At the close of business last Friday, global equities reversed sharp early-week losses and ended up gaining ground, with markets looking past the spread of the Delta variant of the coronavirus and focusing on strong earnings.

Treasuries were volatile as well, with the yield on the 10-year note dipping as low as 1.16% on Monday before rebounding to 1.30% at the end of the week. Oil was skittish too, as the price of West Texas Intermediate crude fell below $66 before rebounding to end the week about where it began, at $71.60. After a rollercoaster week, volatility, as measured by the Cboe Volatility Index (VIX), ended little changed at 17.1.

 

MACRO NEWS

Vaccines hold their own versus Delta variant
A study published this week in the New England Journal of Medicine indicates that most of the vaccines used in developed markets are nearly as effective in combating the Delta variant as they are in countering the Alpha variant, which was the predominant strain when the vaccines were first tested. The study shows that the effectiveness of two doses of the mRNA vaccines is about 88% while the effectiveness of two doses of the Oxford vaccine is about 67%.

 

CANADIAN ECONOMIC NEWS

Canada’s retail sales for the second month in a row struggled after two straight months of gains The 2.1 per cent decline in retail sales in May came as many retailers continued to face closures amid the third wave of COVID-19.

In following earnings reports, we continue to have a very positive view on Canadian equities and especially Canadian companies paying dividends to shareholders. As these companies continue to report earnings that exceed estimates, they are also increasing dividend payments to shareholders. This is not only a Canadian story, but it relates to global equities as well.

 

US ECONOMIC NEWS

About 23% of the constituents of the S&P 500 Index having reported for Q2 2021, blended earnings per share shows that earnings growth is running at an astonishing 74% while sales grew 21% compared with the same quarter a year ago, when the first wave of the pandemic hit.

A number of companies in the index stated during earnings calls that input cost pressures may persist longer than they initially expected. However, margins appear safe for the moment due to strong pricing power, renewed cost savings efforts and productivity enhancements.

US growth pace may moderate
The blistering pace of US growth likely peaked in the second quarter, but the strong expansion is expected to continue into next year, according to a survey of economists conducted by the Wall Street Journal. Rapid gains in consumer spending, the main driver of US growth, have been bolstered by the widespread reopening of businesses, rising vaccination rates and heavy fiscal stimulus. So far, the spread of the Delta variant has not had a material impact on growth projections.

US home prices continue advance
US existing home sales rose 22.9% from a year earlier in June. The median price of a home sold rose 23.4% over the same period, to $363,300. Sales of homes worth over $1 million more than doubled last month compared with the year earlier. Inventories of unsold homes edged up in June but remain below typical levels. However, sentiment among builders of new homes fell to an eleven-month low in June, due to elevated building materials costs and supply shortages.

 

EUROPEAN ECONOMIC NEWS

ECB vows to keep rates low for longer
At the first European Central Bank meeting since the bank’s just-concluded policy framework review, ECB’s president, Christine Lagarde, issued strong forward guidance that rates will remain at present or lower levels until the ECB sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon. Realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium term.

This may also imply a transitory period in which inflation is moderately above target. With the US Federal Reserve expected to signal tapering of asset purchases later this year, and the ECB on hold, the euro fell toward its lowest levels since the end of March– around $1.1760.

EU rejects UK call to rewrite Brexit
This past week, the British government called on the European Union to rewrite portions of the Brexit treaty that pertain to trade with Northern Ireland–a plea the EU rejected. The United Kingdom says the pact is hampering trade between Northern Ireland and the rest of the UK.

Since a physical border between Ireland and Northern Ireland is prohibited by the Good Friday agreement, the existing protocol includes customs checks on goods moving across the Irish Sea to prevent UK products that do not meet EU regulatory standards from making their way into Ireland, an EU member state. While rejecting the notion of reopening the agreement, the EU said it is willing to discuss its problems.

The eurozone composite flash July purchasing managers’ index reached 60.6, its highest level since 2000. The services sector rebounded nicely amid loosened COVID restrictions, the data show. In contrast, the US composite slipped to a four-month low of 59.7, down from 63.7 in June.

 

JAPAN, CHINA and EMERGING MARKETS ECONOMIC NEWS

South Korean exports of memory chips jumped 33.9% during the first twenty days of July while chips destined for use in autos rose 28.9%, customs data show. A shortage of semiconductors used in new auto production sent prices of used cars soaring this spring.

The global minimum corporate tax agreed upon by the group of twenty finance ministers is creating new uncertainties for Southeast Asian nations. Final agreement on the fifteen per cent minimum-tax plan, originally agreed to in early June, is not expected until October and it could be years before it takes effect.

Its adoption may force nations in the fast-developing Southeast Asian region, still struggling to overcome the impact of coronavirus pandemic lockdowns, to rely more on their domestic consumer markets and their supply of cheap labour for future economic growth. Additionally, the plan may push certain members to forge closer economic ties with China to consolidate their positions in the global economic landscape.