- Efforts to vaccinate the world’s population has continued to make progress.
- While Canada had a relatively slow start to its vaccination rollout, it made significant progress during Q2.*
- U.S. stock markets remained strong and set record highs in the second quarter.
- The NASDAQ Composite Index was volatile due to concerns about the impact of rising inflation on information technology stock valuations.
- Rising commodity prices and the economic reopening lifted Canada’s markets.
- Oil prices rose to multi-year highs on rising demand. As the vaccine rollout continued, expectations increased for a full recovery in oil demand
(*A quarter refers to a three-month period. The first quarter (Q1) covers the months of January to March. The second quarter (Q2) covers April to June. The third quarter (Q3) covers July to September. And, the fourth quarter (Q4) covers October to December.)
Have vaccines boosted investor confidence?
Expectations for a stronger global economy remained in the second quarter of 2021. The continued rollout of vaccines helped increase optimism.
Better overall economic conditions also improved investor confidence. Investors became more positive about the markets during the quarter.
Which economies have been the most resilient?
The U.S. and Chinese economies were among the strongest in the world. But some economies continued to struggle with ongoing lockdown measures. These countries were still concerned about the spread of COVID-19. The economies of Japan and Europe were among the world’s weakest.
Economic risks related to the pandemic remained in place. It’ll take more time before the global economy recovers as a whole.
What’s happening with interest rates?
Most of the world’s major central banks left interest rates unchanged over the quarter.
The U.S. Federal Reserve Board (Fed) signaled it may raise interest rates sooner than expected. Markets declined in response. Investors didn’t like the possibility of two rate increases by the end of 2023 instead of 2024.
Have financial markets turned more positive?
Global equity markets advanced over the second quarter of 2021. Investors remained cautious about potential inflation and rising interest rates.
Markets in the U.S. reached all-time high levels. Markets in Canada and Japan also posted positive gains. Parts of the European and Australasian markets made gains as well.
Yields of long-term global government bonds declined over the period. Central banks bought bonds to support economies. These bond purchase programs help to keep bond yields lower.
What’s happening to the price of oil?
Oil prices rose over the quarter and reached levels not seen in years. The market is expecting demand for oil to rise as more people resume travel again.
What happened to the price of gold?
Gold prices also rose during the period. Gold is a popular investment when investors are concerned about inflation.
How are Canada markets doing?
Canada continues to be strong. Canadian equity markets advanced over the quarter. Areas of strength included the energy and information technology sectors. The S&P/TSX Composite Index reached a record high during the quarter.
The yields on long-term Government of Canada bonds declined over the quarter. This was partly in response to comments by the Bank of Canada (BoC) that inflation is likely temporary. Canada may not need an interest rate increase if higher inflation is not a concern.
Canada’s economy continued to grow, but not as much as economists had expected. Higher consumer spending contributed to the growth in Canada’s economy. A strong real estate market also supported growth.
Economists remained concerned that economic activity may weaken due to ongoing challenges related to the pandemic.
Economic lockdowns in many parts of Canada led to job losses. The Canadian unemployment rate edged higher during the period.
Is the pandemic still a risk to the global economy?
The distribution of vaccines and economic reopening efforts may help boost the global economy over the rest of 2021.
Continued support by governments and central banks may also help the global economic recovery.
The pandemic still poses a risk to the global economy as virus variants continue to spread. Nations that fall behind in vaccinations could face ongoing challenges.
Economic conditions in the U.S. continue to look more promising. The Fed is likely to begin cutting back on bond purchases in the coming months. The U.S. federal funds rate may remain near zero for the balance of 2021. Keeping rates stable could help encourage more economic growth.
Stronger demand for travel may help increase oil prices but oil production is also increasing. Oil prices may not rise significantly in the near term as a result.
The Canadian economy experienced some weakness in the second quarter. But easing lockdown measures and reopening businesses mean that Canada’s economy is on track to expand fairly quickly.
Consumer spending may be a key driver of economic growth over the remainder of the year. This is especially true as Canadians begin spending more. Canadians have saved a record amount of money since the start of the pandemic.
Strong demand for real estate has pushed home prices higher. This demand has made real estate challenging to afford for many Canadians.
Canada’s real estate market appears to be slowing down a bit. The Canadian Real Estate Association reported sales of existing homes had declined in the second quarter.
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The BoC is unlikely in 2021 to increase its benchmark overnight interest rate from the current level of 0.25%. The BoC has already been reducing bond purchases. The central bank believes the Canadian economy does not need as much support.
Bond purchases by the BoC may reduce further if the economic recovery continues to progress.
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This commentary contains information in summary form for your convenience. Although this commentary has been prepared from sources believed to be reliable, Sun Life can’t guarantee its accuracy or completeness. Plus, this commentary is intended to provide general information and should not be seen as providing specific individual financial, investment, tax, or legal advice. The views expressed are those of the author and not necessarily the opinions of Sun Life. Please note, any future or forward looking statements contained in this commentary are speculative in nature and cannot be relied upon. There is no guarantee that these events will occur or in the manner speculated.