Weekly Market Pulse - Week ending July 31, 2020

Market developments


Markets pushed higher again as tech companies reported strong earnings. Coronavirus cases in the U.S. also appeared to be slowing last week, and the Fed continued to promote its dovish policy. Even with upside surprises, Fed Chairman Powell continues to reiterate the high uncertainty and long recovery with more hardships to come. There was no resolution to the next stimulus package, which would end the extra unemployment benefits. The S&P 500 rose 1.73% while the S&P/TSX rose 1.08%.

Fixed income:

Bond yields dipped lower on dovish comments from the Fed, with no apparent intent of raising rates. The U.S. Treasury 10-year yield fell 6 basis points ending the week at 0.53%. The Government of Canada 10-year yield fell 3 basis points ending the week at 0.47%.


Demand for safe haven assets continues, with gold prices rising 3.88% amid the weakening U.S. dollar and real rates trending further into negative territory. Oil retreated 2.08% on troubling signs of a U.S. recovery. Copper fell 0.78%.

Performance (price return)

Performance - Price return

As of July 31, 2020

Macro developments

Canada – Canada – GDP begins recovery in May

Real GDP rose 4.5% in May, following large declines of 7.5% and 11.7% in March and April. Both goods-producing and services-producing industries rose 8.0% and 3.4% respectively. Output rose in 17 of 20 industries, with the largest contributors in construction rising 17.6%, retail trade increasing 16.6%, and manufacturing expanding 7.4%. Even with the gain, economic activity remains 15% below February’s pre-pandemic levels. StatsCan also provided a preliminary June reading forecasting another 5% increase in June.

U.S. – Fed reiterates dovish stance; Q2 GDP drops; Incomes fall but spending rises; Consumer confidence falls; Durable goods orders increase; Weekly jobless claims rises

There was no change to monetary policy at the Fed meeting, but the central bank extended its lending facilities to stabilize markets and credit flow from September to December. Chairman Powell once again reiterated the Fed is “not even thinking about thinking about raising rates” on the views of an extended recovery. Although economic data has surprised recently the outlook is highly uncertain, so the focus remains on protecting on the downside and continuing support for the tremendous hardship from the virus.

GDP dropped a whopping 32.9% in Q2, its worst print on record. Personal consumption fell 34.6%, investments fell 49%, while government expenditures rose 2.7%. Net exports also netted a small contribution as imports fell more than exports.

Personal income fell 1.1% in June, reflecting the lower level of government social benefits while increased compensation income resulting from the return to work provided a partial offset. Personal spending rose 5.6% in June, following the 8.5% rise in May. Spending is quickly returning as the economy reopens, with some of the largest increases seen in clothing and footwear, health care, and food services and accommodation.

The Conference Board Consumer Confidence Index decreased in July to 92.6, from 98.3 in June. The Present Situation Index rose to 94.2 from 86.7. The Expectations Index however decreased to 91.5 from 106.1. Large declines were noted in Michigan, Florida, Texas, and California, likely linked to the resurgence of COVID-19. Overall, there was less optimism about economic outlook and labour market prospects.

New orders for durable goods rose 7.3% in June, following the 15.1% increase in May. Continued strength from transportation was the main driver. Excluding transportation, orders rose 3.3%. IOne source of weakness in the data was new orders for capital goods, which fell 16.4%, likely reflecting lower corporate profits resulting in lower capital spending.

Initial jobless claims registered 1.43M, just a slight increase from 1.42M last week. The reading is the second week of rising claims, and combined with rising continuing claims, has markets concerned. The recent resurgence of coronavirus cases has no doubt impacted the number given the reopening of some states is being halting or is even reversing.

International – China PMI holds; Germany ifo survey shows growth; Germany GDP contracts; Eurozone unemployment rate ticks up;

The official China Composite PMI held at 54.1 for July, compared to 54.2 in June. The Manufacturing PMI rose to 51.1 from 50.9 while the Non-manufacturing PMI fell to 54.2 from 54.4. Demand conditions continue to show improvement, but external demand through the new export orders gauge remains in contractionary territory. Going forward, the restart of global economic activity should help lift demand. Labour indicators are also lagging, still signaling contraction and job shedding. By company size, the PMI of small firms fell, while mid and large sized firms are indicating a robust recovery. The government support for construction activities helped support the non-manufacturing reading.

The German ifo Business Climate Index rose for the third consecutive month to 90.5 in July, from 86.2 in June. The strongest gain was seen in Expectations, which rose to 97.0 from 91.4. The Current Assessment also rose to 84.5, from 81.3. The manufacturing climate improved considerably and businesses are expected to grow in the coming months. Capacity utilization rose to 74.9% from 70.4% but is far from the average of 83.5%. Conditions in the service sector are now in positive territory, with expectations being revised upwards.

Germany GDP fell 10.1% in Q2 2020. The record drop was due to massive slumps in export and imports, household consumption, and capital formation. Government expenditure provided some offset during the crisis.

The euro area unemployment rate ticked up to 7.8% in June from 7.7% in May, an increase of 203,000 unemployed.

Quick look ahead

Canada – Markit Manufacturing PMI (August 4); Labour force survey and merchandise trade (August 5)

Canadian markets are closed on Monday August 3 for the Civic Holiday.

The Manufacturing PMI will be the first data release for Canada and should continue to gain as reopening continues. The labour force survey will follow, where markets expect a net 390K gain in employment which would drop the unemployment rate to 11.2%. Lastly, the merchandise trade deficit is expected to have narrowed in June. Commodities, a key export, have risen in price and are expected to more than offset the import rebound which should have gained on returning demand.

$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. – Factory orders (August 4); Weekly claims (August 6); Non-farm payrolls (August 7)

Factory orders are expected to increase 5.0% in June, on returning demand for vehicles. Capital goods orders will be key to watch where the durable goods orders last week revealed weakness.

The focus next week will be on job numbers. Weekly initial claims and continuing claims rose last week, likely coupled with rising coronavirus cases. Markets are watching for both initial and continuing claims to stabilize next week. Non-farm payrolls are also being released and will give details on the recovery thus far. Markets expect a 1.52M rise in non-farm payrolls which would push down the unemployment rate to 10.5%.

International – South Korea exports (August 1); China Caixin PMI (August 3); Bank of England meeting (August 6); Germany industrial production (August 7)

We expect to see an easing in the slump of South Korea exports, used as a global export barometer. There are early indicators that Chinese demand has contracted, but global demand points to a gradual recovery. The Caixin PMI is similarly expected to hold on the recovery of overseas demand and should show continued strength of domestic demand.

The Bank of England is set to meet. No change in policy is expected but investors will be eyeing any change in the forecast, likely to be revised down in the absence of a V-shaped recovery as well as any forward guidance on rates. We saw Germany’s GDP contract 10.1% in Q2, but investors suspect that much of that drop has reversed. Industrial production is expected to rise another 8.1% for June following the 7.8% gain in May, which would validate the idea.

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.

Online brokerage services are offered through Qtrade Investor, a division of Credential Qtrade Securities Inc., a wholly owned subsidiary of Aviso Wealth Inc. and Member of the Canadian Investor Protection Fund.

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.