Weekly Market Pulse - Week ending August 13, 2021

Market developments


Stocks were able to push higher even as growth concerns increased due to the COVID-19 Delta variant. U.S. consumer sentiment steeply dropped as consumers viewed their personal finances and prospects as worse. The U.S. Senate approved a US$1T infrastructure bill and US$3.5T spending plan. The motions are now in the hands of the House of Representatives, where it will likely be difficult to get bipartisan approval. The S&P 500 Index rose to all-time highs.

Fixed income:

Yields initially rose as investors were focused on the prospects of the U.S. Federal Reserve unwinding stimulus. However, a weak consumer sentiment report on Friday saw a quick reversal and yields ended the week lower.


It was a relatively unchanged week for commodities. Weakening growth expectations saw gold increase. Copper edged up on prospects of U.S. infrastructure spending.

Performance (price return)

Performance - Price return

As of August 13, 2021

Macro developments


It was a quiet week in Canadian macroeconomic news, with no notable economic releases.

U.S. – CPI rises; University of Michigan Consumer Sentiment sharply declines

The U.S. consumer price index rose 0.5% on a seasonally adjusted basis in July, following a 0.9% increase in June. The prices of goods rose 0.8%, driven by energy prices rising 1.6% and food prices increasing 0.7%. The prices of services were more muted, increasing 0.3%, driven by shelter costs growing 0.4%. Core CPI, excluding energy and food, rose at a slower pace of 0.3%. In year-over-year terms, CPI was unchanged at 5.4%. Consumer sentiment dropped steeply in August, according to the preliminary University of Michigan Consumer Sentiment Index, which fell to 70.2, from 81.2 in July. The reading fell to a nine-year low, even below the April 2020 lows at the onset of the coronavirus, as consumer assessments of both their current situation and expectations dropped. The current Economic Conditions Index fell to 77.9, from 84.5, while the Consumer Expectations Index fell more sharply to 65.2, from 79.0. The deterioration was widespread, in both personal finances and prospects for the economy, as the surge in the Delta variant has seen diminished hopes that the pandemic is coming to an end. Inflation expectations are 4.6% for the year ahead and 3.0% over the next five years.

International – China’s exports slow; China’s CPI falls; Germany’s ZEW declines

China’s export growth decreased to 19.3% year-over-year in July, from 32.2% in June. This deceleration mainly reflects base effects. By product, exports of textiles and medical equipment saw rapid declines. On the other hand, exports of industrial materials remained strong.

China’s CPI fell to 1.0% year over year in July, from 1.1% in June, beating market expectations of 0.7%. Services supported the headline number, posting a 1.6% year-over-year reading, from 1.0% in June. Meanwhile, food prices continued to drag on inflation, declining 3.7% year over year in July, from 1.7% previously.

The ZEW Indicator of Economic Sentiment for Germany Index fell to 22.9 in August, from 40.4 in July. The assessment of the economic situation improved in August, but expectations fell sharply. Despite high vaccination rates, the possibility of a fourth wave weighed on investor sentiment. There are also concerns of a possible slowdown in growth in China.

Quick look ahead

Canada – CPI (August 18); Retail sales (August 20)

Canadian CPI is expected to rise a further 0.3% in July. Gasoline prices rose higher in the month as demand rebounded together with public health measures. In year-over-year terms, CPI will accelerate to 3.4% in the month, from 3.1%, just a notch lower than the 3.6% high earlier this year.

Retail sales for June are expected to gain 4.4%, according to StatsCan’s preliminary estimate. The broad loosening of restrictions and reopening of non-essential stores should see consumer spending surge.

U.S. – Empire manufacturing survey (August 16); Retail sales and industrial production (August 17); FOMC minutes (August 18)

The Empire State manufacturing survey will be the first view of how manufacturers are faring so far in August. Hiring expectations were rising in July, and price pressures will be closely monitored.

Retail sales are expected to fall slightly in July. Spending is expected to normalize as consumers shift spending to services in the continued reopening, but the boost from stimulus cheques is also expected to dissipate. The large decline in consumer sentiment that came out the previous week is also of concern, as consumers may buy less big-ticket items as they feel their situation worsening.

Industrial production should continue to gain in July. The auto sector is expected to pick up, after many plants were forced to reduce production in June due to shortage of parts. Pent-up demand has seen orders surge, all while production has been strained by supply chain frictions and a lack of workers. This imbalance between supply and demand is expected to improve as we move into the latter half of this year.

Minutes from the Federal Open Market Committee will be pored over for hints on whether tapering is imminent at the upcoming Jackson Hole symposium or September meeting. The tone of recent Fed speakers has shown a preference to start the process sooner rather than later, although with differing views of the pace and resulting course of actions.

International – China’s retail sales and industrial production, Japan’s GDP (August 16); Japan’s core machine orders and U.K. unemployment (August 17); Japan’s CPI (August 19)

This will be a heavy week of data internationally, especially in Asia. The week will be kicked off with data from China, with the July monthly release of retail sales and industrial production. Both readings are expected to soften due to base effects rolling off and regional lockdowns due to the Delta outbreak.

The first reading of Japan’s GDP will be released. Japan is expected to have barely missed a contraction, with a 0.5% annualized growth rate in Q2. However, there is the downside risk that consumption and net exports may have lagged as measures to contain the coronavirus were implemented, which would see the country enter a technical recession with two quarters of consecutive contraction.

Japanese core machine orders for June will be released, with expectation of a 3.1% decline. Nonetheless, orders have remained strong. Corporate forecasts for Q3 orders will also be released concurrently.

The U.K. unemployment rate for June will be released. The reading is a three-month average and is expected to hold at 4.8%. The data are delayed but will be an important measure to watch as the country pushes on with the reopening.

Lastly, we have July CPI data for Japan. Consumer prices likely saw another decline for the month due to downward pressure on demand from containment measures.

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