Market Watch: May 10, 2024

Equity markets were positive for the week as risk-on sentiment permeated global markets. Investors largely overlooked the negatives including a few notable earnings misses on Wall Street, a significant decline in the University of Michigan’s consumer sentiment index, and stronger than expected Canadian labour market data. Instead, they focused in on the positive which was an improving macro backdrop across the eurozone and, most importantly, softer-than-expected U.S. labour market data which could give the Federal Reserve (Fed) justification to cut interest rates at their next meeting.

Highlights:

While there were some mid-week hiccups following notable earnings misses and flagging consumer sentiment, U.S. markets returned 1.89%¹ for the week following the release of softer-than-expected labour market data.
Canadian markets returned 1.66%² for the week, shaking off concerns from stronger-than-expected labour market data which could keep rates higher-for-longer.
European equities closed 1.84%³ higher for the week with all major exchanges in the black as the U.K. recorded its fastest growth rate in over three years and moved out of recession while German trade volumes rebounded in March.
Emerging markets, generally considered riskier than their developed market counterparts, closed 3.06%⁴ higher for their third straight weekly gain as risk appetite increased alongside expectations for U.S. rate cuts.

North American yields move lower on labour market data

Canadian sovereign yields, despite better-than-expected jobs data, moved lower for the week alongside their U.S. counterparts which were also down as weekly jobless claims rose to the highest level in eight months. Bank of Canada rate cut expectations have shifted lower, potentially pushing it back to the July meeting, while markets are now pricing in two cuts from the Fed this year. In addition, the Atlanta Fed said the U.S. economy is projected to grow by 4.2% in Q2, adding to the uncertainty surrounding the Fed’s monetary policy for the rest of the year. The coming week could prove volatile with the latest U.S. Consumer Price Index (CPI) numbers due out on Wednesday. On the credit side, ratings agencies are becoming pessimistic towards investment grade (IG) credit, with several large companies expected to be downgraded.

Highlights:

The 2- and 10-year year U.S. Treasury yields fell 6 basis points (bps) and 13 bps, respectively, while the 2- and 10-year Canadian yields were down 5 bps and 11 bps, respectively.
The Canadian economy added 90,000 jobs in April, Statistics Canada (StatCan) reported, easily beating economists’ expectations. The unemployment rate was unchanged at 6.1%.
Cross-sector analysis shows that almost every credit category is set for downgrades, both investment and speculative grade. Even energy has shown signs of weakening, with some IG businesses likely to move to lower quality.

WEEKLY DASHBOARD

Canada posts surprise trade deficit as gold exports fell in March

Canada in March recorded a surprise trade deficit of $2.28 billion, the largest in nine months, as exports declined faster than imports, according to StatCan. Total exports fell 5.3% in March, mainly due to exports of metals, minerals, and energy driving the decline, while imports were down 1.2%, led by electronics, metal ores and non-metallic minerals. Analysts had forecast a trade surplus of $1.50-billion in the month. StatCan also downwardly revised February’s trade surplus to $ 476 million from the $ 1.39 billion reported initially.

Highlights:

The Canadian economy likely stalled in March after expanding less than expected in February, signalling a loss in momentum that bolstered expectations that the Bank of Canada would have more reason to lower borrowing costs.
Exports of metal and non-metallic mineral products, which include the subcategory for gold, decreased 17.4% in March. Crude oil recorded its fifth decrease in six months and contributed to the decline in energy exports.
The decrease in imports was also broad-based. Imports of electronic and electrical equipment and parts was down 8.1% in March, while metal ores and non-metallic minerals were down 29.2% to $ 1.3bn.

U.S. jobs growth set to slow, Conference Board says

U.S. jobs growth could stall in the second half of 2024, with signs of a slowing labour market, according to monthly gauge of employment trends. The U.S. Conference Board’s Employment Trends Index (ETI) fell to 111.25 in April from a downwardly revised 112.16 in March, the private research group reported. The reading comes after U.S. Labor Department figures published earlier showed the U.S. added 175,000 more jobs in April, fewer than in March, with the unemployment rate ticking up to 3.9% from 3.8% in the prior month. ETI is a leading composite index for employment that aggregates eight indicators. When the index increases, employment is likely to increase as well, while turning points in the index suggest a change in the number of jobs is likely to occur in the short term.

Highlights:

Although the index has been on a downward trajectory since March 2022, the index is elevated by historic levels, suggesting a slowdown in growth to come.
Three of the eight components used for the overall index drove the downward reading, including a higher percentage of respondents saying jobs were hard to get.
While rising wages and high interest rates are raising the costs of doing business, slowing consumer demand for goods and services will be the primary driver of slower growth and an uptick in the unemployment rate ahead.

German trade gets export boost in March

Germany’s trade in goods rebounded a little more than expected in March as both exports and imports increased, suggesting renewed demand both at home and abroad. The eurozone’s largest economy booked an adjusted trade surplus, representing the difference between exports and imports of goods of €22.3 billion (US$24.01 billion,) slightly more than forecast by economists. The March rise followed a revised 1.6% decline in exports in February, which had prompted Germany’s BGA trade association to warn that falling competitiveness and rising protectionism were taking their toll on the country’s export-focused economy.

Highlights:

Export growth outstripped imports to Germany over the month, according to the figures set out by the country’s statistics agency, as exports to eurozone member states and third countries increased 0.5% and 1.3%, respectively.
Germany’s largest market for goods, the U.S., recorded another increase, buoyed by a still-energetic economy. German exports to China also rose, helping reverse some of the previous month’s decline.
Faster export growth aided a recovery after Germany’s surplus shrank in February, though the balance remains below the high reached at the beginning of the year.

In the news: European energy firms consider trans-Atlantic re-listing

TotalEnergies and Shell – Europe’s largest energy companies and some of the largest companies by market capitalization – are considering abandoning their European listings in favour of Wall Street. The impetus for any move would be the premium that investors are willing to pay for U.S.-listed energy firms over foreign listings; the most valuable U.S. energy companies enjoy a price-to-earnings ratio around one-third higher than their European rivals. Higher valuations would allow these companies to participate in the wave of consolidation which they have so far been on the sidelines for. While no plans have yet been announced, and it is unclear if European regulators would approve any move, the companys’ executives have said it is a topic that has been in discussion with their respective boards of directors.

Behind the headline:

TotalEnergies is listed on the Euronext exchange, while Shell is listed on the London Stock Exchange. The companies represent the 12^th and 10^th largest publicly listed European companies by market capitalization and account for 6.0% and 8.4% of their respective exchanges value.
Exxon Mobil’s acquisition of Pioneer Natural Resources was recently approved by regulators in a $59.5bn USD all-stock deal, while Chevron is in the final stages of acquiring Hess in a $53bn USD all-stock deal.

by Scotia Wealth Management - The Zukiwsky Group

Market Watch: May 10, 2024

Week in review

Global equity markets advance on prospect of rate cuts

North American yields move lower on labour market data

Canada posts surprise trade deficit as gold exports fell in March

U.S. jobs growth set to slow, Conference Board says

German trade gets export boost in March

In the news: European energy firms consider trans-Atlantic re-listing

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