Market update

Another challenging week for investors with recession fears and fresh inflation data driving the markets.

US retail sales showed strength on Tuesday, rising 0.9% in April, slightly below the forecast of 1% as auto dealers led sales with most major retail categories posting gains.

Despite this, disappointing forecasts from big retailers Walmart Inc and Target Inc rattled market sentiment this week, adding to evidence that rising prices have started to hurt the purchasing power of US consumers – Target shares fell ~25% on Wednesday.

Confirmation of China’s economic slowdown as home prices fall for the eighth straight month, and with lockdowns and tight financing, there’s raised concerns for supply chains and recession fears grow.

The Canadian S&P/TSX Composite Index remained resilient throughout the week despite inflation data on account of positive retail sales data and continued support for Oil prices.

The S&P 500 moved into Bear market territory on Friday briefly, seeing its value come off by 20% since January 3rd, 2022 – by close of trading, it made ground back, but only slightly.

Weekly change: TSX: FLAT ; DOW: -2.9%; S&P 500: -3.0%; NASDAQ: -3.8%; GOLD: 1.8%

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

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

 

Global inflation update

Another week of inflation data climbing, Canada’s Consumer Price Index (CPI) rose 6.8% on a year-over-year (Y/Y) basis in April, up from a 6.7% gain in March – this is an acceleration from March, and pushes our benchmark cost of living indicator to the highest since January 1991.

Despite this, Canadian consumer data remains strong according to Walmart and Home Depot, with Canadian divisions outperforming US divisions and Canada's average home price fell 6.3% in April from March while sales dropped 12.6%, as the housing market cools.

UK inflation rose by 9% to its highest level in 40 years, adding to pressure for action from the central bank, as traders speculated that the Bank of England will struggle to rein in inflation and avoid a recession.

Britain's jobless rate hit a 48-year low in the first three months of 2022, the lowest since 1974. Employers also paid bigger bonuses to keep or attract staff, according to data that added to bets by investors on further Bank of England interest rate hikes.

BMO Chief Economist Doug Porter’s hot take on CPI, we’re going to be wondering for a while longer: “We expect that the worst is yet to come on the headline readings, and that inflation north of six per cent will still be with us by the end of this year,” he wrote in a report to clients this morning.

This reiterates our thesis of finding alternate measures to counter inflation within our investment mandate throughout 2022 before we look to find yield in the bond market, likely beginning 2023.

Reuters

BNN Bloomberg

 

THE WEEK AHEAD – Bad news as good news written by Avery Shenfeld Link to article

Despite consumer spending being reasonably healthy in the first quarter, there were signs that retailers are having difficulty passing on all of the increase in their costs in what they can charge their customers.

Some companies reported rising inventories, consistent with official data that showed a climb in retail inventories since the start of the year.

Supply chains aren’t fully healed and will continue to be interrupted as parts of China are in severe lockdowns, we might be seeing at least some relief on that front, which would also be a dampener on inflation.

Consumer spending was still reasonably healthy in the first quarter, and could be revised higher given an upward revision to retailing data. But, there is a transition happening as goods consumption, which has been miles above trend, is making way to services spending, which is outpacing the goods sector in year-on-year volume growth for the first time since the start of the pandemic.

The markets biggest concern right now is higher rates that lower equity multiples, coupled with a recession that crushes earnings.

 

Global Insights

German Finance Minister Christian Lindner said he pledged 1 billion euros ($1.06 billion) in grants to Ukraine at a meeting of finance officials from the Group of Seven (G7) economic powers on Thursday to help it with short-term liquidity needs.

Reuters

 

US Officials confirm the existence of UFOs (!!). While less extraterrestrial than you might think, one official indicated that "unidentified aerial phenomena" could be a threat to US National Security

Reuters

 

Shanghai achieved its long-awaited milestone of three consecutive days with no new COVID-19 cases outside quarantine zones on Tuesday but most residents will have to put up with confinement for a while longer before resuming more normal life.

Reuters

 

Tesla Inc has been dropped by S&P Global Inc flagship ESG index "despite Tesla doing more for the environment than any company ever!". Reportedly due to working conditions at Fremont factory and its handling of a U.S. government probe into its autopilot technology among other issues.

Reuters

 

Bram’s Vacation Destination of the Month

Portugal

Portugal, like many European countries is easy to navigate – you can cross the entire country north to south by train in under 8 hours. Lisbon to Porto is possible in under 3 hours.

Great food and wine – the Douro Valley, where Porto is situated has a plethora of Wine and Port to enjoy. They also have surprisingly excellent patisserie!

Visit one of the many historical sites around Lisbon, such as Castelo S. Jorge, Sintra and Obidos.

Portugal has phenomenal beaches throughout the southern Algarve region of the country. One of the more notable destinations is Lagos, which saw its population increase from ~10,000 to ~100,000 during summer months before the pandemic.

It is great value – Numbeo calculates that Lisbon, the capital of Portugal has consumer prices that are ~40% lower than that of Calgary, ~30% lower when including long term rental costs.