August 23 to 27, 2021

What happened last week

Markets moved higher despite ongoing uncertainty over the economic recovery

The TSX closed at an all-time high, rising by 1.5% thanks, in large part, to a sharp rebound in global oil prices and the major banks reporting better-than-expected earnings. That put Canada’s benchmark index one step closer to a seventh straight month of gains. Down south, the U.S. equity markets also reached record heights, as investors monitored the progress of a US$1-trillion infrastructure bill before Congress, and digested comments from the Federal Reserve (the Fed) on the timeline for the gradual withdrawal of its emergency support measures.

Global oil prices remained volatile

Coming off its worst slide since October 2019, crude oil bounced back with benchmark West Texas Intermediate posting a 10% price gain for the week, its largest weekly advance in over a year. Reports of China containing a recent coronavirus outbreak, falling U.S. supply levels, and incoming Tropical Storm Ida forcing production offline in the Gulf of Mexico, helped the commodity recover the previous week’s steep losses. August has been a volatile month for crude prices as concern rises over a resurgence in COVID-19 infections and the impact it may have on global demand for oil. Investors will watch closely for changes to production quotas when the Organization of the Petroleum Exporting Countries and its allies (OPEC+) meet on Wednesday (September 1).

Earnings reports from Canada’s major banks beat expectations

Each of Canada’s Big Six banks (BMO, Scotiabank, RBC, National Bank, CIBC and TD) reported double-digit profit growth for fiscal third quarter that beat analyst expectations. All six banks noted that the money they needed to set aside to guard against bad loans continued to drop (by millions, compared to previous quarters).

While the strong earnings reports suggest that the major Canadian banks have managed well through the pandemic, a potential headwind for the financial sector came to light on Wednesday. In a campaign announcement, Prime Minister Justin Trudeau, if re-elected, promised to raise the corporate tax rate on Canada’s largest financial institutions from 15% to 18% on earnings over $1 billion – a bid to raise $2.5 billion in revenue for the government over four years.

U.S. markets weighed fiscal- and monetary-policy news

The benchmark U.S. stock indexes received a mid-week boost following news that trillions of dollars in economic support was moving through Congress. The House of Representatives approved a U.S.$3.5-trillion budget framework to advance President Joe Biden’s economic recovery agenda, and agreed to vote on a US$1-trillion infrastructure bill by September 27.

Markets got a further lift on Friday after Fed Chair Jerome Powell provided clarity around the central bank’s timeline for winding down its emergency support measures. In a much-anticipated speech from the bank’s annual Jackson Hole Economic Symposium on Friday (held virtually in light of rising COVID-19 infections) Powell explained that at the Fed’s last policy meeting in July: “I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year…The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the delta variant.” Powell also noted: “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.”


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 20,644.64 1.50% 18.42%
Dow Jones Industrial Avg. 35,455.80 0.96% 15.84%
S&P 500 Index 4,509.37 1.52% 20.06%
Nasdaq Composite 15,129.50 2.82% 17.39%
10-yr GoC Yield 1.20% 0.06% 0.53%
10-yr U.S. Treasury Yield 1.31% 0.05% 0.38%
WTI Crude Oil (US$/bbl) 68.74 10.30% 41.67%
Canadian Dollar US$0.7915 1.76% 0.78%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending August 27, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

Canada’s Gross Domestic Product (GDP): On Tuesday (August 31), Statistics Canada is scheduled to release GDP data for the month of June and the second quarter of 2021. In its Q1 update, Statistics Canada reported that the Canadian economy grew by 1.4%, slowing from a 2.2% pace in Q4 2020. The most recent monthly data showed the economy shrank by 0.3% in April, and 0.5% in May.

Circle these dates

  • September 6: Canadian and U.S. markets closed for Labour Day
  • September 8: Bank of Canada interest-rate announcement
  • September 20: Canadian federal election
  • September 21 to 22: U.S. Federal Reserve meetings and statement

Key take-away

We’re here for you. Having a solid financial roadmap is the best way to weather ever-changing market conditions. Designing that roadmap – and staying the course in stormy markets – can be a lot easier with the help of a Co-operators financial representative.


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