Weekly Market Pulse - Week ending August 20, 2021

Market developments


Stocks experienced a pullback as growth concerns heightened. Chinese data came in weaker than expected and the spread of the COVID-19 Delta variant is showing little signs of slowing. At the same time, central banks are looking to ease off support, with the U.S. Federal Reserve at the centre of attention having acknowledged that the “substantial further progress” requirement for tapering asset purchases will likely be met soon.

Fixed income:

Yields fell on lingering concerns of slowing growth. Minutes of the Federal Open Market Committee showed that the views of individual committee members toward tapering vary widely. The focus now turns to the Jackson Hole Symposium, which will be held during the week of August 23 and that could result in a more concrete tapering plan.


Yields fell on lingering concerns of slowing growth. Minutes of the Federal Open Market Committee showed that the views of individual committee members toward tapering vary widely. The focus now turns to the Jackson Hole Symposium, which will be held during the week of August 23 and that could result in a more concrete tapering plan.

Performance (price return)

Performance - Price return

As of August 20, 2021

Macro developments

Canada – Early election called by Trudeau; CPI accelerates; Retail sales rise

Prime Minister Justin Trudeau called for an early election, giving candidates a 36-day campaign period. Election day is scheduled for September 20. Trudeau hopes to win a majority in the House of Commons, which would allow the Liberal Party to advance their agenda without relying on support from other parties.

Canada’s consumer price index rose 0.6% in July, following a 0.3% increase in June. Prices rose at a faster pace as the price of goods increased 0.8%, driven by gasoline prices and durable goods. On the other hand, services prices rose 0.5% on higher shelter costs. On a year-over-year basis, CPI accelerated to 3.7%, compared to 3.1% previously.

Retail sales rose 4.2% in June, following a 1.9% decline in May, as easing health restrictions saw non-essential businesses open. Clothing sales soared 49.1%, sporting goods sales increased 27.9%, and furniture sales increased 23.2%. At the same time, retail ecommerce sales fell 9.5% for the month. Preliminary data from StatsCan for July suggest that sales declined 1.7% in July.

U.S. – No FOMC consensus on tapering; Empire manufacturing survey softens; Retail sales decline; Industrial production rises

Minutes from the FOMC show that committee members believe the U.S. economy has not yet met the “substantial further progress” goal required for tapering asset purchases, but that many expect it to be reached sometime this year. The inflation goal has been mostly attained, but progress on employment still requires attention. However, not all FOMC members share this view. Most seem to want to wait a few more months and watch data come in, while others want to make a decision earlier—as soon as the Fed’s September meeting. Recently high inflation is expected to be temporary, but several inflation-focused FOMC members are worried about its possible longer-term persistence. Employment continues to lag due to supply side factors, but most members expect these pressures to ease. Members are also wary of potential risks to the economy stemming from the spreading Delta variant and the slowing progress of vaccinations.

The Empire State Manufacturing General Business Conditions Index fell to 18.3 in August, from 43.0 in July. The pace of growth slowed significantly. Companies reported modest increases in employment. At the same time, delivery times continued to lengthen and both prices paid and received rose. Future business expectations remained optimistic.

Retail sales declined 1.1% in July, following a 0.7% increase in June, according to U.S. Census Bureau data. Spending on motor vehicles fell 3.9%, clothing declined 2.6%, and sporting goods fell 1.9%. Eating and drinking store sales rose 1.7%, indicating the shifting of consumer spending back toward services. It is also important to note that retail sales remain well above pre-pandemic levels and the decline looks to be also in part attributed to the boost from stimulus dissipating.

U.S. industrial production rose 0.9% in July, following a 0.2% increase in June. Manufacturing output rose 1.4%, driven by an 11.2% increase for motor vehicles following reduced production in June due to shortages of semiconductors. Despite this large increase, vehicle production continues to be constrained by semiconductor shortages. Mining output rose 1.2%, while utilities declined 2.1%. Capacity utilizations rose 0.7% to 76.1%.

International – China’s retail sales and industrial production decelerate, Japan’s GDP expands in Q2; Japan’s core machine orders fall, CPI slows

Chinese retail sales decelerated to 8.5% year over year in July, down from 12.1% in June. Industrial production also decelerated to 6.4% in July, from 8.3% in June. This broad-based weakness reflects the impact of the Delta variant outbreak, severe flooding in China, and persistent supply chain disruptions.

Japan’s real GDP expanded 0.3% in Q2, following a 0.9% contraction in Q1. Japan was able to avoid a contraction despite coronavirus containment measures, in part thanks to private consumption and business spending. Government spending was muted, while net exports weighed on the headline reading as imports rose at a faster pace. Despite this increase, total output remains 1.5% below Q4 2019 pre-pandemic levels.

Japanese core machine orders declined 1.5% in June. However, the reading only includes domestic orders, and data show that overseas orders declined 10.0% as global exports moderated due to worldwide pandemic conditions. Overall, core orders rose 4.6% in Q2, and manufacturers expect orders to rise 11.0% in Q3.

Japanese CPI rose 0.2% on a seasonally adjusted basis in July. The year-over-year reading decelerated to -0.3%, from 0.2% in June. Higher energy prices and shelter costs supported the reading, while continued downward pressure from food and communication services detracted.

Quick look ahead

Canada – CFIB Business Barometer (August 23)

A quiet week in Canada with an update on small business confidence, and the effect of the uptick in COVID-19 cases.

U.S. – Markit PMI (August 23); Durable goods orders (August 25); Personal income and spending (August 27); Jackson Hole Symposium (August 26-28)

In the U.S., the week of August 23 starts off with the monthly update of the Markit Flash Purchasing Managers’ Index readings. Both the services and manufacturing PMIs are expected to remain near their current elevated levels. As has been the case this year, markets will watch for employment and supply constraint issues.

Durable goods new orders are expected to have declined 0.3% in July as the volatile aircraft sector, which had boosted the June reading, is expected to show some reversal.

Personal income is forecasted to have risen 0.2% in July as job gains should continue to offset the phasing out of stimulus programs. Meanwhile, spending is expected to increase 0.4%, on expectations that spending on services will offset spending declines for goods.

Most importantly, there is the annual Jackson Hole Economic Policy Symposium. With expectations that “substantial further progress” will likely be made this year according to the recent FOMC minutes, markets are waiting for imminent tapering. Investors will watch for any indication of the Fed’s plans to reverse its current stimulative monetary policy.

International – Japan PMI (August 22); Eurozone PMI (August 23); Germany Ifo survey (August 25)

Overseas, there are considerable August survey data to be released. Supply bottlenecks will likely continue to be a continued theme across all regions.

In Japan, coronavirus case counts are surging, which indicate further weakness in the already lagging Japanese economy.

The eurozone’s flash PMI is expected to ease slightly from its strong June readings, with downside risk as economies including France and Germany have seen a recent uptick in coronavirus cases.

Lastly, we have the Ifo Institute for Economic Research’s Business Climate survey, which is a leading indicator of German economic activity. The previous July survey already reported concerns over the rising infection numbers, and concerns are likely to intensify as the trend continues.

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