Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

Markets

Market scorecard as of close on Friday June 4, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,029	0.9%	14.9%	29.0%
S&P 500	4,230	0.6%	12.6%	35.9%
NASDAQ	13,814	0.5%	7.2%	43.7%
Euro Stoxx 50	4,089	0.5%	15.1%	25.4%
Hang Seng	29,918	-0.7%	6.2%	18.7%

Source: Bloomberg, RBC Wealth Management

• Broad US stock indexes failed to push to new highs during the shortened trading week as traders booked solid year-to-date profits ahead of the typically quieter summer months.

• In the wake of strong Memorial Day weekend travel trends, RBC Capital Markets, LLC Energy Strategist Michael Tran reiterated his view that this summer is shaping up to be one of the most constructive for gasoline demand in a decade, with automobile and aviation fuel demand near new highs. Oil has continued its steady move higher, even as other key commodities peaked in May after climbing steadily during the year

• The last of the Big Six Canadian banks reported quarterly results earlier this week, and it was a clean sweep with earnings coming in ahead of consensus expectations across the board. The favourable results were primarily driven by better-than-expected credit provisions, and some banks released reserves back into earnings. As we head into the back half of the year, we believe there are a number of catalysts that can push stock prices higher, including an improving credit environment, a pickup in loan growth, stronger net interest margins, and the potential for easing capital restrictions.

 

Economy

Canada

• Canadian real GDP rose 5.6% (annualized) in Q1 2021, below consensus expectations of 6.8%, following a 9.3% increase in Q4 2020. Despite weak household spending on services due to the COVID-19 threat over the winter months, the Canadian economy proved resilient through the third wave of the virus and containment measures. Federal government supports remain largely in place, and have ostensibly put a floor under household incomes.

• Overall, it appears that meaningful household purchasing power remains in place to support a relatively quick recovery in spending as the virus containment measures ease.

U.S.

• The Fed announced plans this week to begin the gradual process of selling its holdings of U.S. corporate bonds and associated exchange-traded funds (ETFs) on June 7 that were purchased as part of its emergency facilities that were launched in 2020.

• Put simply, we see this as a non-issue since the market no longer requires the Fed’s backstop (corporate bond purchases had already ceased at the end of 2020) and because selling approximately $15 billion worth of securities is barely a drop in the bucket for a U.S. corporate bond market that now exceeds $10 trillion.

Further Afield

• European economic data continued to surprise on the upside. The recovery in manufacturing has been evident for some time, and it is encouraging to see the pickup in the services sector. RBC Capital Markets points out that the latter also translated into an increase in hiring, with the employment sub-index reaching its highest level since early 2019.

• We expect the European Central Bank (ECB) to remain dovish at its June 10 policy meeting and keep guidance for its Pandemic Emergency Purchase Programme unchanged for Q3. While the recovery is unfolding at a very encouraging pace, it is still in its infancy. Moreover, ECB officials still see rising inflation pressures as transitory.

• China will allow couples to have a third child after census data showed a continuous decline in birth rates. China scrapped its decades-old one-child policy in 2016, replacing it with a two-child limit, which has failed to lead to a sustained upsurge in births. China’s declining birth rate means the population may soon begin shrinking. Because of the demographic slowdown, Bloomberg Economics estimates the population of the world’s most populous country could peak before 2025

• G-7 nations agree on adopting a global minimum tax rate. During a meeting in London on Saturday, treasury chiefs from the Group of Seven (G-7) leading countries agreed to back new rules focused on taxing businesses that operate internationally. The G-7 comprises of the U.K, the U.S., Canada, France, Germany, Italy, and Japan. According to the Wall Street Journal, under the agreement, G-7 members will support a global minimum tax rate on companies that have a profit margin of at least 10%. This is a significant step towards implementing a minimum corporate tax rate of 15% sought by the Biden administration.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman