July 5 to 9, 2021

What happened last week

Global oil prices fluctuated following OPEC+ impasse

When the Organization of Petroleum Exporting Countries and its allies (OPEC+) met from July 1 to 5, investors anticipated an agreement to increase crude oil production by 400,000 barrels per day between August and December. It was also expected that some of the pandemic restrictions would be extended until December 2022. A deal was close, but talks ended abruptly on Monday when the 23-nation coalition couldn’t agree on how to measure production cuts, with Saudi Arabia and the United Arab Emirates at the centre of the debate. Tensions ran so high that the group failed to set a date for its next meeting. Unless a deal can be salvaged, the immediate impact means production will remain status quo in August, depriving global markets of much-needed inventory, as economies begin to reopen. Global demand is expected to increase by 5-million barrels a day in the second half of 2021 according to a statement from OPEC Secretary-General Mohammad Barkindo. The group added 2-million barrels a day to the market between May and June of this year.

The TSX hit two record highs

While U.S. equity markets were closed Monday for the July 4 long weekend, the TSX posted a record close. After the OPEC+ meeting collapsed, investors initially pushed oil prices to their highest level since 2018. West Texas Intermediate rose to $76.36 per barrel, Brent crude was higher by 1.3% to $77.12 per barrel and Western Canada Select climbed to US$61.31 per barrel. When U.S. trading resumed Tuesday, markets were mixed, as investors further contemplated the impact of the OPEC+ meeting. In addition, economic data from the Institute for Supply Management showed that the U.S. service sector expanded less than June forecasts had predicted – a sign employers are struggling to hire new workers. The TSX and the Nasdaq closed higher on the day (the second record of the week for the TSX). The Dow Jones Industrial Average and the S&P 500 declined.

COVID variants unsettled markets after reassuring comments from the Fed

Despite a report from the U.S. Labor department that underscored concerns about employers struggling to hire new workers (U.S. job openings rose to a record high in May) equity markets bounced back Wednesday as investors focused on results from the last meeting of the U.S. Federal Reserve’s open market committee. According to the meeting minutes, participants generally agreed it was important to be well positioned to reduce the pace of asset purchases in response to unexpected economic developments, including faster-than-anticipated progress toward the Committee’s goals or the emergence of risks that could slow progress. With investors focused on the pace of economic recovery, the comments seemed to confirm that the central bank is prepared to adapt, if necessary. The S&P 500 and the Nasdaq both hit record highs, the Dow booked a modest gain and the TSX declined for the first time during the week.

On Thursday, anxiety over COVID-19, and how a resurgence might impact the global economic recovery, led to market declines in the U.S. and Canada. The Nasdaq dropped 0.7%, the Dow was lower by 0.8% and the S&P 500 declined 0.9%. Canada’s TSX suffered its worst daily loss in over four months, falling 1.1%. Capping a turbulent week, markets returned the upside on Friday with the Dow, S&P 500 and Nasdaq all closing with new record highs. The TSX posted a gain of 0.98%.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 20,257.95 0.16% 16.20%
Dow Jones Industrial Avg. 34,870.16 0.24% 13.93%
S&P 500 Index 4,369.55 0.40% 16.33%
Nasdaq Composite 14,701.92 0.43% 14.07%
10-yr GoC Yield 1.32% -0.05% 0.65%
10-yr U.S. Treasury Yield 1.37% -0.07% 0.44%
WTI Crude Oil (US$/bbl) 74.63 -0.71% 53.81%
Canadian Dollar US$0.8015 -0.99% 2.05%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending July 9, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

  • Bank of Canada monetary policy update on Wednesday (July 14): In its June update, the bank maintained the pace of its government bond purchases at $3 billion a week and held its key overnight rate at 0.25%, where the bank projects it will stay until the second half of 2022. Investors will review this week's announcement for any updates to the bank's outlook and its timelines for adjusting monetary-policy support.

Circle these dates

  • July 27 to 28: U.S. Federal Reserve meetings and statement
  • Aug. 2: TSX closed for Civic holiday
  • Sept 6: Canadian and U.S. markets closed for Labour Day

Key take-away

Stay focused on your goals. If you’re second-guessing your plan, it can be helpful to revisit your goals. Have your goals changed? Is your financial situation different now? If the only changes are related to market performance, try to look past short-term losses and focus on the long-term prospects. History continues to show us that markets rebound and trend upward.


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