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.

You can view the past four weeks’ Weekly Update in the link to my Blog.

To read my latest 2023 Q1 Smart Investor newsletter (What 2023 Holds, How to Invest, my list of books from last year), and catch up on back issues, go to my website.

 

Markets

Market scorecard as of close on Friday March 24, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	19,501	0.6%	0.6%
U.S.	S&P 500	3,971	1.4%	3.4%
U.S.	NASDAQ	11,824	1.7%	13.0%
Europe/Asia	MSCI EAFE	2,017	1.5%	3.8%

Source: FactSet

• TSX finished modestly higher Friday, near best levels after recovering from initial weakness at the open. TSX posted a 0.6% weekly gain following two big weekly declines that saw the benchmark fall nearly 6% in that span.

• All sectors within the S&P/TSX Composite are in the green apart from Financials and Energy. We note that these sectors in aggregate account for nearly 50% of the index and, therefore, will be an area of interest for Canadian investors. With respect to Financials, we reiterate our view that an SVB-like event is unlikely to materialize within the Canadian banks but believe near-term turbulence in the stocks should be expected. Regarding Energy, we believe the pullback in oil prices reflects the pull forward in recessionary risks and, therefore, lower demand. However, RBC Capital Markets believes the correction in oil prices is overdone and is still forecasting a global supply deficit in H2 2023.

• US equities finished higher in fairly uneventful Friday trading. Major indices all posted modest weekly gains. Banks were mostly stronger, with regionals outperforming the larger caps. Treasuries rallied across the curve though came well off best levels; 2Y finished below 3.80% but at one point fell as low as 3.44%.

 

Update on U.S. Banks

• First Citizens Bank & Trust Co has agreed to buy a large part of Silicon Valley Bank, which was seized by regulators following a depositor run on the lender over two weeks ago. According to the Federal Deposit Insurance Corp. (FDIC), First Citizens Bank, a North Carolina-based bank, entered into a purchase agreement for all deposits and loans of SVB.

• It’s understandable that investors remain scarred by memories of 2008–09 and that any word of bank failures brings fears. But several factors distinguish the current turmoil from the banking system crisis of 2008–09. In a RBC Wealth Management special report, “A crisis for a few banks is not a banking crisis”, we discuss the drivers of U.S. policymakers’ current approach to today’s stress, and the risks for investors in U.S. banks. Click to read the special report.

 

Economy

Canada

• CPI inflation came in a couple of ticks below consensus expectations in February, easing to 5.2% y/y according to Statistics Canada. While mortgage costs and food prices have remained quite sticky, the three-month annualized rate of CPI inflation excluding food, energy, and shelter (a measure that provides an indication of the underlying price pressures within the Canadian economy) has fallen to 2.3%.

• Canada retail sales rose 1.4% in January, beating forecasts for a 0.7% gain.

U.S. 

• At the beginning of March when the Fed was teeing up the idea of continued aggressive rate hikes, markets were looking for hikes to a level as high as 5.75 percent this year. Following the banking stress of recent weeks, markets are now looking for rate cuts.

• Existing home sales in the United States moved higher in February following 12 straight months of declines. The housing market has been one of the most significant casualties of aggressive interest rate hikes in the Federal Reserve’s battle to tame high inflation, as elevated mortgage rates have stunted affordability and dampened demand.

• The U.S. labor market remains stubbornly resilient, complicating the Fed’s inflation fight. The hot labor market continues to be a key upside risk to the Fed’s tightening path, as many economists believe it remains uncomfortably strong.

Further Afield 

• We believe systemic risks remain relatively low, and we think it is unwarranted to draw direct parallels between the current health of the European banks sector and individual bank issues, or to previous crises. RBC Capital Markets notes that European banks’ funding, liquidity, and capital positions are generally much stronger than in the past. Moreover, central banks have acted rapidly and aggressively to provide significant liquidity.

• Despite the recent turmoil in the global banking sector, the Bank of England’s (BoE) Monetary Policy Committee (MPC) delivered a 25 bps hike to reach a 4.25% Bank Rate—the highest since 2008.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman