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 March 11, 2022.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	21,462	0.3%	1.1%	13.8%
S&P 500	4,204	-2.9%	-11.8%	6.6%
NASDAQ	12,844	-3.5%	-17.9%	-3.6%
Euro Stoxx 50	3,687	3.7%	-14.2%	7.8%
Hang Seng	20,554	-6.2%	-12.2%	-32.3%

Source: Bloomberg, RBC Wealth Management

• TSX ended lower Friday, near worst levels. Health care, tech, materials, consumer discretionary and staples the laggards, with real estate a standout to the upside. Canadian equities posted a modest weekly gain for a third straight weekly increase. TSX has continued to outperform global peers supported by heavy resource-sector weightings.

• US equities ended lower, near worst levels. Major averages posted another weekly decline after several days of very headline-reactive trading. Gold finished down 0.8%, but off worst levels. WTI crude settled up 3.1% in choppy trading. Canadian dollar higher against USD after stronger than expected Canadian employment report.

• Sentiment about a possible diplomatic solution continued to oscillate, with Putin saying earlier there were positive shifts in the talks while Ukrainian Foreign Minister Kuleba said there has been zero progress. Meanwhile, Russia deepening its invasion of Ukraine and some reports suggested attack on Kyiv could be imminent.

 

Update on Russia-Ukraine war

• Due to the knock-on effects of high commodity prices, the global and U.S. economies could be facing what the RBC Capital Markets U.S. Equity Strategy team is terming a “growth scare.”

• Since 2009 when the global financial crisis occurred, growth scares have happened four times, negatively impacting the equity market.

• What’s notable is that after the troughs, in each instance the market built on its gains one month, three months, six months, and 12 months later. The S&P 500 was higher by 30.9 percent, on average, 12 months after it troughed. See chart below.

 

Economy

Canada

• Global energy prices remained volatile over the past week driven in part by rising tensions in the conflict between Russia and Ukraine. West Texas Intermediate crude oil futures surged to about $130 per barrel (bbl) and have since settled below the $110/bbl level but are still roughly 45% higher year to date. Not surprisingly, the Energy sector in Canada has been a net beneficiary.

U.S.

• The U.S. labor market continues to gain strength as indicated by robust nonfarm payrolls and unemployment edging lower. Last week’s nonfarm payrolls report showed the addition of 678,000 jobs, the largest increase since July 2020. Unemployment fell to 3.8% from 4.0% in the prior reading. In our view, healthy labor market conditions will likely keep the Fed on track toward tighter monetary policy action throughout the year.

• Selling pressure continues to mount for U.S. credit markets led by intensified European geopolitical tensions and looming Federal Reserve rate hikes. That said, despite headwinds from the Russia-Ukraine conflict, we do not expect immediate credit concerns for U.S. bond issuers as indicated by historically low high-yield default rates.

• The U.S. Federal Reserve is set to meet this week amongst a confluence of economic challenges that threaten their mandate of price stability. It is highly probable that the central bank will raise its benchmark overnight interest rate by 25 basis points at this week’s policy meeting on Wednesday.

Further Afield

• The global agriculture market experienced sharp rallies in both crop and fertilizer prices on the back of recent events. In aggregate, Russia and Ukraine account for approximately 14% of global wheat supplies and 5% of global corn supplies and, therefore, we think the ongoing conflict should drive further tightness on the supply side of the equation. In terms of input costs, namely fertilizers, Russia accounts for approximately 20% of global potash exports and 10% of global phosphate exports.

• The European Commission proposed REpowerEU, a three-step plan to reduce energy dependence on Russia. In contrast to the U.S., which announced an import ban on Russian oil, the EU’s plan involves a more gradual approach given its heavy reliance on Russian energy.

• The European Central Bank (ECB) kept interest rates unchanged at its Thursday meeting and unexpectedly accelerated the reduction in asset purchases. ECB President Christine Lagarde stated that the war in Ukraine is a meaningful upside risk to inflation, and the latest ECB forecasts show substantial 2022 revisions, with inflation now expected to reach 5.1% y/y from 3.2% y/y, but growth is expected to slow to 3.7% y/y from 4.2% y/y.

• China announced a GDP growth goal of “about 5.5%” for 2022, at the high end of economists’ estimates. China takes its annual growth target very seriously, as evidenced by the fact that since 1998 it has only slightly missed the annual growth target by 0.1 percentage point twice—in 2014 and 2015.

 

Notes About Companies in Model Portfolio

• Apple’s (AAPL) product announcement at “Peek Performance” on Tuesday was a diverse event that trended in-line with expectations in relation to iPhone SE 3 and iPad Air upgrades, while besting our expectations for Apple TV+ with the introduction of live sports as well as for the iPhone 13 and iPhone 13 Pro with new color variants. The launch of the mid-tier 5G enabled iPhone SE 3 and the introduction of live sports will both expand the addressable market for Apple in products and services, while the launch of new color variants with iPhone 13 will support a better than seasonal volume performance before the launch of iPhone 14.

• RBC announced Wednesday the signing of its second long-term, renewable energy Power Purchase Agreement (PPA). The power purchased directly contributes to two key targets of the RBC Climate Blueprint – to reduce emissions by 70% and to source 100% of its electricity from renewable and non-emitting sources, both by 2025. Other commitments outlined in the RBC Climate Blueprint include $500 billion in sustainable financing by 2025 and reaching net-zero emissions in its lending by 2050.

• TD Bank (TD) - released of its annual Environmental, Social and Governance (ESG) Reporting suite. On Tuesday TD disclosed net-zero aligned 2030 interim financed emissions targets for two high-emitting sectors, Energy and Power Generation. TD became the first Canadian major bank to set a bold target to achieve net-zero GHG emissions associated with its operations and financing activities by 2050. The interim targets released extend beyond the Bank's own operations and include its "financed emissions," or the emissions of the companies to which the Bank provides and facilitates capital.

• Visa (V) announced Thursday it has completed its acquisition of Tink – an open banking platform that enables financial institutions, fintechs and merchants to build financial products and services and move money.

 

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