Nov. 16-20, 2020
What happened last week
A resurgence of global COVID-19 cases and lockdowns weighed on markets
North America’s major stock market indexes started the week on a high note, as COVID-19 vaccine news lifted the Dow and S&P 500 to record levels. Meanwhile, Canada’s TSX continued to benefit from rising oil prices and approached positive territory on a year-to-date basis. The tech-heavy Nasdaq, a relative underperformer in recent weeks, was the exception, as the rotation of assets from stay-at-home stocks to more recovery-friendly sectors continued to weaken its return.
The tide turned on Tuesday with governments around the world renewing their economic restrictions to stem rising COVID-19 infections. This gave investors reason to pause and consider the pace of recovery in the weeks and months ahead. U.S. equity markets declined through the middle of the week until news broke late Thursday that U.S. lawmakers were resuming negotiations on a much-anticipated fiscal relief package for the U.S. economy, lifting markets into the closing bells. On Friday, news of conflict between the White House and the Federal Reserve, over the direction of stimulus programs, hung over U.S. markets.
Vaccine optimism helped stem loses
On Monday, drug maker Moderna Inc. announced its experimental vaccine was found 94.5% effective in a late-stage trial. Not to be outdone, Pfizer Inc., and its partner BioNTech SE, said Wednesday that its vaccine candidate was 95% effective based on final trial data. Pfizer is now ready to apply for regulatory approval for emergency use in the U.S. On Thursday, the University of Oxford confirmed that an early study of the vaccine it’s developing with AstraZeneca Plc produced strong immune responses in older adults. While Moderna’s announcement helped U.S. equity markets reach record highs on Monday, reaction to the subsequent announcements was more subdued, with prospects for a vaccine already priced into markets and widespread availability not expected until well into 2021.
IMF report and global economic data suggested slowing economic recovery
An International Monetary Fund (IMF) report released Thursday warned that global economic recovery may be weakening with the renewed restrictions on households and companies. While the report considered the recent vaccine progress, it also said that elevated markets appear disconnected from the real economy and pose a potential threat to financial stability. The report noted: “While global economic activity has picked up since June, there are signs that the recovery may be losing momentum, and the crisis is likely to leave deep, unequal scars…uncertainty and risks are exceptionally high.”
Global economic data released through the week reflected these concerns. China’s National Bureau of Statistics reported on Monday that, while its economy expanded in October, consumption is recovering at a slower pace than the industrial and investment-led sectors that have outperformed analysts’ expectations. On Wednesday, Statistics Canada reported that the nation’s annual inflation rate rose to 0.7%, from 0.5% in September; but as the Bank of Canada has noted, continued weakness in the economy and job market are expected to keep inflation below its 2% target until at least 2023. State side, the U.S. Department of Labor reported Thursday that the number of Americans filing first-time claims for jobless benefits rose in the week prior, suggesting the surge in COVID-19 cases has set back the U.S. labour market recovery.
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 Nov. 20, 2020. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
U.S. economic data: Several reports, scheduled for release ahead of the American Thanksgiving holiday on Thursday, will offer insight into U.S. manufacturing, housing, employment and oil supply.
Circle these dates
- Nov. 26: U.S. Thanksgiving (U.S. markets closed)
- Dec. 9: Bank of Canada interest-rate announcement
- Dec. 15-16: U.S. Federal Reserve meetings and statement
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