May 4 - 8, 2020
What happened last week
Simmering U.S.-China tension did not diminish hope of an economic recovery
Comments from U.S. President Donald Trump, suggesting he might impose new trade tariffs on China for its handling of the COVID-19 pandemic, briefly dragged markets down on Monday. Investors quickly brushed aside those concerns, as well as another batch of staggering unemployment data, to focus on positive indicators.
Investor optimism was driven by three main factors: 1) Many U.S. states are expected to relax restrictions on local businesses and reopen sections of the economy soon; 2) Oil prices made a significant rebound; 3) The stock prices of tech giants Facebook Inc., Amazon.com Inc., Apple Inc., and Alphabet Inc. all gained at least 15% this quarter, making them positive for 2020, thus far.
These tech stock gains, along with positive performance from Microsoft Corp. and Tesla Inc., propelled the tech-heavy Nasdaq to a significant milestone, as it became the first major North American index to recover all losses associated with COVID-19. On a year-to-date basis, the Nasdaq is now in positive territory. The S&P 500 is also up close to 30% since its lowest point on March 23.
Oil prices remained volatile, but clawed back close to 20%
U.S. benchmark oil prices marked a fifth consecutive day of gains with a 20% jump on Tuesday. The rally was attributed to hope that demand will increase as businesses slowly reopen. That news, combined with OPEC and its allies’ plan to cut production by 9.7 million barrels a day, starting May 1, provided the industry a short-lived sigh of relief. Volatility returned mid-week with prices continuing to fluctuate, before ultimately closing in positive territory Friday.
In Canada: More jobs lost, Shopify leapfrogged RBC, the trade gap grew
Two million jobs were lost in April according to Statistics Canada, and the unemployment rate shot to 13%. It’s the biggest unemployment spike on record, but with economists predicting four million jobs lost and unemployment at 18%, the final tally isn’t as dire as initially feared.
For the first three months of 2020, Ottawa-based e-commerce platform developer Shopify Inc. reported revenue of US$470 million – up from US$320 million during the same period one year ago. Since the start of April, its value has more than doubled. On the S&P/TSX Composite, shares of Shopify closed at $1,034 on Wednesday, pushing its valuation to $120 billion, slightly higher than Canada’s largest bank (RBC), making Shopify the most valuable company in Canada.
Canada’s trade gap widened to more than $1.4 billion in March, with exports and imports down almost 10% from the same period one year ago. Statistics Canada reported that Canada exported $46.3 billion worth of goods, the lowest amount since January 2018. Imports were a tepid $47.7 billion, the lowest level since October 2017.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
| 10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending May 8, 2020. Sources: www.bloomberg.com, www.msci.com, www.bankofcanada.ca and www.treasury.gov.
Unemployment and job data will continue to be a significant indicator
Last week, U.S. labor-market data showed 20.5 million jobs were lost in April, the unemployment rate rose to 14.7%, and the initial jobless claims saw 3.2 million new unemployment benefit applications (down from a pandemic-peak of 6.9 million at the end of March). Analysts will continue to watch these numbers to see which way they’re trending.
On Thursday, the Bank of Canada will release its Financial System Review, offering investors insight into developments in the financial system and an analysis of policy directions in the financial sector.
Circle these dates
- June 1: 2019 income-tax filing deadline
- June 3: Bank of Canada interest-rate announcement
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