April 5 to 9, 2021
What happened last week
Stock markets hovered at record levels, while bond yields eased
The TSX, S&P 500 and Dow Jones Industrial Average cruised at record levels, and the Nasdaq outperformed them all for a second-straight week, as technology stocks returned to favour and bond yields retreated from recent highs.
While equity markets continued to perform at or near record levels, caution was in the air: investors shifted between market sectors and asset classes, in step with the evolving outlook on global economic recovery. Investor concerns over central banks – particularly the U.S. Federal Reserve (the Fed) – ramping up their timelines for raising interest rates to combat inflation continued to subside; this was helped by further reassurances from the Fed that it’s in no rush to adjust its accommodative monetary policy. In turn, this bolstered sentiment and gave technology and growth stocks a boost. Oil prices were down. Otherwise, it was a relatively quiet week in the markets, with trading volumes low, and with volatility – as measured by the Cboe Volatility Index (the VIX) – at pre-pandemic levels.
The IMF upgraded its outlook on the Canadian economy
For its annual spring meetings, the International Monetary Fund (IMF) brought together, virtually, its usual array of financial-market influencers – from central bankers and finance ministers to corporate executives and economists – to discuss global economic concerns. The event, its speakers and related updates generated news throughout the week, offering investors insight into the direction of economic recovery around the world.
On Tuesday, the IMF released its World Economic Outlook, outlining expectations that global economic output will rebound 6% in 2021, and a further 4.4% in 2022. It also upgraded its outlook for the Canadian economy, forecasting 5% growth over the course of 2021 – higher than the Bank of Canada’s 4% estimate, in January. But the report came with a warning from the IMF’s Research Department Director, Gita Gopinath: “A high degree of uncertainty surrounds our projections. Faster progress with vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade. Multi-speed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways,” she said. “This could cause inflated asset valuations to unwind in a disorderly manner, financial conditions to tighten sharply, and recovery prospects to deteriorate, especially for some highly leveraged emerging markets and developing economies.”
Investors got reassurance that the Fed was in no hurry to adjust its policy
On Wednesday, minutes from the Fed’s March meeting were released, offering deeper insight into the central bank’s official statement. This provided investors reassurance that it would be “some time” before the Fed would begin tapering its monetary-policy measures. These minutes reinforced the fact that policymakers still saw elevated uncertainty, justifying decisions to maintain an accommodative stance. The minutes also showed that policymakers viewed the surge in U.S. Treasury yields (at the time) as reflecting a strengthening economy, a positive sign to be taken in balance with inflation risks.
At an IMF event on Thursday, U.S. Federal Reserve Chair Jerome Powell added further insight: “We think there will be upward pressure on prices which may be passed along to consumers in the form of price increases – we think that will be temporary.” He also noted that the varying effectiveness of vaccine programs around the world poses risks for economic recovery, which continues to be “uneven and incomplete.”
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
|10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending April 9, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
U.S. economic data: Several reports set for release this week will offer insight into different aspects of the U.S. economy, including inflation, oil and energy supply, housing, trade, employment, retail sales, and manufacturing.
Circle these dates
- April 19: Federal budget (Canada)
- April 21: Bank of Canada interest-rate announcement and monetary-policy update
- April 27 to 28: U.S. Federal Open Market Committee meetings and statement
- April 30: 2020 income tax filing deadline
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