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 10, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	19,775	-3.9%	2.0%
U.S.	S&P 500	3,862	-4.5%	0.6%
U.S.	NASDAQ	11,139	-4.7%	6.4%
Europe/Asia	MSCI EAFE	2,063	-0.4%	6.1%

Source: Bloomberg, RBC Wealth Management

• TSX ended lower in Friday afternoon trading, near worst levels. All sectors lower. Canadian equities fell 3.9% last week, worst weekly performance of 2023.

• U.S. stocks struggled to hold recent gains during the week, after Fed Chair Jerome Powell’s address to Congress rekindled fears of interest rates remaining higher for longer.US equities finished down in Friday trading, ending near worst levels and with major equity indices logging big weekly pullbacks.

• Friday’s two big themes were the nonfarm payrolls report and continued bank-sector turmoil. On the former, February payrolls rose a hotter-than-expected 311K, with unemployment rate ticking higher and average hourly earnings printing a bit softer than consensus. Report seems to have been enough to fulfill hopes for return to disinflation track, with market pricing now seeing a 50-50 chance of a 25bp move in March and the terminal rate forecast back in the 5.25-5.50% range.

• Beyond outsized focus on Fed's policy trajectory, headlines concentrated on rapid collapse of Silicon Valley Bank (SIVB), the largest bank failure since 2008. While immediate impact seems fairly contained, banks continuing to sell off amid concerns about the cumulative impact of the tightening cycle.

• Following last week’s failure of Silicon Valley Bank and significant concerns surrounding the security of large sums of uninsured deposits, policymakers and regulators have stepped in with plans to stabilize the banking system. The Federal Reserve, the U.S. Treasury and the Federal Deposit Insurance Corporation (FDIC) released a joint statement yesterday stating that certain qualified depository institutions will have access to collateralized lines of credit from the Fed via the newly created Bank Term Funding Program.

 

Economy

Canada

• The BoC left its policy rate unchanged at 4.5%. The decision was widely expected by markets after the BoC articulated a desire to assess how the economy responds to the higher interest rate environment.

U.S.

• Federal Reserve Chair Jerome Powell struck a relatively hawkish tone in congressional testimony last week, indicating that higher-than-previously anticipated interest rates would likely be needed to fight inflation and opening the door to a 50 basis point (bps) rate hike later this month, despite the central bank downshifting to a 25 bps increase at the February policy meeting.

• Employment data have been second only to inflation reports in importance recently as investors seek clues about Fed policy. And traders took some comfort from higher-than-expected weekly initial and continuing jobless claims, as the “bad news is good news” view that a slowing economy would curtail rate hikes came back to the fore. First-time unemployment claims during the week rose to the highest level in 11 weeks, and the ADP private payrolls report for February noted that small employers continued to see reduced payrolls, extending a trend that began in August 2022.

Further Afield

• “Whatever it takes” were the firm words from European Central Bank President Christine Lagarde when she spoke about restoring price stability following the recent upward inflation surprises. The euro area core reading, which excludes the more volatile food and energy prices, accelerated to a record of 5.6% y/y.

• The Chinese government set a 2023 GDP growth target at around 5%, which is pragmatic and achievable, in our view. However, we expect the actual growth to surprise to the upside.

 

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