October 4 to 8, 2021

What happened last week in financial markets

Markets made gains, while investor sentiment remained cautious

Global financial markets rebounded from steep losses on Monday, as the outlook gradually improved over a range of risks to the global economic recovery – including energy supply, inflation, and a looming U.S. debt crisis – through the middle of the week. A softer than expected U.S. employment report added volatility on Friday.

A technology stock sell-off weighed on early-week performance

The major North American stock markets suffered sharp declines on Monday, as investors – fearful that persistent inflation could lead to central banks raising interest rates sooner than expected – continued to sell-off technology stocks. Canada’s TSX closed down 0.49%, the Dow shed 0.95% and the S&P 500 fell 1.30%. The Nasdaq lost 2.14%, with high-growth technology companies like Amazon and Facebook driving the losses. Sentiment suffered another blow on news that U.S. President Joe Biden had warned that the U.S. government was at risk of defaulting on its debt should Congress not pass legislation to temporarily raise the nation’s legal debt ceiling. Biden described the situation as a “meteor” heading for the economy. The yield on the U.S. 10-year Treasury rose, and the greenback was down for a third-straight day. Stock markets across Europe, Japan and Hong Kong also declined.

Global oil prices pushed higher

Energy stocks helped curb Monday’s losses and lift the benchmark stock indexes into positive territory by Tuesday, as oil prices continued to soar. The Organization of Petroleum Exporting Countries and its allies (OPEC+) announced on Monday that it would maintain a gradual supply increase of 400,000 barrels-a-day for November – a number that fell short of analysts’ expectations. The world’s largest oil company, Saudi Aramco, noted the global natural-gas shortage has boosted crude consumption by 500,000 barrels a day. By Friday, futures for benchmark West Texas Intermediate were trading above US$80 a barrel for the first time since November 2014.

U.S. lawmakers agreed to a short-term debt ceiling increase

On Thursday, U.S. senate leaders announced they had reached an agreement to temporarily increase the nation’s debt ceiling. Still subject to approval by the House of Representatives, the pending legislation would raise the statutory debt ceiling by US$480 billion and allow the Treasury to meet obligations through December 3. The news helped push stock markets higher, with the S&P 500 Index making its biggest three-day gain since April.

Data showed Canadian labour market recovery has outpaced the U.S.

On Friday, Statistics Canada reported the economy added 157,100 jobs in September, more than doubling economists' expectations, and bringing employment back to pre-pandemic levels. The unemployment rate fell to 6.9% from 7.1% in August. The Canadian dollar surged up to over US$0.80 following the news – its highest level since August 5.

State side, nonfarm payrolls increased by a lower-than-expected 194,000 last month according to the U.S. Department of Labour. The unemployment rate fell to 4.8%. U.S. equity markets saw volatility spike following the report, as the weak reading countered market sentiment that the Federal Reserve could accelerate its timeline for removing stimulus from the economy.

The stock and bond market*
S&P/TSX Composite 20,416.31 1.32% 17.11%
Dow Jones Industrial Avg. 34,746.25 1.22% 13.53%
S&P 500 Index 4,391.34 0.79% 16.91%
Nasdaq Composite 14,579.54 0.09% 13.12%
10-yr GoC Yield 1.62% 0.15% 0.95%
10-yr U.S. Treasury Yield 1.61% 0.13% 0.68%
WTI Crude Oil (US$/bbl) 79.35 4.57% 63.54%
Canadian Dollar US$0.8012 1.38% 2.01%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending October 8, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

Economic data: This week, employment, inflation, housing, crude inventory, and retail sales figures will provide investors with key readings on the U.S. economy. Reports on Canadian manufacturing sales, housing starts, and producer prices are also scheduled for release.

Circle these dates

  • October 27: Bank of Canada monetary-policy update
  • November 2-3: U.S. Federal Reserve meetings and statement
  • November 25: U.S. markets closed for Thanksgiving Day.

Key take-away

Stay focused on your goals. The fund managers that we partner with understand the markets and have been through uncertainty before. They are equipped with sound strategies, and take an approach that’s designed and proven to outlast market volatility.

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