Weekly Market Pulse - Week ending July 9, 2021

Market developments


Stock markets edged upwards, rebounding from an intraweek selloff. Stocks were volatile as the OPEC+ standoff stoked uncertainty over the output of oil production, alongside a Chinese crackdown on ride-hailing company Didi because of data security just days after the company’s U.S. IPO. Market participants feared that this would lead to contagion into other areas of the market. Meanwhile, minutes from the U.S. Federal Reserve showed hesitancy to remove monetary support on the slowing economic momentum and uncertainty.

Fixed income:

Yields decreased as the Fed minutes showed that the central bank’s target of “substantial further progress” was not yet met, and the Fed would wait for incoming data before any tapering decisions. The U.S. Treasury 10-year yield fell six basis points to 1.36%, and the Government of Canada 10-year yield fell five basis points to 1.33%.


Oil prices moderated following six consecutive weekly increases as the OPEC+ coalition remains in a standoff, unable to agree to a deal on supply. Copper prices rose as Chinese stockpiles fell even as officials pledged to release reserves.

Performance (price return)

Performance - Price return

As of July 9, 2021

Macro developments

Canada – Bank of Canada Business Outlook Survey sentiment improves; Employment rises

The Bank of Canada Business Outlook Survey saw positive sentiment broaden as firms reported widespread improving demand. Those in high-contact services continue to face challenges but have become increasingly more confident in a recovery, while firms that led the recovery expect growth to continue at a slower pace. Firms reported capacity constraints, citing modest labour shortages and highlighting supply chain bottlenecks. Capital expenditure plans remain widespread and employment intentions rose to record-highs as firms anticipate an improving economy. Firms reported cost pressures stemming from wage growth, commodity prices, and shipping fees. However, most firms expect to raise selling prices at a pace similar to that of the pre-pandemic environment, indicating that these cost pressures are viewed to be temporary. The majority of respondents expect inflation to remain between 1%–3%, while a third expect prices to rise over 3%.

Employment rose by approximately 231K jobs in June as restrictions were eased in several regions, mostly reversing the 275k jobs lost in the previous two months. The increase was driven entirely by part-time work, which rose 264K, while full-time work declined 33K. By industry, services-producing sectors jobs rose 279K, driven by retail trade and accommodation and food services. Goods-producing sectors meanwhile lost 48K jobs, attributed to construction in manufacturing. The unemployment rate fell by 0.4% to 7.8%.

U.S. – FOMC minutes shows “substantial further progress” not yet met; JOLTS job openings (July 7)

The Federal Open Market Committee minutes noted that, “The Committee’s standard of ‘substantial further progress’ was generally seen as not having yet been met, though participants expected progress to continue.” Some participants, however, mentioned the conditions to begin tapering asset purchase are expected to be met earlier than previously anticipated. Still, the slowing economic momentum and uncertainty would result in the Fed waiting for incoming data before coming to any conclusions. Overall, the FOMC stated, “the economic outlook had continued to improve and that the most negative effects of the pandemic on the economy most likely had occurred.”

U.S. job openings were unchanged at all-time highs of 9.2M in May, according to U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey. For reference, the number of openings available in May 2019 was 7.3M. The number highlights the hiring difficulties reported by employers.

International – ECB’s new inflation target framework; German indicators decline; U.K. GDP rises; China’s inflation moderates

The European Central Bank unveiled the results of its strategy review. The central bank is changing from its target of keeping inflation "close, but under 2%,” to a symmetric 2% inflation target over the medium term. The new target allows for more flexibility and would allow short-term deviations to temporarily overshoot the 2% target. Another aspect in the review is the ECB also announcing a plan to include climate change considerations in its monetary policy framework. According to the central bank, “climate change and the transition towards a more sustainable economy affect the outlook for price stability through their impact on macroeconomic indicators such as inflation, output, employment, interest rates, investment, and productivity; financial stability; and the transmission of monetary policy.”

In the ECB minutes, the central bank seems to view the outlook as too uncertain and fragile to start unwinding support from asset purchases. Policymakers continue to look past the inflation spike which has been deemed temporary, focusing on the muted underlying inflationary pressures. The ECB noted although economic prospects were brightening and the risks were receding, “the negative pandemic shock to the projected inflation path had not been fully reversed.” The central bank is also cautious that the rise in market rates as a result could dampen the recovery and inflation dynamics.

The Germany ZEW Indicator of Economic Sentiment fell to 63.3 in July, from 79.8 in June. On the other hand, the ZEW Assessment of the Current Situation rose to 21.9, from -9.1. Expectations fell as the economy continues to normalize. Despite the decline, the reading is still at a very high level, reflecting positive economic expectations in the coming six months.

German industrial production fell 0.3% in May, following the 0.3% decline in April. Market consensus was for a 0.7% increase. Manufacturing and mining output fell 0.5%, dragged by a 3.4% decrease in capital goods. The production of energy had also declined 2.1% while construction rose 1.3%.

U.K. GDP rose 0.8% in May. The services sector rose 0.9%, driven by a 37.1% increase in accommodation and food services. Manufacturing meanwhile rose 0.8%, driven by electricity and mining. Overall, GDP remains 3.1% below pre-pandemic February 2020 levels.

China’s inflation rate, as measured by its Consumer Price Index, fell to 1.1% year-over-year in June, from 1.3% in May. Prices fell 0.4% for the month. Food prices continue to be the main drag on inflation, declining 1.7% year-over-year. Meanwhile non-food prices rose 1.7% year-over-year, strongly supported by energy prices, which rose 23.6%.

Quick look ahead

Canada – Manufacturing sales and Bank of Canada meeting (July 14)

Markets are expecting a 0.8% increase in manufacturing sales in May, following April’s decline of 2.1%.

The highlight in Canada next week will be the Bank of Canada. There are expectations that the BoC may reduce asset purchases by another billion to $2B per week as the outlook continues to improve. However, it will be just as important to watch new forecasts in the July iteration of the Monetary Policy Report, in which there will likely be upward revisions. The forecasts on inflation, growth, and employment will have key implications on the path to normalize monetary policy.

U.S. – CPI (July 13); Fed Beige Book (July14); Empire and Philadelphia Fed Manufacturing Survey, industrial production (July 15); Retail sales (July 16)

The CPI reading for June may once again be dominated by reopening categories. Market consensus is for a 0.5% increase, which would see the year-over-year reading decline to 4.9% due to negative base effects.

The Fed Beige Book is expected to report improved economic activity. Demand is expected to remain strong, while price pressures and hiring plans will be closely watched. We will also get the July iteration of the Philadelphia and Empire State Fed manufacturing surveys.

Industrial production is expected to increase another 0.6% in June, following the solid 0.8% gain in May. There remain downside risks of vehicle production due to semiconductor shortages, as well as other supply shortages.

Lastly, the retail sales number for June will available, forecasted to decline 0.5%. Waning stimulus spending will drag but rising wage income will provide some offset. Also, the continued reopening could see spending shift from goods towards services, which the data do not capture.

International – China’s exports (July 13); China’s GDP, retail sales, and industrial production (July 15); Bank of Japan (July 16)

Global market analysts will be focused on a number of data releases from Asia. Chinese exports are expected to have slowed in June, rising 21.0% year-over-year, compared to 27.9% in May.

China will also release GDP data, forecasted to come out at 8.0% year-over-year. However, looking through the base effect distortions, quarter-over-quarter numbers could come out at 1.0%. Retail sales and industrial production readings will also be released, helping break down the drivers of growth.

The Bank of Japan is expected to keep policy steady as the government announces additional states of emergency. Markets will instead look at the updated forecasts from the central bank, as well as at initial details of its climate change-focused initiative.

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