Weekly Market Pulse - Week ending December 11, 2020

Market developments


Markets stalled last week. The UK was the first to approve usage of the Pfizer-BioNTech vaccine, having already started the roll-out. Eyes are on the U.S. FDA, with expectations of an approval to come soon. The U.S. bridge stimulus package was once again delayed and weekly jobless claims rose to a 3-month high, causing concern over the recovery. The S&P 500 fell 0.96%. The S&P/TSX Composite rose 0.16%.

Fixed income:

Bond yields fell on economic worries. The ECB announced an additional 500B euros in asset purchases and the BoC looks to “keep interest rates low across the yield curve.” Now the attention is on the Fed, which meets this week. The U.S. Treasury 10-year yield fell 7 basis points, ending the week at 0.90%. The Government of Canada 10-year yield fell 8 basis points ending the week at 0.71%.


Copper and oil eked out gains of 0.43% and 0.65% respectively. Gold prices were unchanged.

Performance (price return)

Performance - Price return

As of December 11, 2020

Macro developments

Canada – Bank of Canada to “keep interest rates low across the yield curve”; Capacity utilization recovering but below pre-pandemic levels

The Bank of Canada continues to reiterate the recovery “will continue to require extraordinary monetary policy support.” There was no policy change, but the central bank added wording to its statement to include the phrase “keep interest rates low across the yield curve,” reflecting the previous adjustment of the asset purchase program to buy debt with longer maturities.

Capacity utilization in Q3 was 76.5%, compared to 70.7% the quarter prior. Capacity utilization of most industries remained below pre-pandemic levels, and 6 percentage points below the same period last year.

U.S. – CPI climbs on services; University of Michigan Consumer Sentiment rises

CPI rose 0.2% in November on a seasonally adjusted basis, following an unchanged reading in October. Core CPI, excluding food and energy, also rose 0.2%. The gain was due to the prices of services rising 0.1% while goods fell 0.1%. On a year-over-year basis CPI rose 1.2%.

The University of Michigan Consumer Sentiment Index preliminary release rose to 81.4 in December, from 76.9. The surprise increase was on both improving current conditions and expectations. The gain was likely on the positive vaccine sentiment, while consumer finances and lack of fiscal release dragged.

International – ECB announces additional asset purchases; China exports surge; China CPI falls on food; Germany industrial production rises; Germany ZEW sentiment recovering on vaccine; Japan machine orders soar to pre-COVID levels

The ECB announced a 500B euro increase in the size of the Pandemic Emergency Purchase Programme, to a total of 1,850B euros, and extended the time horizon to March 2022. ECB President Christine Lagarde said the ECB does not need to spend the whole amount if “favourable financing conditions can be maintained.”

China exports accelerated in November, rising 21.1% on a year-over-year basis from 11.4% in October. The consensus forecast was for 12.0%. The surprise reflects the accelerating foreign demand even while experiencing rising outbreaks.

China CPI fell 0.5% on a year-over-year basis in November, from a 0.5% rise in October. Cooling food prices were the primary driver, having declined 2.0% in the last year, with pork prices further falling, recording a 12.5% decline. Meanwhile services prices rose 0.3%.

Germany industrial production rose 3.2% in October, following the 2.3% rise in September. The gain was broad-based, with the largest branch of manufacturing, automotive, rising 9.9%.

The Germany ZEW Indicator of Economic Sentiment rose to 55.0 in December from 39.0. Sentiment rose following consecutive sharp declines on expectations of an imminent vaccine approval.

Japan core machinery orders surged 17.1% in October, compared to the consensus forecast of just 2.5%, suggesting an improving appetite for capital spending. The level of orders returned to pre-coronavirus levels and is now up 2.8% year-over-year.

Quick look ahead

Canada – Manufacturing sales (December 15); CPI (December 16); Retail sales (December 18)

Manufacturing sales are expected to have further recovered another 0.6% in October and CPI is forecast to be unchanged for November. Lastly, we have retail sales. Statistics Canada had provided a preliminary reading, expecting sales in October to be unchanged, but the more important reading will be the preliminary reading for November.

U.S. – Industrial Production (December 15); Markit PMI and Fed meeting (December 16)

The first release we get is industrial production for November, expected to have eked out a gain of 0.3%. We get also an update on business activity through the preliminary December PMIs. The last reading showed some of the strongest business expansion seen in over 5 years. Lastly, at the Fed meeting, there are expectations for additional guidance on asset purchases.

International – China industrial production and retail sales (December 14); Japan PMI (December 15); Eurozone PMI (December 16)

Internationally, we have China’s industrial production and retail sales readings for November. Industrial production is expected to have gained a bit, as external demand has held up despite the worsening coronavirus spread. Retail sales are also expected to have improved.

We also get some PMI readings for Japan and the eurozone. Japan was on the verge of turning expansionary last month, while the eurozone had fallen into contraction again.

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