Big Picture
N.A. Markets Continue to Rally, Despite Social Unrest
N.A. stocks continued to claw back ground this week, shrugging off social unrest in the U.S. and a slew of downbeat economic data.
All three major U.S. indexes began the week with gains of less than 1 per cent on the heels of a strong rally in May.
In Canada, the TSX also closed higher, with the energy sector posting solid gains, as oil prices registered their largest monthly gains on record in May, regaining ground lost during the lockdowns in March and April.
Despite ongoing social unrest over the police killing of George Floyd and growing tensions with China, U.S. stocks continued their ascent on Tuesday as hopes for a swift recovery continued to buoy markets. By Tuesday’s close, the Dow surged 268 points, while the TSX added 158. Meanwhile the loonie strengthened to a near three-month high against the greenback on Tuesday, reaching 73.91 cents (US). Recent gains for the Canadian dollar have come as the U.S. currency has lost its safe-haven appeal.
The rally in N.A. equity markets really picked up steam on Wednesday, with the Nasdaq nearing record highs as investors continue to look past clashes between U.S. police and protestors. In Canada, the TSX climbed to a three-month high in a broad-based rally. The positive sentiment didn’t help the materials sector, however, as gold prices continued to trend lower. Oil ended the day slightly higher–at one point breaking above US$40 a barrel– before retreating late in the session as doubts emerged over OPEC’s continued commitment to reducing crude supplies. As expected, the Bank of Canada held its overnight rate steady at 0.25 per cent, noting that the economic impact of COVID-19 on the world’s economy “appears to have peaked.”
On Thursday, the U.S. Labor Department reported that 1.9 million Americans filed new claims for state unemployment insurance last week, along with 623,000 new claims for federal aid. Meanwhile Statistics Canada is expected to report on Friday that roughly half a million jobs were lost in May, a marked improvement from April’s loss of nearly two million. On Thursday the loonie retreated from Tuesday’s highs, weighed down by news of Canada’s $3.25-billion trade deficit in April, as exports fell by nearly 30 per cent, the lowest level in more than a decade. Finally, N.A. markets were mixed on Thursday, with the Dow and TSX finishing flat.
Another Solid Week for N.A. Equities
For the four days covered in this report, the Dow surged 899 points to close at 26,282, the S&P 500 added 68 points to settle at 3,112, while the tech-heavy Nasdaq rose 126 points to close at 9,616. In Canada, the TSX jumped 335 points to end at 15,528.
Strategy
The Canadian labour market unexpectedly strengthened in May as COVID-19 related restrictions are gradually rolled back worse
The Canadian economy added 289k jobs in May, while consensus expectations had predicted a further decline of 500k, while the unemployment rate ticked higher to 13.7 per cent from 13.0 per cent previously. The rise in the unemployment rate on the month is likely due to a surge in participation, up to 61.4 per cent from 59.8 per cent in April.
The better-than-expected print suggests that government-sponsored worker retention programs have helped to soften the blow from broad business closures. Indeed, more than 179k businesses had applied for the government’s 75 per cent wage subsidy program by mid-May. Further, the pace of applications has slowed in recent weeks indicating less need for the programs.
A Nanos Research poll taken at the end of May found that 30 per cent of respondents who had lost their job or had seen hours decline as a result of the COVID-19 pandemic said they were re-employed or are working more. An additional 41 per cent of respondents said their employment or hours were not affected at all by the pandemic.
While we are encouraged by the progress marked by the Canadian economy but we are hesitant to ring the all-clear. We will continue to monitor traditional and high-frequency data points to track the progress made in the labour market, as well as consumption and activity in other critical sectors.
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