Published at 6 October 2021
Current market update
Dear friends,
North American equity markets dropped this week. Ongoing concerns about inflation, the U.S. debt ceiling and supply chain bottlenecks weigh on investors as they kickoff the last quarter. In Canada, the S&P/TSX Composite Index declined, dragged lower by the Information Technology sector. In the U.S., all three major indices fell over the week. The S&P 500 Index also dropped. The Information Technology and Health Care sectors were the worst performers on the week. The yield on the 10-year U.S. Treasury Bond rose to 1.46%.
Reopening supports rise in earning
- Average weekly earnings in Canada rose 1.8% year-on-year to $1,133 in July, according to Statistics Canada (StatsCan).
- This is the highest increase since March and may reflect the reopening of Canadian economy.
- Provincially, British Columbia saw the highest jump in weekly earnings of 4.4% annually, with the Yukon seeing a rise of 3.9% on the same period.
- Higher wages have so far failed to ease the worker shortage that many Canadian businesses are experiencing as they deal with a backlog of orders.
Canadian housing market correction risk
- A recent report from Canada Mortgage and Housing Corporation (CMHC) is warning about a high risk of a correction in the real estate market.
- While the Canadian economy is improving, surging house valuations seem disconnected from “economic fundamentals,” according to the report.
- CMHC added Montreal to its of list cities facing a high risk of a correction, joining Hamilton, Toronto, Ottawa, Moncton and Halifax.
- Vancouver bucked the trend as its risk rating fell to low from moderate as the city’s housing supply helped temper price growth.
- Nationally, 85% of newly built homes were sold on completion, which indicates the strength of demand compared to supply.
U.S. home prices reach new high
- Home prices surged to a new high, with the S&P CoreLogic Case-Shiller Home Price Index reporting annual gains of 19.7% in July.
- High prices are chipping away at purchasing power and pushing potential homeowners, especially first-time buyers, out of the market.
- However, demand still far outstrips supply due to low mortgage rates and heightened desire of buyers to find a suburban property, given the rise in remote working.
- Sustained growth in house prices is one of the factors weighing on U.S. consumer confidence which dropped in September to 109.3 from 115.2 last month.
Global energy supply under pressure
- Oil traded around US$75, up roughly US$1 from the beginning of the week, boosted by supply disruptions in the Gulf of Mexico and strong demand.
- Global oil supply is expected to fall short of demand by 1.2 million barrels a day in October and 900,000 barrels a day in November.
- At its meeting next week, the Organization of the Petroleum Exporting Countries (OPEC) may discuss raising production more than the previously announced increase of 400,000 barrels a day.
- In the U.K., the fuel crisis, which saw up to 90% of fuel pumps run dry following panic buying amid a truck driver shortage, seems to be easing.
Sincerely,
