01/08/2022
Weekly Economic Update !!!
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Weekly Updates Issue # 846
1. Weekly Markets Changes
2. Canadians put extra wealth to work in 2021
3. Inflation hits record of 5% in 19 countries using the euro
4. Jobs disappoint in December, but unemployment falls to 3.9%
5. A shift in spending could dampen inflation, Shenfeld says
6. Big Six go from strength to strength: Fitch
7. Canadian economy could hit ‘two-month air pocket’ to start the year
8. A record 4.5 million Americans quit their jobs in November
9. Apple has become the world's first $3 trillion company
10. Turkey's inflation soars to 36%, setting a new record for Erdogan era
1. Weekly Markets Changes*
[January 7, 2022]
S&P TSX
S&P 500
Dow Jones
NASDAQ
CAD/USD
Gold
WTI Crude
21,084.45
+345.44 +1.67%
4,677.03
+56.39 +1.22%
36,231.66
+866.2 +2.45%
14,935.90
-233.8 -1.54%
$0.7895
+1.10c +1.41%
$1,796.55
-2.00 -0.11%
$78.90
+8.56 +12.17%
*All the changes in the value of the indexes, currencies and commodities are calculated based on their value as of December 17th, 2021 - the date of my last newsletter for the year 2021 #845
2. Canadians put extra wealth to work in 2021
[January 7, 2022] If anything positive came of the prolonged pandemic lockdowns of 2021, it might be more time — and for some, more money — to focus on investing.
Last year Canadian investors poured record assets into ETFs, as well as mutual funds and savings accounts, National Bank Financial said in its monthly ETF report.
With December inflows of $4.3 billion, total ETF flows for 2021 were $52.5 billion, the report said — a 27% increase over the previous year.
The equity category dominated, accounting for 58% of annual flows, or $30.2 billion. Within the category, “the mainstay narrative of the ETF revolution” remains low-cost market cap–weighted ETFs, the report said. The passive funds amassed $15 billion of the total equity net flows.
The report also noted a first in 2021: Canada was the first country with a physical cryptoasset ETF. The new cryptoasset ETF category proved popular during the year, with 11 consecutive months of inflows after products were introduced in February.
“Despite characteristic volatility that could only be described as ‘stomach churning,’ crypto asset ETFs grew from zero to $5.9 billion in assets across more than 30 different products in under a year,” the report said.
For those keeping track of the ETF tally, there are now 1,177 of the funds and 40 providers in Canada, following 2021’s 202 launches and one new provider (3iQ).
As the number of ETFs and providers has increased, so too has the depth of the ETF market, National Bank said. In 2015, the top 200 ETFs by market share accounted for 95% of the total ETF market, and that number has declined to just over 80%.
“The ETF market has been broadening to newer and smaller products,” the report said. “The ecosystem has never been broader and more diverse, and investors in Canada will only have more tools to choose from as time goes by.”
In total, Canadian ETF assets at year’s end were $323.1 billion.
Still, as of Nov. 30, ETF assets represented roughly 13% of mutual fund assets in a year with dramatic mutual fund sales: a record $112 billion as of November (December figures will be available later this month). That’s up from about $32 billion for the whole of 2020, according to the report. The latest figure was double previous records from a few years ago and represented the first time mutual funds outsold ETFs since before 2018.
The strong result could be due to household wealth created from rising asset markets, the report said, combined with little opportunity to spend during pandemic lockdowns.
“We observed large waves of mutual fund contributions, particularly during the tax-loss harvesting, RRSP and TFSA contribution seasons, and whenever an opportunity presented itself during market drawdowns,” it said.
At the end of November, total mutual fund assets were about $2 trillion.
3. Inflation hits record of 5% in 19 countries using the euro
[January 7, 2022] Consumer prices in the 19 countries that use the euro currency soared at a record rate, led by a surge in food and energy costs, figures showed Friday.
Inflation rose to 5% in December compared with a year earlier, according to Eurostat, the European Union’s statistical office. That is the highest level in the eurozone since recordkeeping began in 1997, breaking the record of 4.9% only just set in November.
Energy costs spiked again in December, jumping at an annual rate of 26%, though that was a bit lower than the previous month, according to Eurostat’s data. A stronger rise in food costs contributed to the increase in overall inflation, picking up pace to 3.2%, higher than the 2.2% rate posted in November.
Soaring prices are compounding problems for European Central Bank policymakers who have been keeping interest rates at ultra-low levels to stimulate the economy as it recovers from the coronavirus pandemic.
Despite the omicron variant of Covid-19 surging and its uncertain effects on the global economy, central banks elsewhere have been raising interest rates to fight soaring inflation or taking steps in that direction.
The Bank of England became the first central bank in a major advanced economy to raise interest rates since the pandemic began. The European Central Bank has taken a much more cautious approach, but also decided to start carefully dialing back some of its stimulus efforts over the next year.
The U.S. Federal Reserve is moving faster than Europe to tighten credit as consumer prices jumped 6.8% over the past year in November, the highest such inflation rate in 39 years.
4. Jobs disappoint in December, but unemployment falls to 3.9%
[January 7, 2022] he US economy added 199,000 jobs in December, the Labor Department reported Friday. That was the fewest jobs added in any month of 2021.
That was a major disappointment: Economists had forecast jobs growth of double that number.
So how could forecasts be so off again?
"We just have to acknowledge that this is still such an unusual time. In the best of times it's hard to tell," said Sarah House, economist at Wells Fargo.
A lot of the models that economists use aren't adapted to capture the labor shortage, for example, she told CNN Business.
Earlier in the week, the ADP Employment Report counted more than 800,000 private sector jobs for December — boosting hopes for a strong finish to the year. That release is considered a bellwether for the official jobs report, though the two are not correlated.
But the understated gains send a clear message. The recovery still is not complete.
Year in review
The unemployment rate fell to 3.9% in December, marking a new pandemic-era low. At the same time, the labor force participation rate was unchanged from November at 61.9%, still 1.5 percentage points lower than in February 2020.
The unemployment rate for White, Asian and Hispanic workers dropped in December, while joblessness increased for Black workers.
At year-end, the nation was still down 3.6 million jobs compared to before the pandemic, in February 2020.
Even so, 2021 will go down in history as a year of record-breaking jobs growth: America added 6.4 million jobs last year, the most since records started in 1939. Every single month brought jobs gains.
"We made sizable inroads to overcoming the jobs deficit... if you look at the overall state of the labor market, it's impressive," said House, the Wells Fargo economist.
In a sense, even the labor shortage that is hamstringing businesses is a relatively good problem to have, she said: "That's the opposite of what we saw two years out of the Great Recession."
To be sure, 2020 was also a year of groundbreaking job gains. But accounting for the steep losses at the start of the pandemic, the economy still recorded a net loss of jobs that year.
Omicron ahead
Economists are nervous that the start to 2022 could be rocky for the labor market. Soaring infections due to the Omicron variant of the coronavirus are weighing on workers and businesses alike.
But because the surveys that the jobs report is based on are conducted around the middle of the month, the December report likely didn't reflect the Omicron impact yet. That will be different in January.
"I think Omicron is definitely going to be a big headwind for January. But i also think you will have seasonal tailwinds: January is [traditionally] the biggest month for layoffs, but because businesses have had such a hard time getting workers, you won't see as many" layoffs this year, said House.
Winners and losers in December
The leisure and hospitality industry led job gains with a modest 53,000 added, but the industry remains down 1.2 million positions compared with pre-pandemic times.
Professional and business services, manufacturing, construction, and transportation and warehousing also added jobs last month.
Meanwhile, retail — which usually adds a lot of jobs going into the holiday period — showed a seasonally adjusted decline. That's because even though the sector did in fact hire more workers, the seasonal adjustment is based on the much bigger gains historically seen this time of year.
Together with the increase in warehousing and logistics jobs, these trends reflect how much consumer behavior has shifted online during the pandemic. And with Omicron posing a risk, online shopping likely won't be going out of fashion any time soon.
5. A shift in spending could dampen inflation, Shenfeld says
[January 6, 2022] Don’t expect inflation to stay above 4.5% throughout 2022, but don’t count on it falling below 2% any time soon, economists with the big banks suggest.
“If you were to pin me to the wall, I would suggest we are looking at inflation of between 2.5% and 3% by the end of this year. It’s almost 5% right now,” said Douglas Porter, managing director and chief economist with BMO Financial Group.
“We think inflation will remain high, probably early into the second quarter [of 2022] and then start to dissipate as we go through the course of the year,” said Dawn Desjardins, vice-president and deputy chief economist with RBC. “But having said that, we still think inflation [will remain] above where it was prior to the pandemic.”
Desjardins and Porter were among the panelists at Economic Outlook 2022, a virtual event hosted Jan. 5 by the Economic Club of Canada.
Also on the panel was Avery Shenfeld, managing director and chief economist with CIBC Capital Markets.
“One thing that could help us, on the inflation front, is if we can get consumers to spend a little less on Amazon packages — and things that have to be shipped from China — and more on restaurant meals, hotel rooms, movie theatres and live entertainment. Those are all sectors that still have a lot of excess capacity,” Shenfeld said. If consumers buy fewer material goods “and do more outside their houses — which I think we are still hoping [for] when omicron fades,” he added, they will both drive economic growth and help cool inflation.
In Canada, the consumer price index rose by 4.7% from November 2020 through November 2021. The main drivers were the year-over-year increases in the prices of gasoline (43.6%), furniture (8.7%) and food (4.4%).
In 2022, “we could actually get a strong year for consumer spending but a shift in the composition in that spending could actually be helpful to us on the inflation front,” Shenfeld said.
One key driver of inflation last year was an OPEC agreement, in early 2021, to clamp down on oil production, Porter suggested. But he doesn’t expect a similar dynamic this year.
“We don’t believe that oil prices are going to double again,” Porter said. “We don’t think used car prices in the U.S. will rise by 30% to 40% again. They could even fall by 30% to 40% over the next year, but there are still clearly some lingering upside [inflationary] pressures,” such as wages in a tightening labour market.
On Jan. 5, West Texas Intermediate closed at nearly US$78.
6. Big Six go from strength to strength: Fitch
[January 5, 2022] Wealth management was a source of strength for the big Canadian banks in 2021 and looks likely to help drive growth again in 2022, Fitch Ratings reports.
In a new report, the rating agency said the Big Six banks enjoyed a year of strong earnings in fiscal 2021, which included both “unusually low credit costs” and robust capital markets activity, along with high liquidity and capital levels.
Overall, revenues rose 4.5% year over year and adjusted net income was up by 50% on average from the prior year, and up 25% from pre-pandemic levels, boosted by low credit loss provisions.
“Full-year Canadian retail and commercial banking performance in revenues and earnings exceeded pre-pandemic levels across all institutions for fiscal 2021, notwithstanding competitive mortgage pricing, lower margins, a slow rebound in credit card balances and higher liquidity,” Fitch said in the report.
All of the banks’ wealth management divisions produced strong revenue growth in fiscal 2021, with revenues in the segment up 12% to 21% year over year.
“In general, higher revenues benefited from higher fees generated via increased assets under administration (AUA) and assets under management (AUM), in turn reflecting market appreciation, higher client fee-based assets and net additions, thereby offsetting competitive pressures on fees,” Fitch said in its report.
The banks’ retail and institutional businesses were both strong in 2021, “with high customer activity driving increased mutual fund fees and brokerage/retail trading revenues,” it said.
Looking ahead to the coming year, Fitch said that wealth management could remain a source of strength for the big banks, particularly if markets hold up too.
Outside of wealth management, results from the banks’ other capital markets businesses were mixed, the report noted.
“… banks generally benefited from strong M&A advisory fees but experienced declining aggregate trading revenues for the fourth consecutive quarter, reflecting progressive normalization of market conditions and tighter credit spreads throughout the year,” it said.
For the year ahead, the firm expects continued strength in M&A and other advisory businesses, while underlying economic growth supports consumer and commercial credit, and rising interest rates will boost margins.
“Longer-term challenges for banks include elevated private- and public-sector leverage and a more vulnerable housing market,” it noted.
7. Canadian economy could hit ‘two-month air pocket’ to start the year
[January 5, 2022] Get ready for a temporary decline this quarter in the Canadian economy and for key interest rates to rise 75 basis points this year, economists for major banks predicted Wednesday.
The omicron variant of Covid-19 “has thrown [a] huge curveball” at the economic outlook for the first quarter of 2022, said Douglas Porter, managing director and chief economist for BMO Financial Group.
“We suspect that the economy will hit about a two-month air pocket due to new restrictions,” Porter said Wednesday during Economic Outlook 2022, a virtual event hosted by the Economic Club of Canada.
“I believe the economy is going to struggle to see any growth at all in the first quarter. If you recall during the third wave, we saw an outright decline in the economy in the second quarter of last year and I would not be shocked if we get a repeat of that in the first quarter of this year,” Porter said during a panel discussion featuring economists from major Canadian banks.
In the United States, omicron accounted for 95% of new coronavirus infections last week, the Associated Press reported, quoting the Centers for Disease Control and Prevention.
On this side of the border, several provinces are delaying students’ return to classrooms, and Ontario has reinstated a ban on indoor restaurant dining and forced cinemas, gyms and theatres to close.
“As restrictions ease — and presumably they will in relatively short order — the economy can spring back with purpose,” Porter said Wednesday.
Overall, Porter predicted the Canadian economy would grow by 4% in 2022, after growing by 4.5% in 2021.
“A so-called normal year for the Canadian economy would be about 2% growth or so, but even with a relatively strong rebound through the second half of [2022], we don’t think we will be completely back to normal by the end of this year,” said Porter.
“When we look out into 2023, we think that year will see somewhat above-average growth.”
There is a lot of “ground to make up” in the Canadian economy, said Porter. In 2021, several factors put downward pressure on the economy — among them, supply chain issues in the auto sector and a drought in Western Canada.
Two of Porter’s co-panelists predicted central banks — both in Canada and the United States — would tighten monetary policy early in 2022.
Avery Shenfeld, managing director and chief economist for CIBC Capital Markets, said both the Bank of Canada and the Federal Reserve will raise interest rates by 75 basis points this year, “with a follow-up dose of somewhere between 75 and 100 basis points in 2023.”
“We think monetary policy will be tighter as we go through the course of this year,” said Dawn Desjardins, vice-president and deputy chief economist at RBC.
By the end of 2023, the U.S. Federal Reserve will have raised its policy rate by 1.5 percentage points, suggested Desjardins.
“Even with all of the uncertainty the economy is facing with omicron right now, we are of the view that the Bank of Canada will start to raise interest rates in April,” said Porter.
“Usually when [the Bank of Canada believes] it’s time to start raising interest rates, they don’t fool around. They tend to move very quickly,” said Porter. “I would look for three moves in a row when they do begin raising interest rates in April.”
8. A record 4.5 million Americans quit their jobs in November
[January 4, 2022] A record 4.5 million Americans voluntarily left their jobs in November, according to the Bureau of Labor Statistics.
This pushed the quits rate to 3%, matching the high from September.
Workers were most likely to quit their jobs in the hospitality industry, which had by far the highest quits rate at 6.1% in November, as well as those in health care. The numbers in transportation, warehousing and utilities also increased.
"Workers continued to quit their jobs at a historic rate. The low-wage sectors directly impacted by the pandemic continued to be the source of much of the elevated quitting," said Nick Bunker, director of research at the Indeed Hiring Lab, in emailed comments.
The big question for 2022 is whether this dynamic will persist.
The high quits rate is a symptom of the tight labor market where workers can quickly find a new -- and potentially better -- job.
The November data released Tuesday doesn't yet factor in the arrival of the Omicron variant on US shores, which pushed infections higher and put many workers at risk to contract the virus at their places of work.
Case in point, the UCLA Labor Center said in a report also published Tuesday that nearly a quarter of fast-food workers in the Los Angeles area contracted Covid over the past 18 months. Less than half of them had been notified by their employers that they had been potentially exposed to the virus.
Including layoffs and discharges, the number of total separations was 6.3 million in November.
Hotels and restaurants registered the biggest increase in separations, while also logging the biggest decline in open jobs, the data showed.
America had 10.6 million jobs to fill in November, a slight decline compared with just over 11 million job openings in October. Available US jobs peaked at 11.1 million last July.
Positions in finance and insurance, as well as in the federal government, increased in November.
Hires were little changed at 6.7 million and that paints a positive picture of the labor market:
"People who quit are taking other jobs, not leaving the workforce," said Heidi Shierholz, chief economist at the Economic Policy Institute in a tweet Tuesday. "On net, the labor market is gaining a ton of jobs every month."
9. Apple has become the world's first $3 trillion company
[January 3, 2022] Apple has reached yet another major milestone. The iPhone maker topped a market value of $3 trillion Monday — the first publicly-traded company ever to be worth that much.
Shares of Apple were briefly up about 3% to a new all-time high of $182.88, surpassing the $182.85 per share it needed to be worth $3 trillion. The stock later pulled back from that level.
Apple's market value first crossed the $1 trillion threshold in August 2018 and passed $2 trillion in August 2020.
Apple shares were up nearly 35% in 2021. The company has benefited from booming demand for its new iPhone 13 and other older models as well as subscription services such as Apple Music, Apple TV+, iCloud, and its popular App Store.
Sales surged nearly 30% to more than $83 billion in Apple's fall quarter, which ended in September. The company has a whopping $191 billion in cash as well.
But before long, Apple may have some company in the $3 trillion clubs. Microsoft is now worth about $2.5 trillion and Google owner Alphabet's market value is right around $2 trillion. Still giant but further behind are Amazon, which has a market cap of $1.7 trillion, and Elon Musk's Tesla, worth about $1.2 trillion.
10. Turkey's inflation soars to 36%, setting a new record for Erdogan era
[January 3, 2022] Turkey's annual rate of inflation has hit a 19-year high as a currency collapse sends the cost of imports soaring.
According to the Turkish Statistical Institute, consumer prices soared 36% in December compared to the same month the previous year. Prices are now rising at their fastest pace since September 2002. President Recep Tayyip Erdogan's party came to power later that year.
The increase in prices was led by the cost of transportation soaring nearly 54% year-on-year and food and drink prices skyrocketing 43.8%. Household equipment and hospitality prices were also up more than 40% compared to a year ago.
Turkey's currency lost more than 40% against the US dollar last year, a collapse fueled by Erdogan's insistence that the country's central bank pursues a highly unorthodox policy of cutting interest rates, rather than raising them, in the face of rapidly rising prices.
Erdogan has blamed Turkey's economic woes on foreign intervention and says he is leading a struggle for more financial independence for the country.
Spiraling prices and the plunging currency have already forced the Turkish government to take extraordinary measures to try to protect workers and savers.
Last month, Erdogan announced a nearly 50% hike in the country's minimum wage and a plan for a new type of Turkish lira deposit account that would protect savers against devaluation.
Erdogan has also urged businesses and individuals to defend the lira. "As long as we don't take our own money as a benchmark, we are doomed to sink. The Turkish lira, our money, that is what we will go forward with. Not with foreign currency," Erdogan said Friday in a speech to a business association in Istanbul.
"We have been working for some time now to get the Turkish economy out of the spiral of high-interest rates, high inflation, and to set it on the path of growth through investment, employment, production, exportation, and current account surplus," he added.
Turkey's central bank cut interest rates for the fourth month in a row in December. Central banks typically raise interest rates when inflation is soaring to stop the economy from overheating.
Have a nice and fruitful week!
Always Ask for the Best!
Tchavdar (Charles) Elenkov, MBA, CHS
Insurance & Financial Advisor
Email: [email protected]
Website:
My name is Tchavdar (Charles) Elenkov, MBA, CHS. I work in the financial services industry from 1979 till 2001 as a banker, and after that as an independent insurance broker. I hold the professional designation CERTIFIED HEALTH INSURANCE SPECIALIST (previously known as REGISTERED HEALTH UNDERWRITER)...
