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 17, 2022.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	18,930	-6.6%	-10.8%	-5.3%
S&P 500	3,675	-5.8%	-22.9%	-11.8%
NASDAQ	10,798	-4.8%	-31.0%	-23.0%
Euro Stoxx 50	3,438	-4.5%	-20.0%	-4.0%
Hang Seng	21,075	-3.4%	-9.9%	-25.7%

Source: Bloomberg, RBC Wealth Management

• TSX closed lower in Friday afternoon trading. Sectors mixed with energy the outsized decliner with communication services, tech, and health care the best performers. Canadian equities dropped 6.6% in weekly trading led by energy again to the downside.

• On a more positive tone, the Canadian equity market continues to perform well relative to global indexes due to strong contributions from resource sectors, namely Energy and Materials, which are up approximately 39% and 2% on the year, respectively.

• US equities finished mostly higher in fairly uneventful Friday trading, though major indices logged another big week of losses. U.S. equities had for their tenth weekly decline in the last 11 weeks. Energy came under pressure amid a notable slide in crude. WTI crude settled down 6.3%, logging its worst single session since 31-Mar and snapping a three-week winning streak.

• Risk off has been the theme for the better part of the week on continued concerns surrounding a more aggressive, Fed-led global tightening cycle. Bounce attempts continue to be largely chalked up to deeply oversold conditions. Fed's Kashkari said he could support another 75 bp rate hike in July, though also cautious about too much more front-loading. Fed affirmed "unconditional" commitment to restoring price stability in semiannual monetary policy report ahead out Friday ahead of Powell testimony this week.

• U.S. markets are closed today (June 20) for the Juneteenth holiday. Major European equity indices are trading higher by the midpoint of today’s trading session. Asian equities are mixed, with strength in China and weakness in Japan.

 

Economy

Canada

• In a recent survey of economists conducted by Bloomberg, consensus forecasts see Canadian inflation coming in at 7.3% for May, placing added pressure on the Bank of Canada (BoC) to raise rates at a rapid clip. Following the action that the Fed took last week by raising the benchmark overnight rate by 75bps, a higher inflation reading is likely to solidify the acceleration of the BoC’s tightening path as the central bank warned that price pressures will remain elevated in the near term.

U.S.

• The early reaction to last week’s hotly anticipated Federal Reserve meeting was one of modest relief as the tone from Fed Chair Jerome Powell was relatively dovish despite an aggressive rate hike of 75 basis points (bps). Powell appeared to take a nuanced view of inflation, and noted that many of the key factors fueling it remain largely out of the Fed’s control while downplaying the idea that 75 bps hikes could become the norm.

• As the chart below shows, headline inflation appears yet to peak across major global economies.

 

• As the last chart shows, the Fed now envisions that its ramped-up rate hikes this year will cool economic growth below its potential levels this year and next—which naturally will relieve inflationary pressures. Note that the Fed is not targeting an economic contraction or recession in order to achieve this, just a stretch of below-trend growth. Should this effort succeed, the Fed’s view that rates could fall in 2024 would then boost economic activity to above-trend levels.

Further Afield

• As widely expected, the BoE raised the Bank Rate from 1% to 1.25% and struck a hawkish tone, suggesting it would “act forcefully in response” to persistent inflation pressures. Inflation rose to a multi-decade high of 9% in April, leading the BoE to upwardly revise its forecast for October 2022 to 11% from 10% previously.

• According to the Financial Times, the Eurozone is in a solid position to handle the recent market volatility that has been occurring throughout European sovereign debt markets. Since the debt-crisis in the early 2010s, the EU has bolstered its banking regulation with the creation of a pan-European supervisor and crisis[1]fighting infrastructure as a measure to support lenders when they fail.

 

Notes About Companies in Model Portfolio

• Apple (AAPL) announced on Tuesday a 10-year streaming deal for all Major League Soccer games in 2023-2032, with Apple receiving exclusive rights to every MLS match on a global basis, and gives TV+ users access to live matches in MLS and Leagues Cup.

• CN Rail (CNR) announced today that normal rail operations continue safely as it has implemented its operational contingency plan during the strike by the International Brotherhood of Electrical Workers (IBEW). The plan allows the Company to maintain a normal level of safe rail operations across Canada and serve its customers for as long as required.

• Intact (IFC) agreed to acquire Highland Insurance Solutions, a U.S.-based managing general agent focused on the builders risk segment of the U.S. construction market, from Tokio Marine Kiln, a subsidiary of the Tokio Marine Group. The transaction is expected to close in H2/22, but other terms of the transaction were not disclosed.

• TELUS (T) announced on Thursday that it has entered into a definitive agreement to acquire LifeWorks, Inc. for approximately $2.3 billion. “The combination of TELUS Health and LifeWorks represents an unmatched opportunity to create a leader in employer-focused primary and preventative digital healthcare and mental wellness solutions on a global basis,” according to Stephen Liptrap, President and CEO of LifeWorks.

 

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Shiuman