Economic Data

Canada

• In March, the unemployment rate fell to 7.5 percent from 8.2 percent in the prior month.
• In February, headline inflation remained low at 1.1 percent year-over-year. However, energy inflation increased to 2.4 percent as energy prices surged.
• Overall, Canadian GDP grew by 0.7 percent in January, beating Statistics Canada’s estimate. Despite the growth in GDP, some sectors remained weak. Retail sales declined as in-store shopping was still restricted. On the other hand, the manufacturing, oil and gas extraction, and construction sectors performed better.

Data Source: CBC News

US

• The U.S. unemployment rate fell to 6 percent in March, from 6.1 percent in February. The U.S. gained 916,000 jobs, seasonally adjusted, according to the labor department. However, the total number of jobs is still lower than the pre-pandemic level by 8.4 million.
• As of March 30th, the Consumer Confidence Index increased to 109.7 from 09.4 in February.
• Manufacturing activities also grew faster in March, with the Institute for Supply Management Manufacturing Index jumping from 60.8 in the prior month to 64.7 in March.

Data Source: Yahoo Finance, Reuters

Geopolitical Trends

Suez Canal Blockage Raised Concerns Over Global Supply

Ever Given, one of the world’s largest container carriers, was stuck in the Suez Canal and blocking traffic in the canal for nearly a week since March 23rd. The Suez Canal, a key waterway in Egypt, connects the Mediterranean Sea and the Red Sea. Approximately, “12 percent of global trade passes through the Suez Canal^[1]”, according to BBC News.

On March 29th, engineers and sailors finally dislodged the ship and Ever Given began moving. The blockage further strained the global supply chain and caused significant supply delays. Different types of cargo, including crude oil, consumer goods, and livestock were stuck. The West Texas Intermediate (WTI) crude gained around 4 percent as the markets worried that the blockage may last for weeks. According to shipping data and news company Lloyd’s, the blockage was delaying $400 million worth of goods an hour. The blockage caused a significant backlog and again exposed how vulnerable the global supply chain still is. In the beginning of the pandemic, companies quickly realized the global supply chain was very vulnerable to disruption. This incident brought the issue back under the spotlight.

The Progress of Vaccine Distribution Varies Around the World

Countries differ significantly in the progress of their vaccination campaigns. According to the Financial Times, as of April 4th, there are a cumulative 49.8 doses of vaccines administered per 100 people in the U.S.^[2] In many states, vaccines are made highly accessible through drive-in vaccination sites. In some states, vaccinations are open to everyone who is 16 and above. In the UK, as of April 3rd, 55.2 doses were administered per 100 citizens.

However, vaccination campaigns are a lot slower in the rest of Europe, partly attributable to supply delays, overreliance on AstraZeneca, and excessive caution, etc. The insufficient supply of vaccines led to the EU granting permission for its member states to limit vaccine exports. The export control would be implemented if vaccine manufacturers fail to deliver the contracted number of vaccines to the EU countries. In January, Italy blocked the export of AstraZeneca’s vaccine to Australia. Besides supply limits, the E.U. also faces other challenges such as rising covid-19 cases and side effects from the AstraZeneca vaccine. On March 31, France just went into a new lockdown with essential businesses shut down. In countries like Germany, the use of the AstraZeneca vaccine is restricted for people under 60 years old, due to 31 brain blood-clotting incidents and 9 deaths, according to the Wall Street Journal^[3]. The slow and frustrating vaccine rollout in Europe prompted many European leaders to consider using Russia’s Sputnik V vaccine.

While in Asia, the virus is relatively more under control. For example, Hong Kong has returned to having 0 Covid-19 cases in the first week of April. Therefore, residents of Hong Kong are less willing to be vaccinated and they are concerned about potential side effects, causing a glut in vaccine supply.

In conclusion, economic recovery around the world can be greatly uneven.

OPEC Plus Raises Production Signaling Optimism in Economy Recovery

Despite the new surge in Covid -19 cases and lockdowns in Europe, OPEC Plus decided to raise their collective production level by over two million barrels every day in the upcoming months. This decision reflects the oil producers’ expectation of rising demand and a strong global recovery this year, although there is still uncertainty. The Oxford Economics forecasts a global GDP growth rate of 6.1 percent in 2021^[4], as Covid-19 vaccine rollouts would allow businesses to gradually reopen. The strong economic recovery in Asia and the rapid vaccine rollout in the U.S. fueled this optimism. For example, in China, domestic consumer spending and foreign demand for goods manufactured in China have both been rising. As a result of the decision by OPEC Plus, two major oil price benchmarks, Brent and West Texas Intermediate (WTI) rallied. Soon after, the price of Brent crude increased by 1.2 percent to $63.52 per barrel and futures for WTI rose by 1.6 percent to $60.08 a barrel.

The Effect of Covid-19 on Immigration Policies in Canada and the U.S.

The Canadian government has recently started to relax its immigration policies and encourage more temporary residents to apply for permanent residency. The government is hoping to boost economic recovery from the pandemic through immigration. The Canadian economy relies heavily on immigration, as “75 percent of Canada’s net population growth^[5]” can be attributed to immigration.

On the other side of the border, in the U.S., immigration policies remain to be strict. Last spring, former U.S. President Donald Trump suspended the issuance of worker visas, in order to protect the suffering domestic job market in the pandemic. Under the Biden administration, state governments have started processing the previous suspended visas.

In addition, there has been a surge in the number of people attempting to enter the U.S. illegally because they were hoping Biden would be more lenient towards them. As a result of the surge, more than 170,000^[6] illegal immigrants were arrested at the Southern border in March.

Biden’s $2.3 Trillion Infrastructure Plan

In the first quarter of 2021, U.S. President Joe Biden proposed a $1.9 trillion stimulus bill and a $2.3 trillion infrastructure spending plan. The new infrastructure proposal is aimed to enhance economic productivity in the long run by investing in manufacturing, schools, affordable housing, roads and bridges, and more^[7]. The large stimulus bill coupled with the fast vaccine rollout put the US in a leading position in terms of economic recovery from the pandemic. Smaller countries might not be able to afford to implement vaccination campaigns the way the U.S. did. Poorer countries would also struggle with funding stimulus plans.

The strong economic recovery in the U.S. is expected to have a positive ripple effect on other countries as well. For instance, export-reliant nations who sell heavily to the U.S., such as Vietnam, will benefit from rising demands from the U.S.

Economic Trends

Rising U.S. Treasury Yield

The yield on the U.S. 10-year treasury note reached 1.721 percent on April 2nd, increasing by over 110 bps year-over-year. The yield climbed after the Labor Department reported a jobs gain of 916,000 last month. The rising yield can be attributed to the strong economic recovery brought by the fast vaccine rollout sped up and the trillions of dollars of stimulus. Many investors are worried that the inflation rate would increase as a result of the rising interest rates.

Data Source: U.S. Department of the Treasury, U.S. Department of Labor

Applying for Mortgages Becomes More Difficult

In the U.S., the housing market boom is making it increasingly harder to get home loans. The credit scores required for mortgage application continued to rise. In both the U.S. and Canada, home prices continue to rise as demand is driven by low mortgage rates, a low supply of available houses, and well-off workers searching for second homes. As shown below, the New Housing Price Index, which measures the contractors’ selling prices of new residential homes, continued to rise.

Data Source: Statistics Canada

^[1] “Egypt Seizes Ship That Blocked Suez Canal over $900m Compensation Claim.” BBC News, BBC, 14 Apr. 2021, www.bbc.com/news/world-middle-east-56743556.

^[2] FT Visual & Data Journalism team. “The Global Race to Vaccinate.” Covid-19 Vaccine Tracker, 15 Apr. 2021, ig.ft.com/coronavirus-vaccine-tracker/?areas=eue&cumulative=1&populationAdjusted=1.

^[3] Pancevski, Bojan. “Germany Restricts Use of AstraZeneca Vaccine for Under-60s.” The Wall Street Journal, Dow Jones & Company, 30 Mar. 2021, www.wsj.com/articles/astrazeneca-vaccine-faces-fresh-ban-in-germany-for-under-60s-11617116231.

^[4] “Leader in Global Economic Forecasting and Analysis.” Oxford Economics, www.oxfordeconomics.com/.

^[5] Immigration, Refugees and Citizenship Canada. “Government of Canada.” Canada.ca, / Gouvernement Du Canada, 24 June 2019, www.canada.ca/en/immigration-refugees-citizenship/news/infographics/immigration-economic-growth.html.

^[6]  Friedman, Thomas L. “We Need a High Wall with a Big Gate on the Southern Border.” The New York Times, The New York Times, 13 Apr. 2021, www.nytimes.com/2021/04/13/opinion/immigration-border-wall.html.

^[7] Luhby, Tami, et al. “Here’s What’s in Biden’s Infrastructure Proposal.” CNN, Cable News Network, 31 Mar. 2021, www.cnn.com/2021/03/31/politics/infrastructure-proposal-biden-explainer/index.html.