At of the close of business last Friday, global equities receded from record territory the previous week following reports that China’s economy is under pressure, US retail sales declined and the US Fed is considering tapering its bond purchases this year.

Treasuries continued to seesaw as the yield on the 10-year note declined to 1.25% from 1.31% last week. The price of a barrel of West Texas Intermediate crude oil dropped to $62.84 from $68.93 last week. Volatility, as measured by the Cboe Volatility Index (VIX), jumped to 19.7 from 15.4.

 

MACRO NEWS

Taliban enter Kabul
Taliban forces entered Afghanistan’s capital city of Kabul last Sunday, effectively taking control of the country following the capture of one provincial city after another over recent weeks. The rapidly evolving situation has forced hundreds of thousands of people to flee their homes. There were chaotic scenes Monday at Hamid Karzai International Airport as Afghans and foreign nationals, fearing the return of Taliban rule, desperately sought to escape the country. It marked a stunning end to the two-decade Western campaign in which US and coalition forces sought to transform the country following the September 11th attacks.

The United Nations has cited continued reports of serious human rights abuses and violations in the communities most affected by the fighting. International aid groups have warned of a humanitarian crisis.

 

CANADIAN ECONOMIC NEWS

Our five big banks announced this past week that all employees working in their offices and branches must be fully vaccinated. This is in line with companies in federally-regulated industries requiring mandatory vaccinations in a bid to protect staff and abide by our federal government requirements.

The latest poling results
The Liberals with 34.2 % continue to hold a lead over the Conservatives with 30.1% in national polling, but are slipping further away from being within reach of the 170 seats needed for a majority government. The Conservatives are slowly closing the gap on the Liberals. The NDP also has some momentum and is poised to gain seats with 19.9% support. We head to the polls September 20th.

 

US ECONOMIC NEWS

Fastest bull market rally since WWII
I analyze our data sheets every Monday morning in our efforts to align your portfolio with ever-changing world markets. Here is an interesting point to consider: The S&P 500 Index has doubled from its COVID trough of 2,237.40 on March 23, 2020. It has only taken the market 354 trading days to get there, marking the fastest bull-market doubling off a bottom going back to WWII. On average, it has taken bull markets more than 1,000 trading days to reach that milestone.

For perspective, during the financial crisis in 2008, the S&P 500 hit its bottom at 676.53 on March 9, 2009, and the benchmark did not double that number on a closing basis until April 27, 2011 (540 trading days).

US retail sales disappoint
Shoppers in the US cut back their purchases in July even more than expected as worries over the Delta variant of COVID-19 dampened activity and government stimulus dried up. Retail sales for the month fell 1.1%, worse than the Dow Jones estimate of a 0.3% decline.

Excluding automobiles, sales declined 0.4%, according to US Department of Commerce figures. Most of the monthly decline came from motor vehicles and parts dealers, which fell 3.9%. Clothing stores saw a 2.6% decline, and sporting goods, musical instruments and bookstores fell 1.9%. Online sales also posted a 3.1% drop. Though July saw a month-over-month decline, the $617.7 billion in sales still represented a 15.8% acceleration from the same time a year ago.

Fed minutes reveal taper plans
At their July gathering, Fed officials made plans to pull back the pace of their monthly bond purchases. Meeting minutes indicated that will likely be before the end of the year. The minutes also showed that some members preferred to wait until early in 2022 to start tapering.

The summary of the July 27 Federal Open Market Committee gathering indicated that central bankers wanted to be clear that the reduction or tapering of assets was not the precursor of an imminent rate hike. Addressing interest rate concerns, committee members also stressed the need to reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate.

 

EUROPEAN ECONOMIC NEWS

The eurozone economy grew 2% in the second quarter, the European Union statistics office said, confirming its earlier reading as the easing of coronavirus restrictions spurred economic activity after a brief recession. In a separate release, Eurostat said employment in the nineteen-nation bloc grew 0.5% in the April to June period compared with the previous quarter, in line with economists’ forecasts.

 

JAPAN, CHINA and EMERGING MARKETS ECONOMIC NEWS

Economic growth slows in China
China’s factory output and retail sales growth slowed sharply and missed expectations in July as new COVID-19 outbreaks and floods disrupted business operations. Industrial production in the world’s second-largest economy increased 6.4% year on year in July.

Analysts expected output to rise 7.8% after growing 8.3% in June. Retail sales increased 8.5% in July from a year ago, far lower than the forecast 11.5% rise and June’s 12.1% uptick. China’s economy rebounded to pre-pandemic growth levels, but it lost steam as businesses grappled with higher costs and supply bottlenecks. New COVID-19 infections in July also led to fresh restrictions, disrupting the country’s factory output, already hit by severe weather this summer.

Emerging markets had one of their worst weeks as China passed a major data protection law setting out tougher rules on how companies collect and handle their users’ information. The rules add to Beijing’s tightening of regulation, particularly around data, which could impact the way China’s technology giants operate.

We recently have reduced exposure to Emerging market equities in favour of global dividend equities.