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 18, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,000	-0.7%	14.7%	29.2%
S&P 500	4,166	-1.9%	10.9%	33.7%
NASDAQ	14,030	-0.3%	8.9%	41.1%
Euro Stoxx 50	4,083	-1.0%	14.9%	25.6%
Hang Seng	28,801	-0.1%	5.8%	17.7%

Source: Bloomberg, RBC Wealth Management

• TSX finished lower in Friday trading, closing near lows of the session. Health care and consumer discretionary the laggards with tech and real estate the leaders. Caps off a weekly loss for Canadian equities after stocks were little changed on Thursday. US equities lower with hawkish Fed comments flagged as a headwind.

• The Federal Reserve meeting and subsequent press conference appear to be on track to halt the recent weekly winning streak for U.S. equities at three weeks as domestic stocks moved lower after the Fed changed its guidance for its bond-buying program and increased its inflation forecast, signaling a somewhat less accommodative monetary policy going forward.

• The STOXX Europe 600 Index notched its longest record-setting streak in more than 20 years with a ninth successive record high on Wednesday, June 16. In Q2 thus far, there has been a pause in the rotation towards value stocks and sectors, with “quality” stocks—particularly luxury goods in the Consumer Discretionary sector— leading the way, while the defensive Consumer Staples and Health Care sectors have also outperformed.

• The Asia-Pacific equity market traded flat during the week, continuing the trend since the beginning of the month.

• In the week ahead, focus will be on U.S. existing home sales on Tuesday, Canadian retail sales and U.S. flash Purchasing Managers Index (PMIs) on Wednesday, U.S. durable orders on Thursday and U.S. consumer spending on Friday.

 

Economy

Canada

• Resale activity in the Canadian housing market recorded its second straight monthly decline in May, supporting RBC Economics’ view that March resale levels were likely the cyclical peak. However, RBC Economics also notes that home prices have yet to peak, driven by strong competition among a smaller pool of buyers.

• Canada’s headline Consumer Price Index (CPI) expanded 3.6% y/y in May, the highest annual inflation rate since May 2011. Prices rose in every major category. Energy prices contributed almost half of the increase, up 26.4% from low base levels a year ago.

• Canada extended US border restrictions to 21-Jul despite more calls to reopen. Canada broke through 30M vaccinations, with 16% of population fully vaccinated. First phase of vaccine certification going live in July for travellers entering Canada.

U.S.

• At its June meeting, the Federal Reserve opened the door to discussing asset purchase tapering and future interest rate increases. But with a long road still ahead, and inflation top-of-mind for many, we look at the economic factors that could shape future Fed policy.

• Recent economic reports were mixed but generally support the economic recovery narrative. Inflation data, as measured by Purchasing Prices Index (PPI) inputs, was higher than consensus expectations.

• Beyond taper talk, one of the most notable shifts in Fed language concerned inflation. The Fed still maintains—correctly, in our view—that current inflation is likely to prove transitory; however, the central bank now acknowledges the possibility that inflation may be higher and more persistent than it expects.

• While it’s easy to get caught up in the minutiae of Fed policy thinking, in practical terms not much has changed: the economy is still millions of jobs short of pre-pandemic employment levels; the ability of the Fed to sustainably generate sufficient inflation to overcome structural disinflation is questionable; and, even under optimistic assumptions, it will likely be years before policy rates move higher.

Further Afield

• Although the European Central Bank raised its forecasts for growth and inflation for this year and the next at its meeting last week, we think it is also unlikely to join the tapering movement soon because it has renewed its commitment to conduct net purchases under its Pandemic Emergency Purchase Programme at a significantly higher pace. This monetary policy differential could weigh on the euro, which weakened by nearly 1.5% compared to the U.S. dollar after the Fed meeting.

• The latest economic data from China suggests the recovery is stabilizing even though the numbers were slightly below estimates. The strong economic rebound since the outbreak of COVID-19 has been driven by heavy industry, the property market, and an export boom, with consumer spending remaining the weak link. We believe the latter is the key to a more sustainable growth outlook.

 

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

 

Regards,

Shiuman