January 24, 2021

Written by: Sid Mohapatra 


Markets continue to experience dissonance between positive news and near-term challenges thereby leading markets to finish off record highs. There continues to be much focus on the significant $1.9 trillion stimulus program put forth by Joe Biden’s administration, adverse news on the virus front and the pace of vaccine rollout. Also, we have more than a fifth of the companies in the S&P 500 reporting in the next couple of weeks. The key emerging drivers for risk markets continue to be the trifecta of the pace of the vaccine rollout, stimulus-dependent consumption and the economy rebounding throughout the year.


Despite the Bank of Canada projecting the Canadian economy slowing in the first quarter and holding rates unchanged, we experienced strong retail sales in Canada, gaining 1.30%. We continue to witness extremely accommodative monetary support from central banks with low rates being the norm across most G10 countries. In the most recent Bank of Canada meeting this week, the BoC continues to forecast considerable slack in the Canadian economy as well as oversupply in labour markets for this year. Further, BoC continues to project a contraction of 2.50% for the first quarter of 2021. As a result of muted growth expectations, the low-rate environment will be complemented by asset purchases to support existing quantitative easing programs in place.


Risk markets remained mixed this week with TSX 60 shedding 30 bps closing at 17,862 while the S&P 500 gained 1.90% finishing at 3,841. In fixed income land, we saw yields relatively unchanged and the 10-year Canada fetching 84 bps! Further, we do see corporate credit at pre-pandemic tights and excess spread to be 100 bps, last seen in January 2020.

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