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 August 5^th, 2022.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	19,620	-0.4%	-7.6%
S&P 500	4,145	0.4%	-13.0%
NASDAQ	12,658	2.2%	-19.1%
Euro Stoxx 50	3,725	0.5%	-13.3%
Hang Seng	20,202	0.2%	-13.7%

Source: Bloomberg, RBC Wealth Management

• TSX finished slightly higher Friday near best levels, reversing losses late in the session. Sectors were mixed. Staples, real estate and tech the laggards, with energy the big upside standout (though sector still fell over 8% on the week), materials also solidly higher. Canadian equities logged a modest 0.4% weekly loss following two weeks of strong gains.

• US equities were mixed in Friday trading, though finished well off morning lows. The Nasdaq logged a third week of good gains.

• “For the time being, bad news on the economic front is good news for stocks since it is fueling expectations among investors of a Fed pivot, while good news puts Fed hikes back in focus. That being said, the muted stock market reaction to Friday’s strong jobs reports suggests to us that equity investors are also taking some comfort from signs of a resilient economy, particularly in light of recent market reaction to strong 2Q earnings.” (The Pulse of the Market by Lori Calvasina, Head of U.S. Equity Strategy. RBC Capital Markets.)

 

Economy

Canada

• The combination of surging inflation, tighter financial conditions, and lingering geopolitical tensions has taken a toll on the market’s expectation for future economic growth. Weakening sentiment has led bond markets to position for a peak of around 3.5% in the Bank of Canada (BoC) policy rate by the end of 2022, from the current 2.5%.

• In fact, bond markets are pricing in central bank rate cuts by the first quarter of 2023. However, as markets continue to question the BoC’s ability to hike rates into a recession, central bankers globally have shown no intentions of deviating from their aggressive tightening paths, signaling that the inflation fight is still ongoing and leaving the door wide open for additional hikes at upcoming meetings.

• The Canadian economy showed signs of cooling in May, with GDP coming in unchanged from April according to Statistics Canada. RBC Economics expects the rise in interest rates and ongoing capacity constraints will likely cause growth to slow considerably going forward and forecasts a modest recession starting in mid-2023.

U.S. 

• Senate Democrats passed Inflation Reduction Act in a party-line vote on Sunday with Vice President Harris casting the tiebreaker. The act is aimed at providing healthcare support to lower income households, increasing taxes on corporations, and it includes some of the most significant climate change legislation enacted in the US with $369 billion dedicated to climate and renewable energy programs.

• The number of available positions fell to a nine-month low, according to the U.S. job openings survey for June, suggesting tight labor market conditions are beginning to ease on the back of growing economic pressures. We are seeing labor market strength losing momentum as companies such as Amazon are beginning to cut back on hiring after announcing they were overstaffed. According to the U.S. Labor Department, job vacancies fell by 605,000 in June from May, the largest monthly decline since April 2020.

• July nonfarm payrolls jumped by 528K vs the ~250K consensus. In addition, unemployment rate unexpectedly ticked down to 3.5%

Further Afield

• The Bank of England (BoE) delivered its biggest interest rate hike since 1995; the 50 basis point (bps) increase had been widely expected, and was approved by the bank’s Monetary Policy Committee (MPC) by a vote of eight to one. The MPC meeting summary noted that near-term inflationary pressures in the UK and the rest of Europe have intensified significantly since the release of the May Monetary Policy Report (MPR), and this led to this outsized move.

• Eurozone GDP grew 0.7% in Q2, considerably more than consensus expected. Though details are still scant, growth may have been aided by a healthy tourism season, reopening momentum, and fiscal support via the EU recovery funds and to combat energy prices. 

 

 Notes About Companies in Model Portfolio

• Berkshire Hathaway (BRK.A and BRK.B) reported on Saturday financial results for Q2 and first six months of 2022. BRK.B reported Q2 operating earnings per Class B share, exclusive of the impact of investment and derivative gains/losses, of $4.20 vs. FactSet estimate of $3.16. Second-quarter reported revenue, which includes unrealized and realized gains/losses from Berkshire's investment portfolios, declined 90.4% to $9.3 billion from $96.5 billion in the prior year's period. The company has an estimated $70.2 billion in dry powder that could be committed to investments, acquisitions, and share repurchases.

• TELUS Corporation (T) released its unaudited results on Thursday for the second quarter of 2022. Consolidated operating revenues and other income increased by 7.1 per cent over the same period a year ago to $4.4 billion. The company had record second quarter total customer additions of 247,000. This included strong mobile phone net additions of 93,000, its best second quarter result since 2011. Shareholders of LifeWorks approved the proposed acquisition; transaction to add significant scale, strengthening TELUS Health’s position as a leading global provider of digital primary and preventative healthcare, mental health and wellness solutions for employers.

 

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