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 27, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,645	1.5%	18.4%	23.4%
S&P 500	4,509	1.5%	20.1%	29.4%
NASDAQ	15,130	2.8%	17.4%	30.1%
Euro Stoxx 50	4,191	1.0%	18.0%	25.8%
Hang Seng	25,408	2.2%	-6.7%	0.5%

Source: Bloomberg, RBC Wealth Management

• TSX finished higher in Friday trading, just off best levels, to close at a new record high. Energy and materials the leaders, with financial and utilities the laggards. Canadian equities bounced back from a 0.4% drop Thursday to post a solid gain for the week. US equities finished higher with S&P and Nasdaq closing the week at fresh record highs.

• Despite the risk-off mood that has dominated markets in recent months as the rising number of delta variant cases and the removal of accommodative monetary policy have proven to be major sources of worry, sentiment appears to have improved somewhat this week as investors rotate back into cyclicals—including commodities, with oil being one of the most notable movers. The Canadian dollar has benefitted from this week’s bounce in commodity prices, appreciating modestly against the U.S. dollar.

• Nothing really incremental from Fed Chair Powell's much-anticipated Jackson Hole speech. Again suggested it could be appropriate to begin tapering this year, arguing the month since July FOMC meeting has shown path toward the substantial further progress benchmark. However, cautioned tightening too early could be especially detrimental. Reiterated inflationary pressures are moderating and long-term inflation expectations remain low, though said if inflation continues to rise, the Fed will intervene.

• Federal election campaign remained the top story. More focus on vaccine mandates and return-to-office plans. BNN Bloomberg noted TD economist said firm could cut Q4 growth forecasts for provinces that don't implement vaccine passports at it could leave more reliant on hard lockdowns to contain outbreaks.

 

Economy

Canada

• Sales at brick-and-mortar retailers surged in June with the continued easing of restrictions on non-essential retail. According to Statistics Canada, retail sales rose 4.2% m/m during the month, narrowly missing preliminary estimates of 4.4% m/m. The strong gains were driven primarily by improving sales at clothing stores (+49.1% m/m), sporting goods retailers (+27.9% m/m), and home furnishing stores (+23.7% m/m).

• Canada’s Business Cycle Council says the economy is no longer in a recession. At their latest meeting on August 9, the C.D. Howe Institute Business Cycle Council declared that the recession caused by the coronavirus pandemic officially ended, but the economy is still on the path to recovery.

U.S. 

• Fiscal policy took a step forward last week as the House of Representatives passed the Senate’s $3.5 trillion budget resolution. The move does not commit the government to any new spending; rather, it allows the Senate to pass future fiscal measures with a simple majority, obviating the need for Republican support. Democrats remain divided on key elements of the budget, however, including the total size of the spending increase, how to fund the program, and several climate change-linked provisions. Last week’s vote allows the Democrats to begin discussions on how to bridge these gaps.

• U.S. initial jobless claims remain near pandemic lows. 353,000 Americans filed for unemployment benefits in the week ended August 21, the Labor Department reported on Thursday. The four-week moving average, which controls for week-over-week volatility, fell to 366,500, the lowest level since March 2020.

 Further Afield  

• The August euro area flash Purchasing Managers’ Indexes (PMIs) showed service sector activity remained strong, supported by lockdown restrictions remaining comparatively limited plus signs of a recovery in tourism activity. Although still at elevated levels by historical standards, manufacturing activity weakened slightly as the effects of supply chain disruptions on output began to show up in the PMI survey data.

• Big shifts in voter polls are making the result of the upcoming Sept. 21 German federal elections unpredictable. The main centre-right bloc, the CDU/CSU, had a very comfortable lead only three weeks ago, but it has been superseded by its coalition partner, the centre-left SPD, to the extent that its leader, Minister of Finance Olaf Scholz, could lead the next government.

• With Angela Merkel stepping down as chancellor after more than 15 years in that role, and maintaining popularity ratings that are the envy of her international peers, Germany is entering a new phase. Uncertainty regarding lengthy coalition talks could be a new source of volatility for financial markets.

• We think valuation of some [Chinese] Tech stocks is quite undemanding at current levels. However, we think the regulatory reset will remain an overhang for the foreseeable future. In addition, the earnings impact of the latest regulations is largely unknown so far. As Tech companies gradually report Q2 earnings, we expect continuous near-term sector volatility.

 

Notes About Companies in Model Portfolio 

• Apple (AAPL) announced some key changes to its App Store policies in a nod to the developer community and in an effort to settle a class-action lawsuit. Going forward Apple will allow app developers flexibility in communicating (including over email) the alternate payment methods outside the iOS app available to consumers (which will be available to consumers at a likely lower price since the developer will not have to pay Apple a commission on purchases outside the App store).

  • Recent surveys from Wave7 Research into US sales trends across various carriers in July 2021 continues to indicate that iPhone sales remain strong, despite the upcoming September iPhone launch, led by resilient demand for the iPhone 12 series as well as a better inventory position for Apple relative to Samsung and other Android OEMs.

• Microsoft (MSFT) announced yesterday that it is raising prices on Office 365 suites, the first major price increase since 365's 2011 launch. Also announced was that dial-in capabilities for Teams meetings (currently only available with E5 SKUs) would be rolled out more broadly across SKUs in the coming months. We view the announcement positively and expect to see increased Teams adoption (a critical part of Commercial segment growth in our view).

• Royal Bank of Canada (RY) reported net income of $4.3 billion for the quarter ended July 31, 2021, up $1.1 billion or 34% from the prior year. Results this quarter included releases of provisions on performing loans of $638 million mainly driven by improvements in our credit quality and macroeconomic outlook as compared to provisions of $280 million taken in the prior year due to the evolving impact of the COVID-19 pandemic. Earnings in Personal & Commercial Banking, Capital Markets and Wealth Management were up from last year, largely due to the favourable impact of lower provisions. Higher results in Insurance and Investor & Treasury Services also contributed to the increase.

• Toronto-Dominion Bank (TD) Q3/21 results were good driven by strong results in Canada P&C and U.S. P&C. Although TD could be facing some potential revenue headwinds, we do not view the potential impacts to be overly material. We continue to believe that higher interest rates and a rebound in retail activity can help improve TD's relative performance and we may be seeing very early signs of rebounding client activity.

 

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​​​​​​​