IAIC Market Update - June 21, 2021

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)

What happened last week?

• Major North American equity indices, the Canadian dollar and Gold had a disappointing week: Gold dropped by nearly 6%, while equities lost between ¼% and 3½%.
• Much of the turmoil and negative results are being attributed to the U.S. Federal Reserve’s statements on Wednesday.  Although interest rates remain unchanged, the spectre of inflation was prominent in the announcement by Jerome Powell, Fed Chair, and will influence the timing of future interest rate increases according to Powell’s press conference. 
• The Fed has two primary mandates, control inflation and maximize employment. 
• The Fed is watching inflation closely and is willing to risk reversing employment gains as recovery from the pandemic continues in order to stifle inflation. The latest announcement from the Federal Open Market Committee (FOMC) states, “the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.” Since inflation has been below 2%, it will be allowed to float above 2% for some time to arrive back at the 2% average for the longer term. 
• Federal Reserve expects to increase interest rates in 2023, and perhaps twice. (Source)
• Canadian inflation for May was 3.6%, a slight increase from April’s 3.4%. 
• The Bank of Canada has had a similar stance as the Federal Reserve regarding inflation. Inflation will eventually cause interest rate increases if it exceeds targets. However, both the Canadian and American central banks are similarly cautious and take action after deliberation. 
• The recovery is not complete and measures, like an interest rate increase, that are intended to reduce inflation by slowing the economic rebound will not be viewed favourably by most but will be necessary at some point in time.
  
  

What’s ahead for this week?

• In Canada, April figures for employment and jobs will be released along with retail sales for the same period. May’s wholesale trade and manufacturing sales are also scheduled for release.
• In the U.S., existing and new home sales, wholesale and retail inventories, durable goods orders and personal income and spending for May are scheduled for release. Also, first quarter data for real Gross Domestic Product (GDP) and pre-tax corporate profits will be announced.
• Globally, Eurozone consumer confidence, purchasing managers index (PMI) and money supply information is on the calendar. Japanese PMIs and retails sales figures will also be announced.