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 June 10, 2022.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,275	-2.5%	-4.5%	0.7%
S&P 500	3,901	-5.1%	-18.2%	-8.2%
NASDAQ	11,340	-5.6%	-27.5%	-19.4%
Euro Stoxx 50	3,599	-4.9%	-16.3%	-2.7%
Hang Seng	21,806	3.4%	-6.8%	-23.6%

Source: Bloomberg, RBC Wealth Management

• TSX ended lower Friday, a bit off worst levels. Most sectors lower, health care, tech, consumer discretionary, real estate, industrials and financial the laggards while materials (the lone advancer) saw good gains with a lift from gold miners. Canadian equities fell 2.5% on the week, with TSX posting its first weekly drop in four weeks.

• US equities were under fairly broad-based pressure in Friday trading. S&P and Nasdaq 100 posted worst week since Jan-21, with S&P and Nasdaq down for ninth week of past 10.

• Friday's weakness a direct function of hotter headline CPI print (8.6% y/y) as market sold off after print and held lower for remainder of the session. Data has put another dent in a peak inflation narrative that has recently come under scrutiny on positive macro surprises (NFP, ISM) and continued oil price surge. Lingering inflation pressure may give the go-ahead to Fed to guide for a third straight 50 bp rate hike in September.

• Global equities are broadly lower in overseas markets Monday morning. European equities are lower across all major indices. Asian markets closed lower, with Hong Kong’s Hang Sang Index falling (-3.39%). Key macro drivers continue to be inflation and the associated central bank tightening, supply scarcity, and geopolitical tensions in Europe and the Pacific.

 

Economy

Canada

• Canadian benchmark rates have been climbing at a faster pace than their U.S. equivalents, largely on the back of last week’s hawkish Bank of Canada (BoC) comments that accompanied its 50 basis points (bps) rate hike decision.

• The Canadian economy grew at an annualized rate of 3.1% during Q1 2022, according to Statistics Canada, falling short of the 5.2% consensus expectation.

U.S.

• As long as inflation is elevated, the Fed will likely seek to engineer a slowdown in the labour market by continuing to tighten financial conditions—via interest rate hikes and culling assets from its close to $9 trillion balance sheet, a process known as quantitative tightening.

• We expect inflation to fall steadily going forward, though the path from eight percent to five percent could be shorter than that from five percent to two percent. Economic activity is slowing down, but from a high level.

• As inflation remains stubbornly elevated, consumers have begun to reduce savings and are increasingly tapping into credit to weather the rise in food, energy, and housing costs. Personal savings as a percentage of disposable income has fallen steadily since peaking at 33.8% in April 2020 (when it was boosted by government stimulus and a drop in discretionary spending due to pandemic restrictions) and stood at 4.4% as of the end of April.

Further Afield

• While most of the Western world is grappling with uncomfortably high inflation, China’s inflation pressures are modest due to weak demand. The country’s zero COVID strategy has been a substantial drag on the Chinese economy. Infection cases are now receding and lockdowns are being eased. More stimulus may be in the offing.

• As widely expected, the European Central Bank (ECB) Governing Council held rates unchanged at -0.50% and announced an end to asset purchases on July 1. The council cemented a rate increase of 25 basis points (bps) in July—the first rate hike in more than a decade—and further stated that a 50 bps hike may be appropriate in September, depending on the inflation outlook.

 

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