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.

You can view the past four weeks’ Weekly Update in the link to my Blog.

Markets

Market scorecard as of close on Friday July 30, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,287	0.5%	16.4%	24.5%
S&P 500	4,395	-0.4%	17.0%	35.4%
NASDAQ	14,673	1.0%	13.8%	38.6%
Euro Stoxx 50	4,089	-0.5%	15.1%	27.5%
Hang Seng	25,961	-5.0%	-4.7%	5.1%

Source: Bloomberg, RBC Wealth Management

• TSX closed lower in Friday trading, off worst levels. Health care the laggard with consumer discretionary the outperformer. Canadian equities recorded a 0.5% weekly gain led by materials boosted by solid commodity prices.

• U.S. stock indexes posted fresh highs as Q2 2021 earnings season hit high gear with 40% of the market capitalization of the S&P 500 Index reporting during the week. Fund flows suggested that retail investors were driving the rally with institutions sitting it out, as daily U.S. equity volumes barely averaged 10 billion shares during the week. Supportive economic data and dovish Fed comments helped equities, while turmoil in Chinese markets briefly dampened bullish sentiment.

• The Technology bellwethers led the earnings charge, with Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), Apple Inc. (AAPL), and Facebook Inc. (FB) all beating lofty consensus estimates. However, investors generally took profits on these prints, highlighting the rich valuations in the Tech sector and cautious management guidance for the rest of the year. “Old-economy” companies also reported solid results, highlighting the strength of the U.S. consumer. However, management teams frequently warned of increasing costs hurting profit margins.

• Canadian markets were closed on Monday in observance of the August Civic Holiday.

• “As we have so often said over the past year, just as the pandemic was unprecedented for the global economy, so too will be the recovery. The recent volatility in certain economic data has only confirmed that, while the Fed has worked to finesse its near-term messaging in an environment of persistent and heightened uncertainty. Markets largely took these events in stride this week, with Treasury yields holding steady and U.S. stocks setting fresh record highs, perhaps taking the long view: the Fed will likely remain accommodative for years to come, and even amid fits and starts, the economy remains on the right trajectory.” – Global Insight Weekly, RBC Wealth Management (July 29, 2021).

 

Economy

Canada

• Market participants attentively awaited the release of Canada’s June Consumer Price Index (CPI) results following the release of strong (5.4% y/y increase) U.S. inflation numbers earlier this month. However, Canada’s CPI rose at a much lower 3.1% y/y, slightly below economists’ expectations, as Canadian inflation took a step back from May’s multiyear highs. Still, the Bank of Canada’s (BoC) most recent Monetary Policy Report suggests policymakers expect inflation will climb to 3.9% in Q3 (significantly above the BoC’s control range) before easing back towards the 2% target by 2022, as “transitory” supply constraints eventually ease.

• Retail sales continued their downward trajectory, falling 2.1% in May according to Statistics Canada. The decline coincides with the closure of nonessential retailers across several provinces as provincial governments worked to slow the spread of the virus during the pandemic’s third wave.

U.S. 

• Last week’s Federal Reserve meeting was never expected to deliver much in the way of fireworks, but it did start the clock ticking on the next phase of monetary policy: tapering asset purchases. In our view, the Fed will likely hit the reset button if and when the tapering process is completed, potentially in late 2022, and will then take a fresh look at the inflationary and labor market environments. Put another way, starting the clock on tapering in no way starts the clock ticking on the next rate hike cycle.

• Next up was the first look at Q2 GDP, which significantly missed consensus forecasts, printing at just 6.4 percent on an annualized basis against expectations of 8.4 percent. Consumption data on goods and services was well ahead of expectations, a sign that demand remains robust as the economy continues to reopen, particularly for services as demand shifts away from pandemic-driven goods spending.

• On July 28, the U.S. Senate voted 67-32 to debate a long-heralded infrastructure measure, marking the first bipartisan agreement on this topic in years. While there is likely plenty of arguing ahead regarding the amount of spending, a signed deal would provide additional long-term stimulus to the economy across a range of industries. Some senators have suggested cryptocurrency taxes to help fund the spending. 

Further Afield 

• The European Commission Economic Sentiment Indicator for the eurozone increased further in July, reaching an all-time high, suggesting Q3 is off to a strong start. Services are bouncing back as economies have reopened and manufacturing continues to be strong, notwithstanding supply chain constraints that are affecting the car industry in particular. We think such shortages and the COVID-19 delta variant remain the two primary risks to watch for the rest of the year.

• On that front, new COVID-19 daily infection cases seem to have started to abate in many affected countries. This could suggest rapid vaccination progress is proving effective in fending off infections.

• It has been a robust earnings season in Europe so far, in our view. With over half of STOXX Europe 600 Index constituents having reported results, 62% have had earnings above consensus estimates, while 70% have had sales above expectations.

• A crackdown on China’s private education sector led to massive equity selloffs in the China and Hong Kong markets earlier this week. Investors were panic-selling due to concerns the crackdown could spread to other sectors, such as Internet, Health Care, and Real Estate. The MSCI China Index was down more than 14% in only three trading days starting July 23. The Hang Seng TECH Index (TECH Index), which represents the 30 largest technology companies listed in Hong Kong, was down 17.5% during the same period.

 

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