August 9 to 13, 2021

What happened last week

Stock markets hovered around record levels

The major North American equity indexes continued to perform within a tight range – at or near record levels – as investors kept a close eye on risks to the global economic outlook. Global stocks were up 90% from the pandemic lows of March 2020, but questions around the sustainability of the rally dampened sentiment. Inflation, its potential impact on central bank policy in the U.S., and rising COVID-19 infections around the world were top-of-mind for investors through the week.

Oil prices remained volatile with the demand outlook uncertain

After falling over 7% in the previous week, prices for benchmark West Texas Intermediate crude remained under pressure during a resurgence in global COVID-19 infections and rapidly changing demand forecasts. Over the course of 2021, demand has picked up in major economies such as the U.S. and Europe, reducing excess inventory built up during the pandemic and sending prices higher. That trend has slowed in recent weeks as virus variants threaten economic recovery. According to an International Energy Agency report released Thursday, global demand for the commodity “abruptly reversed course” in July. The agency lowered estimates for global consumption in the second half of the year by 550,000 barrels a day.

Markets digested U.S. inflation data in stride

According to data released by the Labor Department on Wednesday, prices paid by U.S. consumers rose in July, but at a slower pace than economists expected. The consumer price index increased 0.5% since June and 5.4% compared to a year ago. The data suggest that ongoing challenges including material and labour shortages, along with supply-chain bottlenecks, will likely continue to push prices higher in the months ahead. On the other hand, some of the price pressures related to the early stages of economic reopening are dissipating.

Global financial markets are keeping a close eye on U.S. inflation and its potential impacts on the world’s largest economy, especially the Federal Reserve’s (the Fed’s) timeline for reducing monetary support for the economy, and President Joe Biden’s multi-trillion-dollar government spending programs. The Fed has repeatedly indicated that it believes inflation will be temporary and that near-zero interest rates will remain in place until the economic recovery has made “substantial further progress”. Market sentiment remains cautious over the outlook. Investors are concerned that surging price levels could force the Fed to raise rates earlier than planned to cool down the economy. Inflation could also make it harder for President Biden to win support for another US$3.5 trillion in government spending if lawmakers believe that it could add to price pressures, in addition to the trillions of dollars of fiscal stimulus already distributed since the start of the pandemic. President Biden pointed to the July report as a sign the pace of inflation is slowing when he spoke about his economic plans from the White House on Wednesday.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 20,518.07 0.21% 17.69%
Dow Jones Industrial Avg. 35,515.38 0.87% 16.04%
S&P 500 Index 4,468.00 0.71% 18.95%
NASDAQ Composite 14,822.90 -0.09% 15.01%
10-yr GoC Yield 1.19% -0.05% 0.52%
10-yr U.S. Treasury Yield 1.29% -0.02% 0.36%
WTI Crude Oil (US$/bbl) 68.44 0.23% 41.06%
Canadian Dollar US$0.7991 0.29% 1.74%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending August 13, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

Economic data: Manufacturing, housing, employment, and retail-sales figures will be released for both Canada and the U.S. Investors will also assess an inflation reading for July from Statistics Canada.

Circle these dates

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

Key take-away

All investing involves some risk. How much risk you can handle is based on your personal financial situation, including the stability of your income, the value of your current assets, and the total debt that you hold. Your risk capacity can change over time and, when needed, is something you can reassess with your Co-operators financial representative.


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