By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: March 26, 2021

Mar 26, 2021 | 11:51 AM

Big Picture

Fed tries to calm down inflation fears

It was a busy week for Market Watchers with a number of important developments to follow at home, south of the border and overseas. In Canada, the BoC signaled plans to wind down its pandemic emergency liquidity program, which had the bank buying provincial and corporate debt. The bank also said it was planning to pare back its main government bond purchasing program perhaps as soon as April. Policy makers have been buying a minimum of $4 billion in federal government bonds each week to help keep borrowing costs low, but that amount may no longer be needed as the economic recovery gains momentum. Also, in Canada, the Trudeau government announced it would table its first budget in two years April 19, while Ontario released its on Wednesday.

Turning to the U.S., the 10-year Treasury yield watch continued this week as yields backed off from last week’s 14-month highs. Meanwhile, Fed Chairman Powell and Treasury Secretary Yellen faced U.S. Senate and House Committees Tuesday and Wednesday. Much of the testimony focused on a possible spike in inflation due to the recently announced US$1.9 trillion fiscal stimulus plan but Powell downplayed fears saying he doesn’t think there’ll be a large or persistent rising effect on prices. On the data front, monthly U.S. housing sales and durable goods orders fell in February while the Markit manufacturing purchasing managers’ index for March came in at 59.0. – slightly below economists’ estimates but still showing strong expansion. Also positive were U.S. jobless claims for last week which reached their lowest level since the onset of the pandemic. Finally, Canada’s top court said PM Trudeau’s national carbon tax is constitutional greenlighting the country’s most ambitious environmental policy to date.

U.S. and Canadian markets retreat slightly this week

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Markets bottomed one-year ago this week – March 23 – ushering in a new bull market with most major global indexes recouping losses and surpassing previous highs. Since the low, the S&P 500 and Dow have advanced more than 75%, the Nasdaq is up more than 90% while the TSX is up about the same, as are emerging markets, China, Japan and South Korea. For the four days covered in this report, the S&P 500 shed 4 pts. to close at 3,909, the Dow fell 8 pts. to finish at 32,619 and the Nasdaq gave back 238 pts. to end at 12,977. In Canada, the TSX lost 203 pts. to settle at 18,651.

Strategy

Canada’s economy starts 2021 on the right foot, but vaccine roll-out needs to pick up speed

Canadian economic data has largely printed ahead of expectations since the beginning of the year with consumer confidence rising, labour market primed for further gains as job postings increase, and vaccinations are set to accelerate. Household attitudes continue to brighten, with the Nanos Economic Mood Index reaching its highest level since 2009 in its latest reading and new job postings increased 20% since last February. Nearly 10% of Canadians have received at least one dose of a COVID-19 vaccine, and data showed the week ending March 21st had the highest week-over-week growth in vaccinations since mid-January.

The Federal government has promised all eligible Canadians who want a shot will receive one by September. However, underlying case data tells a different story. New infection counts posted a six-week high as measures of activity, including restaurant bookings, climb. The number of new Covid-19 cases rose by 24,462 in the week ended March 21st while virus-linked deaths totaled 201 and remained on a favorable trend, down about 80% from January. Vaccinations have and will continue to target high-risk populations first, which should limit a steeper rise in hospitalizations that would reverse reopening plans. Conditions will need to be monitored closely in the coming weeks, but we expect growth to remain resilient before a stronger pickup heading into the summer months.

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