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 August 20^th, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,339	-0.9%	16.7%	22.5%
S&P 500	4,442	-0.6%	18.3%	31.2%
NASDAQ	14,715	-0.7%	14.2%	30.6%
Euro Stoxx 50	4,148	-1.9%	16.7%	26.7%
Hang Seng	24,850	-5.8%	-8.7%	0.2%

Source: Bloomberg, RBC Wealth Management

• TSX closed higher in Friday afternoon trading. All sectors higher with tech the best performer and consumer staples the laggard. Canadian equities fell 0.6% last week, snapped a four-week rally.

• US equities closed higher in Friday trading, rising through the session. Major US indices still logged moderate losses on the week.

• Friday bucked the risk-off trend from earlier in the week, though nothing particular behind the bounce. Covid still dominating headlines with reports flagging controversy over booster shots, ramp in deaths, ICU capacity constraints, school-related quarantines, delayed office re-openings and event cancellations.

• U.S. earnings season has shifted to retail and late reporters last week, and indications from these companies showed an ongoing earnings recovery, with somewhat murky guidance going forward as they attempt to navigate supply chain constraints, slowing (yet still growing) consumer spending patterns, and a resurgence of COVID-19 via the delta variant. Despite these current and ongoing headwinds, retail bellwethers such as Walmart, Target, and Home Depot beat consensus analyst expectations by 13%, 4%, and 2%, respectively. With nearly 97% of the S&P 500 having reported Q2 results, EPS are on track to grow 87% y/y with 84% of companies exceeding expectations.

 

Economy

Canada

• US extended border restrictions for another 30 days, US-Canada border will remain closed for Canadians until 21-Sep.

• Canada’s Consumer Price Index rose 0.6% (3.7% annualized) in July on a month-by-month basis, exceeding economists’ average estimate of 0.29%. This is the fourth consecutive month that inflation has been above the Bank of Canada’s target range of 1%–3%.

• Canadian housing market activity cooled in July. According to the Canadian Real Estate Association, home resales fell 3.5% m/m to an annualized rate of 584,200 units, the fourth consecutive monthly decline following a peak of 811,300 in March. The number of newly listed homes for sale saw an even larger drop of 8.8% m/m. The decline in new listings was widespread across most regions, with the exception of a few local markets including Winnipeg and Saskatoon.

• Although sales appear to be returning closer to pre-pandemic levels, home prices remain elevated as supply-demand conditions continue to favour sellers. The MLS Home Price Index increased 0.6% m/m and 22.2% y/y in July, after rising at an annual rate of 24.4% in June. RBC Economics believes we may be approaching a local high and expects national prices to moderate early next year, with prices in some regions decreasing before then.

U.S.

• Weekly economic data was mixed with retail sales and housing starts disappointing. The headline number for the former declined 1.1%, worse than the consensus expectation of a 0.3% contraction, while the latter declined 7.0% m/m to 1.53 million, 80,000 less than the consensus expectation.

• However, employment data remained indicative of an ongoing recovery as weekly initial claims, at 348,000, hit the lowest level since the pandemic started. The four-week average also hit new lows over the past 17 months after a mid-July hiccup pushed the average higher for a short time, and employment data broadly highlights the healing that has occurred on that front in the economic recovery battle.

Further Afield

• Having eked out 10 straight record highs up to last Friday’s (August 13) close, the STOXX Europe 600 Index retreated 2% during the week.

• The release of UK inflation numbers raised eyebrows with July’s Consumer Price Index reading at a much-below-consensus 2% y/y increase, down from a 2.5% y/y increase in June.

• Headline inflation is likely to pick up in coming months and could reach a level close to the Bank of England’s projected 4% by year’s end. In 2022, with global shortages easing, RBC Capital Markets believes inflation is likely to retreat.

 

Notes About Companies in Model Portfolio

• Apple (AAPL): A US District Judge rules that Corellium's software emulating the iOS system is "fair use," because it offers a public benefit, adding to Apple's iOS by allowing users to do things including seeing and stopping processes. The judge also found Apple's argument that Corellium acted in bad faith by selling its product indiscriminately "puzzling, if not disingenuous." The judge is allowing Apple to pursue a separate claim that Correllium circumvented its security measures when creating its software

• Berkshire Hathaway (BRK.B): The WSJ reports that Berkshire has agreed to invest $500M in Nu Pagamentos, which operates under the Nubank brand and is the largest fintech company in Latin America, according to the report. The deal values Nubank at $30B, and will also result in Berkshire becoming the company's largest shareholder. Nubank CEO is quoted in the article as stating that while the company will go public at some point, an IPO isn't in its plans for now.

• Brookfields Asset Management (BAM.A): reported better than expected Q2 FFO $1.01 vs FactSet $0.87, revenue beat of $18.29B vs year-ago $12.83B and distributable earnings of $1.23B vs year-ago $1.08B. We think BAM has benefited from focusing on alternative/real asset investing (vs. traditional asset management) as institutional investors have sought to achieve strong risk-adjusted returns particularly in a continued declining interest rate environment with interest rates globally near zero or even negative in certain countries.

• Canadian Apartment Properties Real Estate Investment Trust (CAR.UN) announced continuing strong operating and financial results for the three and six months ended June 30, 2021. The company has maintained a very high level of rent collection, with over 99% of rents collected year to date.

• Canadian National Railway Company (CNR): Kansas City Southern (KSU) announced that the company's board, in consultation with its financial and legal advisors, has unanimously determined that the acquisition proposal KCS received from Canadian National Railway Company on 13-May-21 continues to constitute a "Company Superior Proposal" under KCS's pending merger agreement with Canadian Pacific Railway Limited (CP). Following this determination, KCS terminated the CP merger agreement and entered into a merger agreement with CN. Under the terms of the CN merger agreement, upon closing, each share of KCS common stock will be exchanged for $200 in cash and 1.129 shares of CN common stock. Closing will be subject to customary conditions, including KCS stockholder approval and approval by the Surface Transportation board of CN's proposed voting trust.

• Walt Disney (DIS): Shares of Disney are higher +1.2% following the Q3 results beat across financial metrics but were more mixed at segment level. DPEP a big beat; DMED missed on both revs/OI. Subs meaningfully better at Disney+. Disney had 14.7mm net adds across its streaming platforms for a total of 173.7mm subscribers, with Disney+ adding 12.4mm to 116.0mm. Disney gets a needed booster shot, per the Wall Street Journal; the column suggests the attendance recovery at Disney's theme parks and strong streaming numbers is encouraging, though the coronavirus remains a potential threat to consumers going to both the parks and movie theaters.

• TC Energy (TRP): TC Energy and privately held Irving Oil have signed a memorandum of understanding to explore the joint development of a series of proposed energy projects focused on reducing greenhouse gas emissions in New Brunswick and Atlantic Canada. The partnership's initial focus will consider a suite of upgrade projects at Irving Oil's refinery in Saint John, New Brunswick, with the goal of significantly reducing emissions through the production and use of low-carbon power generation.

• TELUS (T): TELUS announced that customers can now control and monitor their TELUS SmartHome Security and entertainment systems hands-free by using voice commands with the new TELUS Home Assistant skill for Amazon Alexa.

• The UnitedHealth Group (UNH) board of directors has authorized payment of a cash dividend of $1.45 per share, to be paid on September 21, 2021, to all shareholders of record of UnitedHealth Group common stock as of the close of business on September 13, 2021.

• Visa (V): Visa and Mashreq, one of the largest card acceptance providers in UAE, partnered to launch “Rapid Seller Onboarding” in CEMEA, which enables digital acquisition and onboarding of SMB by directly signing them up with Mashreq, allowing them to accept digital payments from customers in-store or at the POS.

  • Visa released the July reading of the U.S. Spending Momentum Index (SMI), which reached 112.5, up 0.8 points from the June reading. A reading above 100 suggests consumer spending continues to expand on a year-over-year basis. The Visa SMI is an economic indicator of the health of consumer spending. The SMI provides insight into what drives upturns and downturns in spending by measuring the breadth of the momentum supporting these trends.

 

 

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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