitably trained candidates. Overall, business confidence moved slightly higher.
Personal income declined 2.0% in May, following the 13.1% decline in April. The decline was attributed to decreases in government benefits. This included stimulus cheques, which continued at a lower level in April but did not continue into May. Wages and salaries rose in May to provide some offset. Spending was unchanged during the month. The data show that an increase in spending for services was offset by a decrease in spending for goods.
Durable goods new orders rose 2.3% in May, following a 0.8% decline in April. The transportation sector rebounded a strong 7.6%, following two consecutive months of decline. Excluding transportation, orders rose just 0.3%.
International – Bank of England warns against “premature tightening”; Japan PMI falls, Eurozone PMI rises; Germany ifo sentiment increases
The Bank of England left rates and their asset purchase target unchanged. The central bank now sees inflation temporarily exceeding 3%, from a previous peak of 2.5%. Despite the inflation change, the BoE warned against “premature tightening” that could hamper the economy. The central bank stated it does not intend to tighten policy until clear evidence emerges that inflation will stay above the target of 2% in the longer-term.
The au Jibun Bank Flash Japan Composite PMI fell to 47.8 in June, from 48.8 in May. The Manufacturing PMI fell to 51.5 from 53.0, while the Services PMI rose to 47.2 from 46.5. Overall, business activity remains in contractionary territory. New orders fell, mainly attributed to COVID restrictions and supply chain pressures. Job creation, however, picked up on optimism that conditions would improve in the year going forward.
The IHS Markit Flash Eurozone Composite PMI rose to 59.2 in June, from 57.1 in May. The reading is at a 15-year high, indicating surging eurozone business activity as the economy reopens. The Services PMI rose to 58.0 from 55.2, while the Manufacturing PMI held steady at 63.1. Demand continued to improve with accelerating order growth. The removal of some pandemic-related travel restrictions led to a large rise in services exports. Amid the surge in demand and high business confidence, firms boosted employment levels as backlogs rose. Firms again reported steep input cost increases, reflecting widespread reports of higher supplier, fuel, and transport prices, as well as rising wages, with prices charged also rising as a result.
The Germany ifo Business Climate Index rose to 101.8 in June, from 99.2 in May. Companies assessed their current situation as better, and optimism regarding the rest of the year grew as the country recovers from the coronavirus. All index sectors – manufacturing, services, trade, and construction – saw sentiment rise. The manufacturing and construction sectors continued to voice their concerns on supply bottlenecks and material shortages.
Quick look ahead
Canada – GDP (June 30); Markit PMI (July 2)
GDP data for April will be available during the week of June 28. The consensus forecast is for a decline of 0.8% as the economy was hit by another wave of COVID cases and provincial restrictions were put in place in response.
An update of Canada PMI numbers will also be released, which could see further improvements as provincial restrictions have started to ease.
U.S. – Conference Board consumer confidence (June 29); Nonfarm payrolls and factory orders (July 2)
The monthly update of the Conference Board Consumer Confidence survey will be available, including key indicators such as labor market conditions and income expectations. There may also be early hints of large spending plans such as summer vacations that would further support the recovery in services.
The release to watch this week will be nonfarm payrolls. With this indicator disappointing in April and May, markets are expecting hiring growth to accelerate in June, particularly with services entering the summer months. Another factor to watch are unemployment claims, which have been declining but could see an acceleration as more states discontinue expanded unemployment benefits. This development could also further boost employment numbers, however.
Lastly, factory orders for May will be available. The consensus forecast is for a 1.5% increase as preliminary manufacturing survey data showed elevated demand.
International – China’s PMI, South Korean exports, and eurozone CPI (June 30)
China’s official PMI will be available next week, as well as the Caixin Manufacturing PMI. Little change is expected as the country’s rebound looks to already have peaked but should continue to show more normalized growth.
South Korean exports should moderate in June, from the 45.6% year-over-year growth in May that was largely due to base effects. Base effects will start rolling off, but should continue to support growth momentum as lockdowns globally are eased.
In Europe, eurozone consumer price index numbers for June will be released and be closely watched as inflation has been a key point of concern this year. CPI is expected to rise 0.2% in the month, which would see the year-over-year reading decline to 1.9% as positive base effects diminish. Energy prices have been a large contributor whose pressures will ease off, but there could be surprises in the services sector, in which the recovery has just started to pick up speed as the prospects of summer tourism improve.