Market Watch: January 7

Investor sentiment turned negative Wednesday afternoon — and major North American stock indexes fell sharply — over concerns that the Fed might respond more aggressively to rising inflation than previously anticipated. The minutes of the Fed’s December policy meeting, released Wednesday, indicated that officials might raise short-term rates as soon as March and speed up their tapering timeline. All four major North American indexes were off, with the tech-heavy Nasdaq dropping 522 points. Meanwhile, two-year U.S. Treasury yields on Wednesday reached their highest level since February 2020, while 10-year-Treasurys rose to 1.7 per cent. Canadian bond yields also rose, with the closely watched five-year climbing to levels not seen since early December.

In economic news, Canada posted a trade surplus of $3.1 billion for November, the largest in more than 13 years, with imports and exports both hitting record highs, according to Statistics Canada.

U.S. stocks swung between gains and losses in choppy trading Thursday, eventually finishing in the red, as investors continued to digest the Fed’s revised stance toward inflation. By Thursday’s close, the Dow declined 171 points, while the S&P 500 and Nasdaq registered minimal losses.

In Canada, the TSX bucked the trend, adding 32 points on rising crude prices. Finally, U.S. Treasury yields rose for a fourth consecutive day, with the 10-year note hitting 1.733 per cent, up 30 basis points from Wednesday.

Markets Surrender Ground in Year’s First Week of Trading For the four trading days covered in this report, the Dow lost 102 points to close at 36,236, the S&P 500 dropped 70 points to settle at 4,696, while the tech-heavy Nasdaq plunged 564 points to close at 15,081. In Canada, the TSX declined 151 points to end at 21,072.

Strategy

Canadian labour markets continue to improve in December, though 2022 is likely to start on a weak note

Canada’s labour market beat expectations in December, with employment increasing by 54,700 last month, capping off a record-setting year for job growth. December’s gain, which more than doubled the 25,000-gain predicted by consensus, brought 2021 job growth to 886,000, a new record. After losing 3 million jobs at the start of the pandemic, employment is now 240,500 above where it was in February 2020. Full-time employment surged by 123,000, while part-time payrolls fell by 67,700. The unemployment rate fell by 0.1 percentage points to 5.9 per cent and participation was steady at 65.3 per cent. Public sector employment was a big factor behind the gain, rising by 31,600 in December and now rests 307,000 above pre-pandemic levels.

One knock on the report was that Statistics Canada moved the reference week to early in the month, versus the normal practice of being the week that includes the 15th day of the month. This likely had the effect of omitting an impact from the omicron outbreak, potentially adding risk of a negative surprise in January.

Friday’s data will only cement expectations that interest rates are poised to increase soon. Markets are pricing in five Bank of Canada rate hikes this year, beginning as early as this month when policy makers make their first decision of 2022 on January 26th. We continue to think this timeline is aggressive and expect at most three rate hikes this year, with the first being in April.

Disclaimer

This report is provided to you for informational purposes only and is not intended to provide personal investment advice. This report does not include or constitute an investment recommendation and does not take into account the particular investment objectives, financial conditions, or specific needs of individual clients. Any statements regarding future prospects may not be realized. Before acting on this material, you should consider whether it is suitable for your particular circumstances and talk to your investment advisor.

The author(s) of the report and the supervisors of the Global Portfolio Advisory Group may own securities of the companies included herein.

Scotia Capital Inc. is what is referred to as an “integrated” investment firm since we provide a broad range of corporate finance, investment banking, institutional trading and retail client services and products. As a result we recognize that there are inherent conflicts of interest in our business since we often represent both sides to a transaction, namely the buyer and the seller. While we have policies and procedures in place to manage these conflicts, we also disclose certain conflicts to you so that you are aware of them. Please note that we may have, from time to time, relationships with the companies that are discussed in this report.

The Global Portfolio Advisory Group prepared this report by analyzing information from various sources. Information obtained in the preparation of this report may have been obtained from the Equity Research and Fixed Income Research departments of the Global Banking and Markets division of Scotiabank. Information may be also obtained from the Foreign Exchange Research and Scotia Economics departments within Scotiabank. In addition to information obtained from members of the Scotiabank group, information may be obtained from the following third party sources: Standard & Poor’s, Morningstar, Bloomberg, Credit Suisse AG, Perimeter Markets Inc., and FactSet. The information and opinions contained in this report have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness.

While the information provided is believed to be accurate and reliable, neither Scotia Capital Inc., which includes the Global Portfolio Advisory Group, nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of such information. Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

Nothing contained in this report is or should be relied upon as a promise or representation as to the future. The pro forma and estimated financial information contained in this report, if any, is based on certain assumptions and analysis of information available at the time that this information was prepared, which assumptions and analysis may or may not be correct. There is no representation, warranty or other assurance that any projections contained in this report will be realized.

Opinions, estimates and projections contained herein are those of the Global Portfolio Advisory Group as of the date hereof and are subject to change without notice. For that reason, it cannot be guaranteed by The Bank of Nova Scotia or any of its subsidiaries, including Scotia Capital Inc. This report is not, and is not to be construed as: (i) an offer to sell or solicitation of an offer to buy securities and/or commodity futures contracts; (ii) an offer to transact business in any jurisdiction; or (iii) investment advice to any party. Products and services described herein are only available where they can be lawfully provided. Scotia Capital Inc. and its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent.

Trademarks are the property of their respective owners.

This report is distributed by Scotia Capital Inc., a subsidiary of The Bank of Nova Scotia. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

® Registered trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management® consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. Private banking and International private banking services are provided in Canada by The Bank of Nova Scotia. Estate and trust services are provided by The Bank of Nova Scotia Trust Company. Portfolio management is provided by 1832 Asset Management L.P. and 1832 Asset Management U.S. Inc. Insurance services are provided by Scotia Wealth Management Insurance Services Inc. Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of Scotia Capital Inc. International investment advisory services are provided in Canada by Scotia Capital Inc. Financial planning services are provided by The Bank of Nova Scotia, 1832 Asset Management L.P., and ScotiaMcLeod, a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Scotia Wealth Insurance Services Inc. is the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank group of companies. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Insurance Agents (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc.

Scotia Wealth Management consists of a range of financial services provided, in The Bahamas, by Scotiabank (Bahamas) Limited and The Bank of Nova Scotia Trust Company (Bahamas) Limited. International private banking services are provided in The Bahamas by Scotiabank (Bahamas) Limited, an entity registered with The Central Bank of The Bahamas. International investment advisory services are provided in The Bahamas by Scotiabank (Bahamas) Limited, an entity registered with The Securities Commission of The Bahamas. International wealth structuring solutions are provided in The Bahamas by The Bank of Nova Scotia Trust Company (Bahamas) Limited, an entity registered with The Central Bank of The Bahamas.

Scotia Wealth Management consists of international investment advisory services provided, in Barbados, by The Bank of Nova Scotia, Barbados Branch, an entity licensed by the Barbados Financial Services Commission.

Scotia Wealth Management consists of a range of financial services provided, in the Cayman Islands, by Scotiabank & Trust (Cayman) Ltd. International private banking services, international investment advisory services and international wealth structuring solutions are provided in the Cayman Islands by Scotiabank & Trust (Cayman) Ltd., an entity licensed by the Cayman Islands Monetary Authority.

Scotia Wealth Management consists of international private banking services provided, in Peru, by Scotiabank Peru S.A.A, an entity supervised by the Peru Superintendence of Banking and Insurance.

by Scotia Wealth Management - The Zukiwsky Group

Market Watch: January 7

What's Trending