March 22 to 26, 2021

What happened last week

Markets seesawed alongside investor enthusiasm

Stock markets and oil prices were volatile as investors weighed the impacts of rising COVID-19 infections and renewed lockdowns on the world’s reopening economies.

Despite rising steadily in recent weeks, amid concern that inflation could flare up as economies reopen, government-bond yields weakened. Although this provided a tailwind for technology stocks early in the week, it was performance by “cyclical” stocks – stocks that should rise in a rebounding economy – that held sway over performance most of the week.

Oil prices were choppy. Futures contracts for West Texas Intermediate, which were trading near US$65 a barrel a week earlier, struggled early in the week as demand weakened in the face of mounting lockdowns. News that a giant cargo ship was blocking the Suez Canal – a key supply route for crude – sent the commodity’s price up sharply on Wednesday, but the downward trend resumed on Thursday.

Optimism returned to lift markets on Friday, following U.S. President Joe Biden’s announcement that, having reached his initial goal of vaccinating 100 million Americans in his first 100 days in office, he was now doubling it to 200 million by April 30. The major stock markets rallied into the closing bells, with the S&P and Dow at record levels, and oil prices gaining back almost 4% on the day.

The Canadian government announced a date for the next federal budget

Canada's Finance Minister, Chrystia Freeland, announced that she will be tabling a budget in Parliament on April 19 – the first budget delivered in over two years. It should provide Canadians with insight into the government's plans for stewarding the economy through the remainder of the pandemic and towards recovery (adding to the billions of dollars it has already spent to date). In its fall economic update, the government projected a record deficit of $381.6 billion for the 2020-21 fiscal year, stating that the number could rise above $400 billion, depending on how the COVID-19 situation continues to unfold.

The government has pledged continued spending to support the recovery. Investors will be looking for assurances, however, that further stimulus is right-sized and won’t spark inflation. In recent weeks, while the Bank of Canada has pledged to keep its policy rate near zero, Canadian government-bond yields have also risen. This impacts the cost of borrowing – not only for the government, but for Canadian households and investors as well.

Central bankers set expectations for a reduction in monetary-policy support

In a speech delivered to CFA Society Toronto, the Bank of Canada's Deputy Governor, Toni Gravelle, outlined the bank's plans to slow the pace of its government-bond purchase program, which the bank has used to keep market interest rates low through the pandemic. Gravelle noted that the tapering will be gradual, while adding: “We will eventually get down to a pace of QE [quantitative easing] purchases that maintains – but no longer increases – the amount of stimulus being provided." Gravelle also said that the timing will be guided by the central bank’s economic outlook and will be kept distinct from any change to the policy interest rate. The Bank of Canada has lowered its overnight rate to 0.25% and pledged to keep it there until the economy has fully recovered, which analysts expect will be well after quantitative easing ends.

State-side, in an interview with National Public Radio, Federal Reserve (the Fed) Chair Jerome Powell said that the U.S. central bank would wait until the economy has “all but fully recovered” to pull back the unprecedented monetary-policy measures taken in response to the pandemic. “As we make substantial further progress toward our goals, we’ll gradually roll back the amount of Treasury and mortgage-backed securities we’re buying.” Investors have speculated, in recent weeks, that the Fed’s timeline for the withdrawal of stimulus may move up to curb inflation – especially given the recent US$1.9-trillion relief package signed into law – helping to drive U.S Treasury yields higher. The Fed held interest rates near zero in its most-recent policy decision, on March 17, and pledged to keep it within the range of 0 to .25% until 2023.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 18,752.58 -0.54% 7.57%
Dow Jones Industrial Avg. 33,072.88 1.36% 8.06%
S&P 500 Index 3,974.54 1.57% 5.82%
NASDAQ Composite 13,138.72 -0.58% 1.94%
10-yr GoC Yield 1.49% -0.10% 0.82%
10-yr U.S. Treasury Yield 1.67% -0.07% 0.74%
WTI Crude Oil (US$/bbl) 60.97 -0.73% 25.66%
Canadian Dollar US$0.7949 -0.59% 1.21%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending March 26, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

Canadian Gross Domestic Product (GDP) data: On Wednesday, Statistics Canada is scheduled to release GDP data for the month of January. In its last update, data showed that the Canadian economy grew 0.1% in December, following an expansion of 0.7% in November.

North American markets are closed on Friday.

Circle these dates

  • April 19:Federal budget (Canada)
  • April 30: 2020 income tax filing deadline

Key take-away

Focus on the future. If your investment goals, risk tolerance and time horizon haven’t changed, you’re likely on the right track. Try to look past any short-term ups and downs, and focus on the long-term prospects. Speaking with a Co-operators financial representative can help.


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