April 13-17, 2020

What happened last week

Economic data and financial reports worried investors

The International Monetary Fund (IMF) published its 2020 World Economic Outlook this week, reporting its belief that the global economy will shrink by 3% this year. If so, it would be the biggest decline since the Great Depression in the 1930s. The report predicted a rebound for 2021, with a growth rate of 5.8%, but cautioned that "extreme uncertainty" around the outcome of the COVID-19 pandemic could result in lower than expected growth. For Canada specifically, the IMF forecast that Canada's gross domestic product (GDP) will decrease by 6.2% this year.

In March, U.S. retail sales fell by 8.7% from the previous month, the biggest drop on record since the Census Bureau started collecting data in 1992. Clothing and accessory sales saw the biggest decline, down more than 50%, while restaurants and bars lost 26.5% of their revenue. The lone bright spot was an increase in grocery store sales by 26.7%.

Additional economic data from the U.S. saw March’s factory output decline the most in a single month since 1946, U.S. homebuilder sentiment reach its lowest point in eight years, and an additional 5.2 million Americans file for their first week of unemployment benefits.

OPEC and allies agreed to cut production

In a meeting on April 12, Saudi Arabia and Russia ended their oil price war as the Organization of the Petroleum Exporting Countries (OPEC) and its allies agreed to cut oil production by 9.7 million barrels per day (mb/d) through May and June. In the six months that follow, they plan to cut production by 7.7 mb/d, and then 5.58 mb/d through April 2022. The immediate reduction of 9.7 mb/d is equivalent to 10% of the global supply.

Despite the agreement, the price for oil (WTI Crude) closed below US$20 a barrel twice last week, as predictions that demand will fall to a 30-year low was more compelling to investors than the production cut. Even at 10%, OPEC and its allies will still produce more than the world's current demand.

Bank of Canada holds overnight rate

As expected, following three emergency interest-rate cuts since the start of the COVID-19 outbreak, the Bank of Canada held its key overnight rate at 0.25%. The central bank considers the current rate its "effective lower bound," which means they have no immediate plans to cut the rate to zero or into negative territory. In his statement, Bank of Canada Governor Stephen Poloz said: “The Canadian economy is experiencing a significant and rapid contraction. The shock is a global one, affecting all countries, but commodity-producing countries like Canada are being hit twice. In the very near term, policy-makers can do little more than cushion the blow.”

Poloz also noted credit markets remain “strained,” and that the bank will expand its asset-purchase programs, including plans to buy up to $50 billion in provincial bonds and up to $10 billion of investment-grade corporate bonds in the secondary market.

The stock and bond market*
S&P/TSX Composite 14,359.88 1.36% -15.84%
Dow Jones Industrial Avg. 24,242.49 2.21% -15.05%
S&P 500 Index 2,874.56 3.04% -11.03%
NASDAQ Composite 8,650.14 6.09% -3.59%
MSCI EAFE 1,622.30 0.96% -20.36%
10-yr GoC Yield 0.64% -0.12% -1.06%
10-yr U.S. Treasury Yield 0.65% -0.08% -1.27%
WTI Crude Oil (US$/bbl) 18.27 -19.73% -70.15%
Canadian Dollar US$0.7124 -0.38% -7.47%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending April 17, 2020. Sources: www.bloomberg.com, www.msci.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

Busy week for economic reports

Reports on wholesale and retail sales, inflation, and the housing market, will provide investors with key readings on the Canadian economy. For the U.S., housing, oil inventories, manufacturing and employment data are also scheduled for release this week.

Key take-away

Markets remain volatile. The good news is, our fund managers are experts, equipped with long-term strategies designed to outlast market declines.

Circle these dates

  • April 28-29: U.S. Federal Reserve meetings and statement
  • May 14: Bank of Canada Financial System Review released
  • Jun. 1: 2019 income-tax filing deadline
  • June 3: Bank of Canada interest-rate announcement

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