Good Afternoon Everyone,
It's Friday, and what started as a lockdown last week has become a more aggressive lockdown this week. We know it will be at least another 28 days before we can see our friends and family.
What's happened this week? The markets in general were fairly stable. For many of you who are in my generation or older, we grew up watching the British Monarchy. Today we lost Prince Philip at a healthy age of 99 years old, just two months shy of his hundredth birthday.
What else made the news this week? I had some interesting phone calls and e-mails this week from clients regarding General Motors and their pensions. General Motors Co., Detroit transferred approximately 1.8 billion dollars Canadian in pension plan liabilities to insurers Sun Life, IA Financial Group, and Brookfield Annuity Co. This had an impact on approximately 6000 participants of the salaried pension plan of General Motors of Canada Co. If you are a salaried employee of General Motors and you retired before June 1st, 2020, what does this mean for you? Technically, it should have no impact on your monthly cash flow whatsoever. What this did for General Motors was reduce their risk of pension costs in the future while transferring the risk to the three insurers. What could this mean for you? Instead of worrying about the credit worthiness of General Motors and their pensions, you will now have your pension protected under Assuris, which protects your annuity policy in the event that insurance companies fail. Please note the following disclaimer: For further information about Assuris and your protections, please visit https://assuris.ca/.
If you have any questions about anything discussed above, please feel free to contact me.
And to end the week: Joel Yelle wrote his first exam for the Canadian Securities Course and passed today! Congratulations Joel and good luck on Exam 2!
Have a great weekend,
Brenda, Taylor, Joel and Paula
There has been a sense of calm in global equity and bond markets of late. Gages of broad market volatility now sit near levels not seen since before the pandemic began more than a year ago. This development has been encouraging as it has come in the face of another wave of Covid-19 spreading across the globe. We provide an update on the virus situation below, and discuss the divergent economic paths that countries may experience as we move through the rest of the year.
The past few weeks have been characterized by an acceleration of Covid cases across the world. But unlike prior waves, this one is being fueled by variants of the virus that are exponentially more transmissible, infecting younger people and leading to a surge in hospitalizations in some jurisdictions. This is particularly the case in Canada, which has seen its 7-day average rate of new daily infections rise to nearly 6500, versus the 4500 from two weeks ago. Ontario represents close to half this figure, but Alberta and British Columbia have seen cases meaningfully accelerate, while Quebec’s growth rate is not far behind. Most of these provinces have implemented new lockdowns or restrictive measures with the hope that levels could plateau in a few weeks from now. Saskatchewan and Manitoba have also seen increases, though to a lesser degree. Meanwhile, in the Maritimes and northern territories, new daily infections have fortunately not increased much.
In Europe, the news is somewhat mixed. There are some early signs that cases may have peaked in some countries given lockdowns implemented weeks ago, but some continue to report new highs in daily fatality rates. Elsewhere, Japan’s infection rate is on the rise. Brazil’s figures have come off a recent peak but remain elevated, and India recently reported a record high of more than 130,000 new daily infections.
Encouragingly, the U.S., U.K., and Israel continue to see limited acceleration in new infections, suggesting that a combination of vaccinations and previously high infection rates may be limiting the opportunities for the virus to spread. Nevertheless, it may be too early to claim victory as new cases remain elevated, and a handful of U.S. states such as Michigan are experiencing meaningful increases in infections, driven by the same variants that have taken over in Canada.
The resurgence of the virus around the world in recent weeks may have played a role in curtailing some of the inflation concerns and bond volatility that surfaced earlier this year. The last few weeks have seen some sector rotation in the global equity markets as a result. The strong rally in cyclical parts of the global equity market – energy, mining, banks, and industrial companies for example – has stalled a bit, while areas like technology and other so-called growth stocks have stabilized and seen some gains of late. In turn, this rotation has driven some recent outperformance of the U.S. equity market relative to others.
Investors have acknowledged that a simultaneous re-opening of most economies around the world is unlikely to occur, and instead we are likely to have divergent re-openings and economic trajectories through the course of the year. The U.S. and U.K. may initially lead on the growth front, while other economies falter given renewed measures put in place and slower vaccination rollouts. But, investors are looking past the near-term headwinds, believing that lockdowns and mass inoculations will eventually prevail, allowing regions like Europe, Canada, and Asia to catch up and propel a stronger tailwind for economic and earnings growth towards the end of the year.
We suspect that the volatility in bond yields and concerns around inflation have not completely disappeared, and may resurface when some of the incoming data over the next few months reveal that the economic recovery is gaining steam and global breadth. That may once again reignite an intense debate around whether central banks like the U.S. Federal Reserve will have to tighten monetary policy earlier than they have indicated.
Should you have any questions or concerns, please feel free to reach out.
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