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Weekly Market Pulse - Week ending July 10, 2020

Market developments


Markets pushed ahead even as the coronavirus case count continued to rise. U.S.-China tensions also rose as popular Chinese app TikTok came under scrutiny, along with U.S. President Trump’s comments on an unlikely “Phase Two” trade deal. Stronger than expected job numbers in Canada and the U.S. this week contributed to the market gains even though rising new cases could delay the recovery. The S&P 500 gained 1.76% while the S&P/TSX Composite gained 0.75%.

Fixed income:

Bond yields retreated slightly. The Canadian government unveiled an expected deficit of $343B last week, which is expected to be funded through 10- and 30-year bonds. The U.S. Treasury 10-year yield fell 3 basis points ending the week at 0.64%. The Government of Canada 10-year yield fell 1 basis point ending the week at 0.55%.


Copper prices continued to gain, up 6.07% on supply worries as global demand started to pick up. Gold prices gained 1.28% while oil prices were flat. OPEC will release their oil market report this week.

Performance (price return)

Performance - Price return

As of July 10, 2020

Macro developments

Canada – Sentiment drops in Business Outlook Survey; Employment rebound continues; Housing starts rise

The Bank of Canada Business Outlook Survey indicator fell to -7 in Q2, from -0.51 in Q1. Business sentiment has dropped significantly due to the pandemic and the fall in oil prices, and nearly half of all businesses reported declines in sales in the last 12 months. Uncertainty remains elevated as the pandemic continues and both domestic and foreign demand remains muted. Sales growth expectations softened, and investment spending intentions dropped to a near- record low. Firms that intend to increase investment often cited improving their digitalization strategies or productivity. Hiring intentions are positive, but only as a majority of firms that laid off workers have plans to refill at least some of the positions. Despite this, many firms do not expect to increase the size of their workforce. Capacity pressures are low as demand has yet to recover, but many firms expect to be able to resume normal production within a month of restrictions being lifted. Firms expect to be able to easily fill positions from the larger pool of available labour, while some businesses noted that the Canadian Emergency Response Benefit has made it difficult to retain current workers or hire new staff.

Inflation expectations declined significantly as businesses intend to moderate price growth to remain competitive. Firms reported widespread tightening credit conditions across most sectors and regions reflecting higher borrowing costs and the decrease in receptiveness of new debt or equity. Stimulus response measures including government programs and BoC facilities have helped ease financial conditions improving access to credit.

The Labour Force Survey reported that employment continues to rebound quickly, as net employment rose 953K in June as businesses reopened. The reference period is June 14 to June 20, by then public health restrictions had eased in most of the country while tight restrictions remained in parts of Ontario including Toronto. Nonetheless, employment had increased in all provinces, broken down by an increase of 488K in full-time jobs and 465K in part-time work. As a result, the unemployment rate dropped to 12.3% in June, from 13.7% in May. The 5.5M workers affected by the COVID-19 shutdown had been reduced to 3.1M, a 43% reduction since April. Workers who worked half their usual hours for reasons likely related to the virus dropped by 823K in June, but the number remains 1.4M above pre-COVID levels. 2.5M Canadians remain unemployed, compared to 1.1M in February prior to the outbreak and 844k or 34% among the unemployed were reported on temporary layoff and expect to return to a previous job.

Housing starts rose 212K in June, compared to a 196K increase in May. The gain reflects gains in Ontario housing starts which rose to 76.3K from 55.6K in May.

U.S. – Initial jobless claims at 1.3M

Initial jobless claims for the week ending July 4 registered 1.31M, a 99K decline from the prior week. The reading is slightly better than market consensus of 1.38M, continuing the downward trend but remaining at highly elevated levels. Continuing claims for week ending June 27 fell to 18.1M, from 19.3M the previous week.

International – Eurozone retail sales rebound; Germany factory orders and industrial production rise less than expected; China credit reflects supportive policy

Retail sales in the euro area rebounded 17.8% in May, following two consecutive months of double-digit declines, showing a quick and strong return of consumer spending as virus concerns eased. Automotive fuel sales and other non-food products jumped 38.4% and 34.5%, respectively. Retail sales are still down 12.5% from February.

Germany factory orders recovered 10.4% in May, following a 26.2% decline in April. Market consensus was for a 15.4% rebound. Orders were strong in the euro area increasing 20.9%, while orders from other countries increasing only a meager 2.0%, which may reflect the lagging recovery of countries which do not have the coronavirus under control. New orders in the automobile industry are also on the rise but are still 47% lower compared to February.

Germany industrial production rose 7.8% in May, following a 17.5% decrease in April. The rise was driven by a 10.3% increase in manufacturing attributed to a 27.6% increase for capital goods. Production in energy and construction increased 1.7% and 0.5% respectively.

Chinese aggregate financing rose by 3.43T yuan in June, up from 3.2T yuan in May, reflecting supportive policy for the recovery. New loans by financial institutions rose 1.8T yuan and policy is expected to remain supportive as China has pledged credit growth this year which should rise to at least 30T yuan in 2020. Total aggregate financing has hit 20T yuan as of June.

Quick look ahead

Canada – Bank of Canada meeting (July 15); Manufacturing Sales (July 15)

A light week of data for Canada this week. The Bank of Canada is set to meet. No rate changes are expected but markets will watch for guidance from the central bank as the Business Outlook Survey shows weak business sentiment and the government deficit is expected to hit $343B as it estimates that programs in response to the coronavirus have resulted in

$236B in new spending to date. The government said it would ramp up issuance of 10-year and 30-year bonds to finance the deficit.

Manufacturing sales in May are expected to rise 9%, reflecting the start of the recovery, following the 9.8% and 28.5% drop in March and April.

U.S. – Budget Statement (July 13); June CPI (July 14); Industrial production, Empire State manufacturing survey, and U.S. Fed Beige Book (July 15); Retail sales, Jobless claims (July 16)

The week starts off with the budget balance for an estimated deficit of US$863B as revenues remain low on weak demand and deferred taxes while unemployment benefits and other stimulus measures are paid out.

On Tuesday we will get May CPI. Although the reading will likely be muted with market consensus of only 0.5%. Nonetheless, improving demand and rising energy prices could make it the first positive reading following three months of negative inflation.

Industrial production for June should also rise as economic activity resumes and the Empire State manufacturing survey will be another data point to capture business sentiment and intention as the economy continues to reopen. The U.S Federal Reserve will also publish their beige book which will provide their up-to-date view on current economic conditions. The data is unlikely to change their supportive stance but may provide more insight on the path of recovery especially for employment which the Fed has forecasted could take years to return to previous levels.

Retail sales for June are expected to rise again following a strong rebound in May. And lastly, markets will once again be eying job numbers given the high number of coronavirus cases recently.

International – UK GDP, Germany ZEW survey, and OPEC oil market report (July 14); ECB meeting (July 16)

The May GDP release for the UK will give the first glimpse recovery, with markets expecting a 5.3% increase. Sentiment has largely recovered in Germany, as shown by the ZEW survey and is expected to stay strong as the economic restart continues.

OPEC will release their oil market report with updated demand forecasts which could impact their current production cuts. Lastly, markets will be watching for any changes in asset purchases at the upcoming ECB meeting.

Aviso Wealth Inc. (“Aviso Wealth”) is the parent company of Credential Qtrade Securities Inc. Aviso Wealth is a wholly-owned subsidiary of Aviso Wealth Limited Partnership, which in turn is owned 50% by Desjardins Financial Holdings Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and the CUMIS Group Limited.

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Northwest & Ethical Investments L.P (“NEI” or “NEI Investments”) is a subsidiary of Aviso Wealth; and NEI Funds are related issuers of Credential Qtrade Securities Inc.

This material is for informational purposes only. While this material has been compiled from sources believed to be reliable, Qtrade Investor does not guarantee the accuracy, completeness, timeliness or reliability of this information. Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. All investments are subject to risk, including the possible loss of principal.