Market Watch: March 2021

Global stock markets closed near their all-time highs in March but ended mixed in the last week as investors are still worried about the rising rates. Regarding the pandemic, many European countries have imposed new or extended restrictions to curb variants. In Asia, Japan said there would be no foreign spectators at this summer’s Olympics. The Suez Canal is reopening after a massive container ship blocked the canal, which raised global supply chain concerns.

The S&P/TSX Total Return Index was up 3.87% in March following the announcement of a new rail network that would connect the three largest North American countries.

The proposed acquisition of the Kansas City Southern (KSU) by Canadian Pacific Railway (CP:CN) is a $29 billion bet on smooth trading between Canada, the United States, and Mexico after the three countries replaced their contentious old trade treaty with a new one.

The loonie rose 1.31% against the greenback, despite a slight decrease in crude oil prices. The loonie is strengthening in part because of the $1.9 trillion US stimulus bill. The package is projected to increase the US output growth, which should indirectly benefit the Canadian economy.

Canadian growth expanded for the ninth consecutive month in January, up 0.7%. January’s growth jumped in wholesale trade, manufacturing, oil, and gas extraction. Retail sector was down but is expected to recover when corporate restrictions are lifted, contributing to a potential 0.5% monthly increase.

Moreover, Canada’s job market underwent a rebound in February, with the creation of 259,000 jobs due to lower restrictions at various levels. The unemployment rate fell to 8.2%, its lowest rate since March 2020. The employment gain beat expectations by the 75,000 jobs and is a great comeback from the 266,000 jobs lost over the last two months.

According to the Bank of Canada, the Canadian economy shows surprising strength as companies hoard inventories anticipating a recovery this year. This resilience increases hopes of a quick rebound in 2021, after the country’s worst slowdown since World War II. Governor Tiff Macklem did not make any adjustment this month, keeping the 0.25% overnight lending rates while maintaining at least C$4 billion a week in asset purchases. However, he said the BoC could soon taper asset purchases, noting that government bonds’ net purchasing rate will be changed as needed.

United States
The S&P 500 Total Return Index was up 4.38% during March after inflation numbers came lower than expected, and the Fed eased concerns that higher interest rates would have a continuing negative impact on equity markets. 

President Joe Biden has set a new target to distribute 200 million shots of Covid-19 vaccines and 100 million checks and electronic deposits of stimulus payments under his economic relief bill. That is well above Biden’s original goal of 100 million in 100 days. Biden said, “I know it’s an ambitious twice our original goal. I want to get things done. I want them doe consistent with what we promised the American people.” 

On Wednesday, President Joe Biden also introduced a $2 trillion plan to rebuild roads and infrastructure, extend broadband internet access, improve support for R&D, and increase corporate taxes to pay for the plan.

In February, the economic indicators were mixed, with initial jobless claims coming in at 684,000, down 97,000 from the previous week’s level of 781,000. 379,000 additional jobs were added in February as the unemployment rate fell slightly to 6.2%, its lowest rate since March last year. The PMI business activity Index also reached 59.8 in February, up from 58.3 in January. The PMI showed the fastest expansion in business activity since July 2014. New home sales were down 18.2% from a January rate of 948,000 to a seasonally adjusted annual rate of 775,000, its slowest pace since May 2020, mainly due to higher home prices. Retail sales of $561.7 billion, down 3.0% from January, the most significant contraction since April 2020 of 16.4% due to severe weather as frigid weather swept the country in February, with deadly snowstorms hitting Texas and other parts of the southern region.

Moreover, the Fed foresees the US economy accelerating this year. Jerome Powell left the rates unchanged and think it is still too early to discuss curtailing bond purchases. He said that after June 30, he would lift stock buybacks and dividend restrictions on most US banks if they pass the current round of stress tests, thereby lifting restrictions it imposed during the beginning of the pandemic. 

The MSCI ACWI Ex-US Total Return Index was up 1.34% during March amid expectations of a faster economic recovery, driven by expectations of a quicker rollout of vaccines against the despite new closures introduced in Europe along with the European Commission threatening to ban the export of vaccines to the UK.

Supply chain delays persist, with a stuck container ship freed after unexpectedly blocking navigation at the Suez Canal this week. The Suez Canal’s problems are felt more profoundly in the energy market, as the canal remains a vital transportation point for oil and refined products.

Eurozone Purchasing Managers’ Index (PMI), which includes both services and manufacturing, increased to 52.5 in March, the highest level since late 2018, up from 48.8 in February. Manufacturing production rose the most in 23 years, offsetting continued stagnation in the service sector. However, with several countries in Europe widening lockdowns and social distancing policies to combat the current COVID-19 variants, further progress may be delayed, with the services sector may suffer the most.

In the United Kingdom, the March PMIs outperformed consensus forecasts as companies plan to reopen later in the following months. The Composite PMI increased by 7 points to 56.6, with services seeing the highest growth. Manufacturing saw an uptick as well, but to a lesser degree, presumably due to global shipping and supply chain problems, as well as the challenge of transitioning to the current trading system now that smooth exports to the EU are no longer feasible.

The Portfolio Management Team