Vaccinated or not? That is the question…

 

The global economy continues to recover from the halt in operations caused by the pandemic. All signs point to a global recovery, but it will not be synchronized, as the reopening still depends largely on the ability of each country to achieve immunity.

After making great strides in the fight against COVID-19, the planet now faces a new enemy: The Delta variant.

In advanced economies, where vaccination campaigns are progressing rapidly, the Delta variant could certainly lead to an increase in new cases, but without putting excessive pressure on health systems. The current situation therefore remains compatible with a gradual reopening of the economy.

The delay in immunization in emerging economies increases the risk that one or more countries will suffer the same fate as India earlier this year. Although general confinements are rather rare in emerging countries, the virus could still play the spoilsport by forcing localized confinements.

Looking ahead, investors are most concerned about a potential rise in inflation that would prompt central banks to ease their stimulus packages or, at the very least, contribute to increased macroeconomic uncertainty. Once the world economy returns to normal levels, we expect inflation to stabilize around its historic 2% level.

 

Market Review: Highlights as of July 30, 2021

 

Fixed Income

• The Canadian bond market is calmer since April, compared to its unusually high volatility seen during the first quarter of the year.
• Despite the good performance of the Canadian bond market (UNIVERSE REFINITIV) since last spring, the latter's performance has remained in negative territory since the beginning of the year. Indeed, it is down 2.8% since the beginning of 2021, driven mainly by negative returns of 6.1% for long-term bonds.

 

Stock Markets

• Most equity markets have performed well since the beginning of the year, aside from the recent decline in the emerging market. At the top of the list is the Canadian market (S&P/TSX Composite) which posted a gain of 18.2%, followed by the American market (S&P500) with a gain of 17.0% * and the international equity market (MSCI EAFE) with 8.1% *. As for the emerging markets (MSCI EM), they posted a loss of 1%* year-to-date.
• The United States benefited from a particularly favorable earnings season, with 89% of S&P500 companies reporting better than expected results. As for Canadian companies, 65% of them reported results above analysts’ expectations.

 

* The returns of the S&P500, MSCI EAFE and MSCI EM are expressed in US currency.

 

Oil and Gold

• The price of WTI oil (US $) is up 52.4% year-to-date. Its gain is mainly due to an increase in demand, as developed countries gradually relax restrictions linked to the pandemic.
• Recently, the price of oil has experienced a period of volatility caused by news that the OPEC+* countries have reached an agreement to increase supply by an additional 400,000 barrels per day each month, starting in August, and expiring only in December 2022.
• For its part, the price of gold has weakened by 3.9% since the beginning of the year, due to the strengthening of the US dollar.

 

* OPEC+ is an agreement between the 13-member countries of the Organization of the Petroleum Exporting Countries and 10 allied exporting countries. The purpose of this collaboration is to fix the price of oil by agreeing on quotas on world oil production.

 

Forex

• After hitting an unprecedented low of several years at 1.20$ Canadian to 1$ US on June 1, the loonie retreated by 5 cents. This happened against the backdrop of stronger-than-expected economic growth, rising oil prices and a larger differential between Canadian and US 2-year government bond rates.

 

Investment Outlook

 

As the engine of economic recovery relies less on policy responses to COVID-19 and the recovery becomes more self-sustaining, financial markets are likely to be more volatile. Understandably, some fear that the recovery will run out of steam without the support of established monetary and fiscal policies. Nonetheless, given the need to replenish inventories, excess savings of almost $ 2 trillion in the United States alone, and current favorable financial conditions, we expect investors to be pleasantly surprised by a strong economic recovery.

 

If you have any questions, we invite you to contact us.

 

We hope you enjoy the summer so far!

 

Cathy and Sounda

cathy.duval@bnc.ca

514 871-3474

 

Disclaimer: I have written this commentary to give you my opinion on various investment solutions and considerations that may be relevant to your investment portfolio. This comment reflects my opinion only and may not reflect those of National Bank Financial Group. In expressing these opinions, I endeavor to apply my judgment and professional experience to the best of my ability from the perspective of a person called upon to follow a wide range of investments. Therefore, this report represents my informed opinion and not a research analysis produced by the Research Department of National Bank Financial. National Bank Financial is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). National Bank Financial is a member of the Canadian Investor Protection Fund (CIPF).