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 September 10, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,633	-0.9%	18.4%	27.5%
S&P 500	4,459	-1.7%	18.7%	33.5%
NASDAQ	15,115	-1.6%	17.3%	38.4%
Euro Stoxx 50	4,170	-0.8%	17.4%	25.9%
Hang Seng	26,206	1.2%	-3.8%	7.8%

Source: Bloomberg, RBC Wealth Management

• Markets confronted growing mass of worries last week with Delta variant near top of the list. Biden had an extended call Thursday night with China's Xi with reports saying it came amid administration frustration on China's lack of engagement.

• U.S. equities have moved modestly lower last week after setting new all-time highs as recently as last Thursday. US equities finished lower Friday, falling into the close. S&P saw a fifth-straight decline, a first since February, after struggling this week amid a pile-on of worries and a growing pessimistic tone. Gold ended down 0.4%. WTI crude finished up 1.9%, ending positive for the week. Canadian dollar slightly lower against USD.

• TSX ended lower in Friday trading, closing near worst levels. Health care and real estate the laggards, with consumer discretionary and energy the leaders. Canadian equities fell for fourth straight session with TSX recording a 0.9% weekly loss.

• Market valuations have come down modestly in recent months, despite record equity levels, as earnings growth outpaces equity market appreciation. In 2021, the S&P 500 has climbed approximately 20% while earnings estimates, as measured by consensus, are indicative of 43% earnings growth this year and 10% next. The relatively clear path to ongoing earnings growth remains one of the best supports to equity markets should they encounter volatility in coming weeks to months.

 

Economy

Canada

• The Bank of Canada’s (BoC) monetary policy announcement proved uneventful, with both the overnight rate and the pace of quantitative easing (QE) purchases unchanged from prior meetings. However, the central bank did make an effort to address June’s surprisingly weak GDP data, acknowledging that supply chain disruptions are still restraining activity in a number of exporting sectors, especially automotive manufacturing.

• Canadian housing market activity continued to moderate towards more sustainable levels in August. Data released by municipal real estate boards showed sharp declines in resale activity in most major metropolitan areas compared to a year ago.

• Low inventories and fewer listings offset the softening demand, leaving market conditions incredibly tight. RBC Economics sees this dynamic as supportive of prices in the near term, but expects the pace of increases to slow as consumer budgets shift towards consumption in response to the economy reopening.

U.S.

• Economically speaking, initial unemployment claims data was the highlight of the week. Initial filings for the week of Sept. 3 surprised investors with a result that was much lower than expected. Weekly claims of 310,000, the lowest in the past 18 months, were well below expectations of 340,000.

• Critics contend the federal benefits created disincentives to work, leading to upward wage pressure and extended job vacancies. As these payments expire, there is some hope that vacancies will be filled at a faster rate in the coming months.

• Based on the experience in the states that cut benefits early, these households may end up reducing spending by as much as $8 billion, a decline in demand that could impact corporate hiring plans in the future.

• House Democrats are considering a 26.5% corporate tax rate, up from 21%. According to the Wall Street Journal, lawmakers in Washington D.C. are expected to propose a 5.5% tax hike on U.S. firms. This comes alongside a 3% surtax on individual income above $5 million. This hike is set to support much of the recent infrastructure spending proposals, as well as a number of social programs ranging from childcare to paid-leave programs.

Further Afield

• UK Prime Minister Boris Johnson announced a new tax to help pay for social care and health services, which are burdened with large backlogs due to pandemic-related treatment delays. The government estimates the new 1.25% health and social care levy will amount to £12 billion per annum, or approximately 0.5% of GDP, a significant increase that will hit employees and employers alike.

• The European Central Bank (ECB) announced it will reduce modestly the amount of its monthly asset purchases under the Pandemic Emergency Purchase Programme (PEPP). The ECB reiterated the reduction is not the beginning of a continuous process to reduce its bond buying as it could increase the pace again should financial conditions worsen.

• China’s Producer Price Index (PPI) rose 9.5% y/y in August, faster than the 9% gain in July. The Consumer Price Index (CPI) grew 0.8% y/y, following a 1% increase in the previous month. We believe the rally in commodity prices has been a major driver of the surge in the PPI. However, the gains in the PPI did not pass through to the CPI, which remained subdued due to lackluster demand, falling food prices, and COVID-19 containment measures.

• Japan will extend the COVID-19 state of emergency in 19 areas including Tokyo and Osaka until Sept. 30 as infections from the delta variant strain the medical system. The extension comes after Prime Minister Yoshihide Suga announced his resignation following a drop in public support as he struggled to contain a record surge in cases.

 

Notes About Companies in Model Portfolio 

• Apple (AAPL) was ordered by a District Court to let developers steer app purchases elsewhere, allowing app developers to avoid 15-30% fees in App Store, which drives ~$20B in annual revenue (Bloomberg, WSJ). Decision boosted other companies dependent on app economy. Ruling said that anti-steering provisions are anticompetitive, and nationwide remedy to eliminate those provisions is warranted. However, judge also said that the company is not in violation of antitrust laws, saying the court cannot conclude ultimately that Apple is a monopolist under either federal or state antitrust laws.

• CN Rail (CNR) Kansas City Southern announced that its board has unanimously determined, after consultation with the company's outside legal and financial advisors, that the unsolicited proposal received from Canadian Pacific Railway Limited on 31-Aug-21, to acquire KCS in a cash and stock transaction valued by CP at $300 per KCS share could reasonably be expected to lead to a "Company Superior Proposal" as defined in KCS's merger agreement with CN Rail.

 

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Regards,

Shiuman​​​​​​​