Market Watch: February 9

U.S. stocks rose Friday, pushing the S&P 500 to close above the historic 5,000 level as strong earnings and economic news continued to roll out. The CPI revision was relatively inconsequential to markets but reinforced evidence that tighter monetary policy is having the intended effect of slowing inflation. It wasn’t all positive news however, as comments from Federal Reserve (Fed) Chairman Powell early in the week signaled weariness towards cutting rates too soon. The Canadian economy also showed continued resilience adding 37,000 jobs in January which pushed the unemployment rate lower. Despite energy prices moving higher for the week, both the U.S. and Canadian energy sectors turned lower which weighed on the broader indices.

Highlights:

U.S. markets moved 1.35%¹ higher as the fourth quarter earnings season in the U.S. has been stronger than expected, led by gains in mega-cap names like Meta, Nvidia, and Microsoft. In addition, revised Consumer Price Index (CPI) figures pointed towards a further moderation in inflation.
Canadian markets diverged from their global peers, closing -0.44%² lower for the week as sizable declines in the materials, communication services and utilities sector offset gains in the info tech sector.
European markets closed 0.17%³ higher despite emerging concerns over the commercial real estate (CRE) sector that weighed on the financial sector. According to data from the European Banking Authority, French and German banks have the most CRE loans in the EU.
Emerging markets were up a very modest 0.06%⁴ as investors weighed a shaky recovery in China and dwindling prospects of rate cuts from the Fed.

Bond yields push highest levels since December following U.S. jobs report, CPI revision

In the bond market, U.S. Treasury yields moved markedly higher across the entire curve after jobless claims figures came in slightly lower than expected and the release of revised CPI figures. Inflation was about the same as initially reported at the end of last year, with minimal revisions for headline and core measures. Corporate bonds remained in demand as the primary market is pricing deals with little or no concessions. According to Bloomberg, January saw credit rating firms shifting to a more neutral stance as upgrade-to-downgrade ratios approached 1x. Meanwhile, CRE exposure is coming into focus for European banks. The European Central Bank is signalling that lenders may face higher capital requirements if they have inadequate risk management related to their CRE portfolios.

Highlights:

The 2-year U.S. Treasury yield rose 25 basis points (bps) while the 10-year yield was up a similar 27 bps. In Canada, the 2- and 10-year yields were 25 bps and 28 bps higher, respectively.
While positive actions from S&P have increased overall, communications and consumer sectors absorbed an elevated portion of downgrades, concentrated at the lower end of the rating spectrum.
Moody’s was the most optimistic about energy and financials as those two sectors were the leaders in the upgrade actions, according to data compiled by Bloomberg.

Weekly dashboard

Canada posts surprise trade deficit in December on lower cars, crude exports

Canada posted a surprise trade deficit of $ 312 million in December, as exports were dragged lower by cars, trucks and crude oil, while imports edged up due to a record rise in consumer goods. According to Statistics Canada, the trade figures were impacted by the appreciation of the Canadian dollar in December when the average value of the Loonie, compared with the U.S. greenback, recorded the largest monthly gain since May 2021. A large share of Canada’s trade is done in U.S. dollars, which means converted values are lower when the Canadian dollar appreciates against the U.S. dollar.

Highlights:

Total exports fell 1.9% in December, the second consecutive decline, while imports were up 0.2 %.
The fall in total exports was led by an 8.2% drop in exports of motor vehicles and parts, mainly passenger cars and light trucks and energy products. Softer crude oil prices weighed on exports for the second straight month.
The rise in total imports was due to the strongest monthly increase in consumer goods. Pharmaceutical products were the biggest contributor to consumer goods, though clothing, footwear and accessories also increased.

U.S. services activity expands more than expected, says ISM

The U.S. services sector accelerated faster than expected in January, as employment trends improved and demand rebounded, according to survey data released by the Institute for Supply Management (ISM). The ISM’s services-activity index rose to 53.4 in January from 50.5 in December. Economists had expected the index to increase less steeply to 52.0. A reading above the no-change mark of 50 indicates expansion in the services sector, which has grown for the past 13 months, and 43 of the past 44, the ISM said.

Highlights:

ISM’s employment index jumped into expansionary territory, at 50.5 from 43.8 in December, while the new orders index ticked up to 55.0 in January from 52.8. The survey’s measure of business activity held on month at 55.8.
The index of prices rose 7.3 points to 64.0, a reflection of underlying inflationary pressures that could concern policymakers at the U.S. Federal Reserve.
Ten of 17 sub-industries ISM measures reported growth in January, led by healthcare and agriculture, ISM said.

U.K. retail sales growth slowed in January on weak demand, report says

Retail sales growth in the U.K. slowed in January mainly due to easing inflation and weak consumer demand, with cost-of-living pressures entering their third year, according to British Retail Consortium data. Total retail sales for the four weeks to January 27 increased 1.2% on the month compared with 1.7% growth the prior month and the three-month average of 1.9%, the BRC-KPMG Retail Sales Monitor reported. Growth stood at 4.2% in January last year.

Highlights:

Food sales continued to be the main growth driver, with a 6.3% increase over the three months to January compared with growth of 8.0% a year ago.
Non-food sales decreased 1.8% on the year over the three months to January, against the growth of 2.9% a year earlier. Big-ticket item sales such as furniture, household appliances and electricals remained weak, while clothing sales fell due to milder temperatures, particularly winter clothing and footwear.
On the positive side, sales of health and beauty products continued to perform well.

In the news: Major broadcasters unite to form new live sports streaming service

ESPN, Fox, and Warner Bros. Discovery announced a new collaboration to launch a joint sports streaming platform. This strategic move aims to redefine how fans access live sports and could significantly impact the media landscape. The new venture’s aim is to cater to sports fans who don’t subscribe to the traditional cable bundle. Subscribers to the new service will have access to sports networks like ESPN, ESPN2, ABC, FOX and FS1. The platform’s aim will be to provide a differentiated experience from cable and compete with other major sports streamers.

Behind the headline:

The new service is scheduled to launch sometime in 2024 on a standalone app and may be bundled with existing services such as Disney+, Hulu or Max.
The service will combine the sports networks, direct-to-consumer sports services, and sports rights from the three media giants and offer major professional sports leagues as well as college sports.
The joint ventures success will likely hinge on competitive pricing and the ability to deliver a compelling, sports-centric experience in what is rapidly becoming a saturated streaming landscape.

No love lost for inflation

This week’s risk dashboard:

Gong Xi Fa Cai!
US core CPI will probably extend the trend…
…and what the Fed will be closely watching
Revised spending weights to have little effect on US CPI
Lower income households face their pressures…
…but it’s the wealthy driving US consumer spending
Can strong US core retail sales repeat?
Canada’s housing market is only just beginning to surge

Read the full publication here.

Everything you ever wanted to know about the UK in one week
Aussie jobs: aberration or cracking?
Indonesians head to the polls
Russia’s central bank will probably hold
Ditto for the Philippines’ central bank
Earnings season continues
Other global macro
Canadian early close

¹ S&P 500 Index CAD
² S&P/TSX Composite Index CAD
³ Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index CAD
⁴ Bloomberg EM Large & Mid Cap Price Return Index CAD

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by Scotia Wealth Management

Market Watch: February 9

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