Weekly Market Pulse - Week ending July 23, 2021

Market developments


It was a volatile week for stocks, starting off with a continued selloff from the previous week. Markets then changed course on strong corporate earnings, boosting investor confidence. The European Central Bank clarified that with the new symmetric 2% inflation target, rates would stay low until the inflation outlook stabilized at 2% over the medium term. The S&P 500 Index and NASDAQ Composite Index ended the week at all-time highs.

Fixed income:

Yields fell for the fourth consecutive week. European yields led the decline as the ECB stated it would keep rates low until the inflation outlook stabilizes at the 2% target, indicating rates may stay lower for longer. Canadian and U.S. 10-year yields were down over 10 basis points in intraday activity, but moderated as markets recovered. The U.S. Treasury 10-year yield fell a basis point to 1.28%, and the Government of Canada 10-year yield fell three basis points to 1.21%.


Copper moved higher even as China said it would auction more base metals from its reserves. The reserves to be released were less than markets had anticipated, and inventories continue to experience drawdowns.

Performance (price return)

Performance - Price return

As of July 23, 2021

Macro developments

Canada – Retail sales decline

Retail sales fell 2.1% in May, following a 5.6% decline in April, as provincial lockdowns continued. Building material and gardening equipment sales plunged 11.3%, clothing sales dropped 11.2%, and motor vehicle and parts sales declined 2.4%. Preliminary data suggest that sales bounced back in June with StatsCan’s advance estimate of 4.4%.

U.S. – Markit PMI declines

The IHS Markit Flash U.S. Composite Purchasing Managers’ Index fell to 59.7 in July, from 63.7 in June. The manufacturing PMI rose to a series high of 63.1 from 62.1, while the services PMI fell to 59.8 from 64.6. Manufacturers continued to see an acceleration in activity with expanding production as foreign demand and backlogs grew. Cost burdens continued to rise as firms reported higher wages to reduce backlog, combined with repeated reports of high raw material and transportation prices. The services sector meanwhile continues to exhibit robust growth, but some providers reported difficulties in maintaining momentum because of labour shortages and capacity pressures. Optimism moderated as manufacturers worried about inflation and service providers worried about capacity pressures.

International – ECB commits to symmetric 2% inflation target; Eurozone PMI rises; Japan’s CPI increases

The ECB kept its policy unchanged, but provided an update on forward guidance. In support of its new symmetric 2% inflation target, the central bank specified that rates would stay low until the inflation outlook stabilizes at 2% over the medium term. The ECB also hinted that it would not react during a transitory period in which inflation is moderately above target. This guidance reinforces the central bank’s commitment to meet its inflation target and is consistent with its previous language that suggested some hesitancy toward pre-emptive tightening.

The IHS Markit Flash Eurozone Composite PMI rose to a 21-year high of 60.6 in July, from 59.5 in June. The services PMI rose to 60.4, from 58.3, and the manufacturing PMI fell to 62.6, from 63.4. Strong demand was sustained for the month, as new orders for manufacturing and services accelerated. The surging demand generated capacity pressures. Backlogs sharply rose and firms reacted by hiring staff. The services sector strongly benefitted as travel restrictions eased and services exports rose. At the same time, prices continued to rise, reflecting the constrained supply of both labour and goods, and confidence was hit by concerns of the delta variant as it becomes the dominant strain in various countries.

Japan’s consumer price index rose 0.3% in June. The increase was driven by food prices and utilities, which both rose 0.7%. Year-over-year prices rose 0.2% in June, from a -0.1% decline in May.

Quick look ahead

Canada – CPI (July 28); GDP (July 30)

In Canada, inflation and growth measures will be released. CPI was expected to have risen 0.4% in June, with increasing gasoline prices and rebounding demand on reopening economies. Despite the robust increase, on a year-over-year basis CPI will actually decline to 3.2%, from the previous 3.6% reading, as low base effects diminish.

On the other hand, GDP numbers for May will be released and are expected to show a decline of 0.2%. Lockdown measures likely have weighed on the economy for the second consecutive month.

U.S. – Durable goods orders (July 27); Fed meeting (July 28); GDP (July 29); Personal income and spending (July 30)

This will be a busy week of releases in the U.S., starting with durable goods orders where markets are forecasting an extension of the May rebound. The market consensus is for a 2.0% increase.

The U.S. Federal Reserve’s monetary policy meeting is the main focus as the Fed took a more hawkish stance at its last meeting. There are no expectations for any changes in policy, but investors will watch for any hints of tapering. Comments on inflation are likely to continue to focus on transitory factors, though the accelerating year-over-year reading could see the Fed become more cautious. The delta variant may also be discussed as it introduces a new risk to the recovery.

The first reading of Q2 GDP will be released. Economic activity continues to recover in the second quarter on a stronger consumer and on reopening businesses. Market forecasts suggest growth of 8.5% annualized for the quarter. Consumer demand should have grown strongly, thanks to economic reopenings and the timing of March stimulus cheques.

Lastly, personal income and spending data for June will be released. Incomes could have fallen as stimulus and unemployment benefits roll off. Spending could have pushed higher on pent-up consumer demand.

International – Japan PMI and Germany ifo survey (July 26); Eurozone CPI and GDP (July 30)

The July iteration of Japan’s PMI survey will be released, for an economy that has lagged the world and that has yet to become expansionary.

Germany’s ifo survey is unlike to show much change for July. Activity looks to be booming, which should be reflected in the survey.

In Europe, CPI and GDP readings for various countries will be available, including for France and Germany. Europe’s Q2 recovery has lagged the U.S. and will therefore not be as strong. Nonetheless, markets expect GDP to have picked up 1.6% in the quarter. Consumer demand looks to have picked up, while the production side struggled with supply bottlenecks. Eurozone CPI is expected to have increased to 2.0% year-over-year in June, from 1.9% in May.

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