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 November 19, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	21,555	-1.0%	23.6%	27.5%
S&P 500	4,698	0.3%	25.1%	31.2%
NASDAQ	16,057	1.2%	24.6%	34.9%
Euro Stoxx 50	4,356	-0.3%	22.6%	26.2%
Hang Seng	25,050	-1.1%	-8.0%	-5.0%

Source: Bloomberg, RBC Wealth Management

• Canadian equities finished lower Friday, with TSX posting a 1% weekly loss despite hitting a new intraday high on Tuesday. Sectors mixed, with energy, staples and materials the laggards, real estate and utilities the leaders.

• US equities ended mostly lower, though S&P saw a weekly gain and Nasdaq ended at a new record high. Gold finished down 0.5%. WTI crude down 3.1%, but off worst levels, amid concerns about possible Covid impacts on global demand. Canadian dollar lower against USD.

• According to FactSet, 285 S&P 500 companies referenced inflation during their Q3 2021 earnings calls; this is more than double the five-year average. Investors’ reactions to these reports generally depended on whether companies were able to pass these price increases on to their customers, with stocks of companies that demonstrated pricing power outperforming those that did not.

• European equity markets continued to grind higher during the week, despite rising COVID-19 infections in the region, including the continent’s biggest economy — Germany. Notably, many of the new restrictions being introduced at this stage are focused on unvaccinated people, as governments push to increase vaccination rates.

 

Economy

Canada

• The Consumer Price Index rose in line with consensus expectations in October, increasing 4.7% y/y (0.7% m/m) according to Statistics Canada, up modestly from 4.4% y/y in September. Inflation was relatively broadbased with all major components increasing on a year-over-year basis.

• Bank of Canada (BoC) Deputy Governor Lawrence Schembri reminded markets last week that the path to policy normalization remains uncertain, noting that the pandemic has made it more difficult for central banks to assess economic capacity, inflationary pressures, and labour market dynamics.

• His comments echoed the key message from BoC Governor Tiff Macklem’s opinion piece published earlier last week that stated the economy is “getting closer” to absorbing the slack necessary to begin raising interest rates, but “we are not there yet.”

• As it stands, the BoC doesn’t anticipate achieving the conditions necessary to begin raising rates until “sometime in the middle quarters of 2022,” but both Schembri and Macklem reiterated that any policy adjustments will remain outcome-dependent.

U.S. 

• The U.S. Consumer Price Index jumped by 6.2% y/y in October, according to the Bureau of Labor Statistics, marking the largest 12-month increase in this inflation barometer in 31 years. Price rises were driven by pandemic-related supply shortages and strong consumer demand. Core prices (excluding the volatile categories of food and energy) were also up a solid 4.6%.

Further Afield 

• U.S. President Joe Biden and Chinese President Xi Jinping had a virtual meeting earlier last week, during which both sides proclaimed the need for mutual cooperation. Although there are no specific outcomes from the meeting, we think restarting dialogue is an important step and there is room for further improvement in the countries’ relationship.

• It is also possible tariffs may unwind as lower tariffs could provide some relief on elevated U.S. consumer and producer inflation. We think a better U.S.-China relationship would help expand the valuation multiples of Chinese equities.   

 

Notes About Companies in Model Portfolio 

• Canadian National Railway (CNR) Floods expected to have near-term impact on operations. The region affected by the flooding in B.C. represents major arteries for both Canadian rails and affects most rail traffic originating from and going into Vancouver. The lines have been out of service since Sunday and management’s best estimate is that these lines will be down at least until Monday, but the situation is still evolving. While a near-term negative for volume and potentially a headwind to Q4 results, we note that historically events like this have had very little impact (if any) on valuation.

 

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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