Nov. 30 - Dec. 4, 2020
What happened last week
Stock markets hovered around record levels, fuelled by investor optimism
After North America’s benchmark exchanges posted double-digit gains in November, the first week of December saw U.S. stock markets continuing to reach new records. Canada’s TSX also came within sight of its own record, led by the energy and financial sectors.
Investor sentiment remained positive through the week, with COVID-19 vaccines appearing likely to be widely available in 2021, with uncertainty around the U.S. election results further evaporating, and with renewed hope that U.S. lawmakers would reach an agreement on an economic relief bill. According to reports on Thursday, OPEC+ (the Organization of the Petroleum Exporting Countries and its allies) had agreed on a plan to extend and slowly lift production quotas that were set to expire later this month; this fuelled optimism that prices for the commodity would continue to strengthen as economies slowly reopen and demand stabilizes.
Further government spending was announced in support of Canada’s economy
On Monday, in a much-anticipated fiscal update, Finance Minister Chrystia Freeland announced $51.7 billion in new COVID-19 relief spending over two years – funding that would include enhanced wage subsidies for businesses, and an extension of commercial rent subsidies and lockdown support, through Q1 2021. An additional $70–$100 billion in fiscal stimulus will also be made available, as needed, over the next three years. Freeland said that the further spending will provide “the fiscal support the Canadian economy needs to operate at its full capacity and to stop COVID-19 from doing long-term damage to our economic potential.” She added that “fiscal guardrails” related to employment levels would help to determine the extent of the additional stimulus.
Canada’s government has delivered the largest fiscal response to the pandemic of any nation. And, according to International Monetary Fund estimates, no major economy will show a wider fiscal impact this year. The government’s update noted that Canada’s projected deficit for this year was revised upward to $381.6 billion – or 17.5% of gross domestic product (GDP) – compared to a deficit of 1.7% of GDP last year. Based on the government’s projections, the deficit should narrow to approximately $51 billion in two years, down to $25 billion by 2025. The Canadian dollar dipped immediately following the update, but strengthened as the week went on.
Earnings reports indicated that Canada’s major banks bounced back in Q4
Canada’s “big six” banks released fourth-quarter earnings reports, which helped to lift the TSX through the week and showed the nation’s leading lenders that the worst of the pandemic might be behind them. Each of Toronto-Dominion Bank, Royal Bank of Canada, and Bank of Montreal reported a year-over-year increase in Q4 net income ($5.1 billion, $3.25 billion and $1.6 billion, respectively), led by growth in their capital-markets businesses. Net income at CIBC and Scotiabank, while down from Q4 2019, also surpassed analysts’ expectations; these banks pulled in $1.9 billion and $1.02 billion of net income, respectively, for the quarter. Despite the National Bank reporting a 19% drop in Q4 profit, due to several one-time items, all six banks reported that millions less had to be set aside for bad loans, compared to Q3.
Canadian and U.S. jobs recovery continued to slow in November
Data released on Friday suggested that employment in both Canada and the U.S. is slowing, highlighting the need for further fiscal relief to support labour-market recovery. According to a Statistics Canada report, the economy added 62,100 new jobs in November – the smallest monthly gain since May. The unemployment rate dropped to 8.5%, from October’s 8.9%. The story was similar for the American economy, with an update from the U.S. Department of Labor showing that 245,000 jobs were added last month, after adding 610,000 in October. The unemployment rate fell to 6.7%, from 6.9% in October.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
| 10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending December 4, 2020. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
Bank of Canada interest-rate announcement: In its last decision, on Oct. 28, the Bank of Canada left its benchmark interest rate unchanged at 0.25% and confirmed its commitment to keep it there until the economy stabilizes. The next decision will be announced on Wednesday, Dec. 9.
Circle these dates
- Dec. 15-16: U.S. Federal Reserve meetings and statement
- Dec. 31: Deadline for the U.K. and EU to approve a post-Brexit trade agreement
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