May 25-29, 2020
What happened last week
Markets continued to rally, as investors looked past economic data
Global stock markets were up through the week, as investors found optimism in the gradual reopening of the world’s economies, and to the possibility of a COVID-19 vaccine. With biotech stocks surging, shares of Novavax Inc. spiked 18% on Tuesday, in response to news that the company was conducting human trials of its coronavirus vaccine. Oil prices also climbed through the week, due to recent supply cuts by global producers, and increased demand as lockdowns ease.
Initial U.S. jobless claims held above two million for the 10th straight week (the week ending May 23). Data on the U.S. housing market, manufacturing and consumer spending pointed to a second-quarter collapse in gross domestic product – moving to a pace last seen during the Great Depression.
Statistics Canada reported that economic growth was negative in the first three months of 2020. Canada’s gross domestic product fell at an annualized rate of 8.2%, the largest drop since 2009, as the COVID-19 pandemic brought the economy to a standstill. The report also included early estimates for April, which pointed to an 11% drop in GDP, compared to a 7.2% drop in March, when the economy went into lockdown halfway through the month.
U.S.–China tensions loomed over world markets
China’s parliament approved a decision to move forward with national-security legislation for Hong Kong – against objections from the U.S. and other western nations concerned about the curtailing of freedoms within a key global financial hub. China said that the legislation aims to tackle secession, subversion, terrorism, and foreign interference in Hong Kong. The news rekindled the largest pro-democracy protests seen there in months. Despite reaching an initial trade agreement earlier this year, relations between China and the U.S. have been deteriorating, with the superpowers exchanging increasingly acrimonious statements related to trade and the pandemic.
Canadian banks reported deep cuts in profit and rising loan provisions
Each of Canada’s “Big Six” banks reported falling profits for the second quarter, along with the highest level of credit-loss provisions ever seen: a total of $10.93 billion across all six banks. These lenders continue to brace for a potential surge in bad loans, as a result of COVID-19. While the financial sector weighed down the S&P/TSX Composite after the last two bank reports came out on Thursday, overall results were generally in line with investor expectations and the loan provisions were greeted as prudent under the circumstances.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
| 10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending May 29, 2020. Sources: www.bloomberg.com, www.msci.com, www.bankofcanada.ca and www.treasury.gov.
Bank of Canada interest-rate announcement: On Wednesday, Canada’s central bank will announce an interest-rate decision, its first under new governor Tiff Macklem. Since early March, the bank has cut its key interest rate three times – to a record low of 0.25% – and launched its first-ever large-scale bond-buying program to support financial markets through the COVID-19 crisis. With the annual inflation rate turning negative in April, for the first time since 2009, outgoing governor Stephen Poloz said that the bank can provide more monetary stimulus, if needed: “We know that to bring inflation back to the target, it is necessary to stabilize the economy and then return economic output and employment to their potential.”
Circle these dates
- June 9-10: U.S. Federal Reserve meetings and statement
- July 6: Bank of Canada Business Outlook Survey report
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