Market update

Last week’s turbulent markets continued with investors watching US inflation data and direction from the US Federal Reserve.

After the Fed hiked interest rates by 0.50% last week, US inflation came in at 8.3% year on year – a very minor reduction from the March peak and slightly above analyst estimate of 8.1%.

Markets were spooked by the possibility of an even steeper hiking cycle, until Fed Chair, Jerome Powell reassured that bigger rate hikes would be off the table for now even after the hot inflation readings of the past few days.

Broader global markets rose on Friday as investor sentiment stabilized after a volatile week of trading with the MSCI World Index gained about 2% on Friday after hitting its lowest level since November 2020 on Thursday.

Bond yields rose across the curve with 2 year rising to 2.62% and the 10 year rising to 2.93% (Curve is quite flat but still upward sloping)

Asian markets also rallied on Friday with Shanghai's deputy mayor that the city may be able to start easing some tough COVID restrictions this month

Gold was lower for the week on the back of a stronger US Dollar and Oil recovered with the continued prevalent geopolitical and supply challenges.

Weekly change: TSX: -2.6% ; DOW: -2.1%; S&P 500: -2.4%; NASDAQ: -2.8%; GOLD: -3.9%

Bloomberg Market Updates - https://www.bnnbloomberg.ca/markets

Schwab Market Updates Podcasts - https://www.schwab.com/resource-center/insights/section/schwab-market-update

 

 

MacroMemo - May 10 – May 30, 2022 by Eric Lascelles Link to article

Inflation spikes of this magnitude have historically ended in recession, though the silver lining is that the recession then pulls inflation down – Eric admits that the sample size of situations like this is small however.

The growing thinking of consumers is that it is now a bad time to buy things given that their cost has recently risen so substantially. In principle, this means households don’t believe high inflation will persist though it does also mean that consumer spending may weaken from here.

RBC GAM and Eric Lascelles’ business cycle scorecard argues that it is still only “mid cycle,” but with indicators that are increasingly tilting toward a later interpretation.

Eric expresses his team’s opinion that the business cycle will likely be shorter in the realms of 5 years, though, with the elevated recession risks, it could be that this cycle only ends up lasting three or four years instead.

Late 1940s parallels (1946-1950) - Inflation accordingly rose sharply in the late 1940s, much as it is rising quickly today. And central banks intervened then, as they are doing today. What was the end result?

1. A recession resulted, 
2. It was fairly mild,
3. High inflation was successfully tamed, and
4. The stock market decline wasn’t much larger than the present retreat, and was quickly unwound.

 

Hey Equity Markets, What's Wrong? Michael O'Callaghan, MBA, CFA; Brad Brown, MBA, CFA Link to article

We are just over four months into 2022 and it is shaping up to be an ugly year. So far, the S&P/TSX Composite Index (TSX), the S&P 500 Index (S&P), and the NASDAQ have declined 6.6%, 16.4%, and 25.5%

What Should Investors Do?

Dividends Matter Dividends can be that safety net and while they may not offset unrealized losses through price depreciation during a downturn as well as providing cash flow if necessary.

Quality Always Wins Over Time With a focus on strong, consistent cash flows, a healthy balance sheet, a sustainable dividend, and a solid business model and management team, investors can have more confidence in the durability of these companies.

 

Where have all the workers gone? by Benjamin Tal Link to article

Canadian labour market feels a bit more normal with 15k jobs created in April, in line with the pre-Covid pandemic levels.

However, behind the scenes, the pandemic triggered a transformation of historic proportions in the composition of the Canadian labour market.

As of March 2022, the number of jobs that paid less than $30 an hour were down by close to 3% since the beginning of the pandemic, while jobs that paid above that rate have risen by more than 8%.

So, what’s is happening here? Based on the data in the article, CIBC Economics speculates that previously overqualified workers (university graduates serving coffee) are being welcomed into higher-paying jobs and have better access to them by working virtually.

 

Global Insights

Freedom sale not enough to allow Rogers-Shaw deal, says the Commissioner of Competition. If the acquisition was allowed it would undo more than a decade of regulatory efforts to stimulate competition in the telecom sector and says the sector has already seen reduced competition since the deal was announced.

BNN Bloomberg

Finland seeks to apply for NATO membership "without delay" with Sweden likely to follow suit swiftly. Moscow warns of consequences.

Reuters

Elon Musk tweeted on Friday that his $44-billion cash deal for Twitter Inc was “temporarily on hold” while he waits for the social media company to provide data on the proportion of its fake accounts.

Reuters

Apple suppliers, top chip maker succumb to China lock downs - Semiconductor Manufacturing International Co. estimates a month-long lockdown in Shanghai could spur component shortages and logistics tangles and erase roughly 5 per cent of its output in the second quarter.

BNN Bloomberg

 

 

 

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