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 12, 2022.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	20,180	2.9%	-4.9%
S&P 500	4,280	3.3%	-10.2%
NASDAQ	13,047	3.1%	-16.6%
Euro Stoxx 50	3,777	1.4%	-12.1%
Hang Seng	20,176	-0.1%	-13.8%

Source: Bloomberg, RBC Wealth Management

• TSX finished higher Friday, near best levels. All sectors higher, materials and health care the outsized gainers, with industrials, financial, tech, real estate, communication services and energy the other leaders. Canadian equities logged a 2.9% weekly gain with the TSX up nearly 9% over the past four weeks.

• The TSX has rebounded by nearly 10% since the mid-July lows, with the most recent rally primarily underpinned by strength in the Information Technology sector (+19.5%). Given the scarcity in physical commodity markets and the injection of geopolitical risk premiums, the Energy sector continues to be a notable outperformer, up roughly 25% year to date. With Energy making up approximately 17% of the TSX, it comes as no surprise that Canadian equities have continued to outperform their global peers so far this year.

• US equities finished higher in Friday trading, closing near best levels. Stocks logged big weekly gains with the S&P posting a four-week winning streak. The key fundamental driver of this week's upside was softer-than-expected July CPI and PPI data, providing more support for the peak inflation narrative.

• Earnings calendar still busy, but fewer big Canadian names reporting between now and 23-Aug start of Canadian bank earnings.

Comment on Europe:

[Excerpted from Global Insight Weekly by Global Portfolio Advisory Committee, RBC Wealth Management, August 11, 2022.]

• Amid scorching temperatures, three key events that will likely shape the regional economic outlook have marked the summer of 2022 so far: the contest to become the next UK prime minister; the EU plan to avoid winter energy shortages; and the collapse of the Italian government.

• Despite Europe being very exposed to the fallout from the Russia-Ukraine war, the European stock market has performed broadly in line with the S&P 500 in local terms so far this year. With the region’s economy slowing while the European Central Bank raises rates, the risk of policy error is not negligible.

• We would focus on opportunities linked to de-carbonisation and the green economy, where the EU remains a leader. As for the UK, with clouds continuing to gather on the horizon, we are focused on companies which generate the majority of their revenue abroad.

 

Economy

Canada

• The latest Canadian jobs report, released last Friday, showed further signs of cooling in the economy, although unemployment remained steady at a multi-decade low of 4.9%.

• Bank of Canada (BoC) Governor Tiff Macklem cautioned that inflation in Canada appears set to remain “painfully high” for the rest of the year, leading many economists to forecast another larger-than-average rate hike at the next BoC meeting in September.

U.S.

• Inflation data were the highlight of the week, and while it finally leveled off on a month-over-month basis, price pressures remain firmly in place. The headline Consumer Price Index (CPI) was flat on a m/m basis, but still increased 8.5% y/y—albeit less than the 9.1% rise in June. The decline from peak inflation was primarily due to the retreat in gasoline prices, which fell 7.7% m/m. The shelter component, which is a significantly larger component of CPI data, increased 0.5% m/m in July.

• The yield curve remains inverted as the 1-year Treasury yield exceeds that of the 10-year Treasury by 36 basis points, continuing to indicate economic vulnerabilities. Almost every time this curve has inverted in the past 75 years, a recession has occurred months later.

Further Afield

• Falling water levels in the German section of the Rhine River, due to extreme temperatures, are set to make it virtually impassable at a key waypoint. Such difficulty for one of Europe’s most important waterways could choke off shipments of energy products and other industrial commodities and chemicals, creating further potential supply disruptions for Industrials and Materials companies, and present another headwind for the German economy.

• Last week, Hong Kong announced the hotel quarantine period for inbound travelers will be cut to three days from seven days, starting Aug. 12. After the three-day quarantine, travelers can return home and will then undergo four days of health monitoring. We view this as a positive move for Hong Kong to maintain competitiveness and pave the way for further loosening of travel restrictions.

 

Notes About Companies in Model Portfolio

• Brookfield Asset Management (BAM.A) reported Q2 revenues of $23.26B vs year-ago $18.29B. Operating FFO/share (OFFO) of US$0.69/share was right in line with RBC Capital Markets analyst’s US$0.70/share forecast, which was up +38% Y/Y. BAM confirmed it remains on track to complete the spin-off of its asset management business by the end of 2022. As a result, BAM will be renamed Brookfield Corporation and the new asset manager will be named Brookfield Asset Management Ltd.

• Canadian Apartment Properties Real Estate Investment Trust (CAR.UN) announced on Wednesday operating and financial results for the three and six months ended June 30, 2022. Operating revenues were $166.1 million vs year-ago $151.8 million. Overall portfolio occupancy for the 6 months ended 30-Jun-22 of 98.2% vs year-ago 97.2%.

• The Walt Disney Company (DIS) reported earnings on Wednesday for its third fiscal quarter ended July 2, 2022. Revenues for the quarter grew 26% to $21.5 billion. Diluted earnings per share (EPS) from continuing operations for the quarter increased to $0.77 from $0.50 in the prior-year quarter.

• Johnson & Johnson (JNJ) to discontinue talc-based Baby Powder. Statement: “we have made the commercial decision to transition to an all cornstarch-based baby powder portfolio. As a result of this transition, talc-based JOHNSON'S Baby Powder will be discontinued globally in 2023.”

 

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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