Shiuman Ho's Weekly Update -- Monday July 19, 2021

Shiuman Ho's Weekly Update -- Monday July 19, 2021

七月 19, 2021 | Shiuman Ho

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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 July 16, 2021.

Equity Indices

Level

1 week

YTD

52-week

S&P/TSX Composite

19,986

-1.3%

14.6%

24.7%

S&P 500

4,327

-1.0%

15.2%

34.6%

NASDAQ

14,427

-1.9%

11.9%

37.7%

Euro Stoxx 50

4,036

-0.8%

13.6%

19.9%

Hang Seng

28,005

2.4%

2.8%

12.2%

Source: Bloomberg, RBC Wealth Management

  • Canadian equities finished lower in Friday trading, closing near worst levels. Materials, health care and energy weighed while defensive sectors staples utilities gained. TSX posted a 1.3% weekly loss dragged lower by health care and energy.

  • U.S. stocks have moved generally lower last week, consolidating some of their recent gains. Small caps have been hardest hit as the Russell 2000 has declined nearly 4%. However, the most common volatility index—the CBOE Volatility Index (VIX)—moved fractionally higher.

  • Earnings season kicked off with banks and select Consumer and Health Care companies reporting. RBC Capital Markets, LLC Head of U.S. Equity Strategy Lori Calvasina recently published her quarterly earnings outlook for the second quarter. She anticipates strong results will materialize, but it is unclear how much higher stocks will climb on Q2 results alone without increased full-year guidance from management teams.

  • Taiwan Semiconductor Manufacturing Co. (2330 TT/NYSE: TSM) expects sales to rise more than 20% y/y in 2021 as the semiconductor supply is likely to remain tight into 2022. Its sales are likely to be boosted by Apple’s (AAPL) 90 million production plan of its upgraded iPhones for H2 2021.

 

Economy

Canada

  • The Bank of Canada (BoC) maintained its 0.25% policy rate, while tapering the pace of Government of Canada (GoC) bond purchases to CA$2 billion per week from CA$3 billion per week. This marks the third time the central bank has decreased the pace of asset purchases, from a high of CA$5 billion per week last year.

  • The BoC now expects GDP growth of 6% in 2021, slightly lower than previous expectations. The BoC has also revised its 2021 inflation forecast to 3.5% from 2.2%, while maintaining that above-target inflation will prove transitory in nature as supply constraints eventually ease.

  • The labour market grew significantly more than expected in June, recouping 231,000 of the 275,000 jobs that had been lost in April and May. This resulted in the unemployment rate declining 0.4% to 7.8%, even with 170,000 people rejoining the labour force.

U.S.

  • The 5.4 percent rise in consumer prices over the past year dominated market discourse this week. The conditions are certainly present for sustained inflation: businesses have an ability to pass costs on to consumers, and real wages have declined. Workers thus have a strong incentive to seek higher wages.

  • Even if workers can leverage post-pandemic conditions to increase earnings, the gain may be one-time, because the labor pool will likely grow after expanded unemployment benefits expire in September for most households.

  • Weekly initial jobless claims filings were in line with the consensus estimate at 360,000, bringing the four-week average to 383,000, the lowest level since the COVID-19 pandemic started.

Further Afield

  • OPEC and allies agree to increase oil production. In response to higher crude oil prices, OPEC+ has reached a deal to increase production starting in August, with the aim of restoring all output cut early on in the pandemic by the end of 2022.

  • The European Union (EU) set out its far-reaching plans to combat climate change, dubbed “Fit for 55.” The package of proposals aims to align the EU’s climate, energy, transport, and taxation policies to its goal of reducing net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, setting Europe on a path to becoming the world’s first carbon-neutral continent by 2050.

  • China’s GDP expanded 7.9% y/y in Q2, largely in line with the 8% Bloomberg consensus forecast. The recovery has shown signs of steadying after a sharp V-shaped rebound, largely the result of industrial output and exports.

 

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