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 3, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	20,582	1.8%	6.2%
U.S.	S&P 500	4,046	1.9%	5.4%
U.S.	NASDAQ	11,689	2.6%	11.7%
Europe/Asia	MSCI EAFE	2,071	1.7%	6.5%

Source: Bloomberg, RBC Wealth Management

• TSX ended higher Friday, near best levels. Strength was broad based with several sectors up more than 1%. Canadian equities logged a 1.8% weekly gain, bouncing back from last week's 1.4% drop and snapping a run of three weekly declines.

• US equities were higher in fairly quiet Friday afternoon trading, though stocks still finished just off session highs. S&P also finished back above the 4,000 level for first time since 23-Feb (which may be helping to dampen pressure from systematic funds), while both S&P and Nasdaq snapped three-week losing streaks.

 

Economy

Canada

• Canadian GDP growth unexpectedly stalled in Q4 at 0.0%. This fell short of the 1.6% level expected by economists and was well below the downwardly revised 2.3% level of Q3.

• Consumption rebounded nicely, with household spending advancing 2% (annualized) in Q4, indicating that Canadian consumers have not yet capitulated to considerably higher interest rates. The preliminary data for January 2023 were also quite strong, suggesting the economy grew roughly 30 bps during the month.

• The Bank of Canada is widely expected to hold interest rates at their current level at its March 8th meeting, as recent economic data has indicated that inflation has begun to decelerate meaningfully.

U.S. 

• In the coming weeks, two important economic reports will further shape market sentiment and rate hike expectations: Employment (March 10) and the Consumer Price Index (March 14). If the Fed does indeed end up hiking rates by another 75 basis points between now and the summer—as the futures market is currently estimating—we think this would raise already elevated recession risks.

• Investors await U.S. Federal Reserve Chair Powell’s speech for further clarity on the path of interest rates. As of now, markets are pricing-in a higher terminal rate around 5.25-5.50 %, including an anticipated 25 basis point rate hike in the next FOMC meeting on March 21-22.

Further Afield

• The euro area’s uncomfortably elevated inflation signals that the European Central Bank (ECB) is unlikely to back off further interest rate hikes over the next few policy meetings. According to the February ECB meeting minutes, officials determined it was “much too early to declare victory” on inflation and the recent data affirms the Governing Council’s assessment.

• Three months have passed since China’s zero-COVID policy pivot. RBC Elements’ mobility data indicates the peak of COVID-19 has passed as daily metro ridership in major cities has picked up strongly since late December. Public transit ridership is at 76 percent to 141 percent of pre-pandemic normal levels in 10 of the major Chinese cities RBC Elements tracked. Chinese flights are also rebounding, with total flight counts recovering to 80 percent of normal levels.

• With the reopening progressing, RBC Global Asset Management’s Chief Economist Eric Lascelles recently upgraded his 2023 China GDP growth forecast to 5.3 percent from 4.4 percent. China’s recovery should be good news for the global economy as well, especially given the U.S. and Europe are expected to deliver below average growth.

 

Notes About Companies in Model Portfolio

An uninspiring Q4 earnings season also has been a headwind for the equity market lately. With nearly all companies having now disclosed Q4 results, Bloomberg data indicate S&P 500 earnings are on pace to decline 2.5% y/y, the first quarterly retrenchment of the post-COVID-19 period. The 2023 consensus earnings forecast has dipped to $222 per share from $229 at the beginning of the reporting season and a peak of $252 in May 2022. We think this estimate will continue to move lower as the Q1 earnings season approaches in April.

• Costco Wholesale Corporation (COST) announced on Thursday its operating results for the second quarter (twelve weeks) and the first 24 weeks of fiscal 2023, ended February 12, 2023. Net income for the quarter was $1,466 million, $3.30 per diluted share compared with last year’s Q2 net income at $1,299 million, or $2.92 per diluted share.

• Royal Bank of Canada11 (RY) reported on Wednesday net income of $3.2 billion for the quarter ended January 31, 2023, down $881 million or 22% from the prior year. Pre-provision, pre-tax earnings7 of $5.9 billion were up $385 million or 7% from a year ago, mainly reflecting higher net interest income driven by higher interest rates and strong loan growth in Canadian Banking and Wealth Management. Higher Global Markets revenue in Capital Markets, reflecting strong client activity, also contributed to the increase. Excluding the specified item7 for the impact of the Canada Recovery Dividend (CRD) and other tax related adjustments, net income of $4.3 billion was up 4% from the prior year.

• TD Bank Group (TD) announced on Thursday its financial results for the first quarter January 31, 2023. Reported earnings were $1.6 billion, down 58% compared with the first quarter last year, and adjusted earnings were $4.2 billion, up 8%. Canadian Personal and Commercial Banking net income was $1,729 million, an increase of 7% compared with the first quarter last year reflecting higher margins and volume growth. U.S. Retail reported record net income of $1,589 million (US$1,177 million), an increase of 25% (17% in U.S. dollars) compared with the first quarter last year.

 

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Regards,

Shiuman