The macroeconomic environment was a key focus in May. Massive fiscal support has been the glue that has held the economy together but the re-opening contribution to growth is for the most part completed. The question of whether the change in consumer prices is transitory or a regime shift will determine the sustainability of economic growth. We have maintained our economic outlook of three months of Growth followed by Stagnation for the remainder of our twelve-month forecast horizon.

China’s economic data came in weaker than expected in April. A fall in retail sales and industrial production contributed to the weaker result. China’s urban unemployment rate edged down to 5% in May 2021, the lowest in two years.1

The Euro Area economy shrank 0.3% in the first three months of 2021. Among the bloc’s largest economies, Germany, France, Spain, and the Netherlands fell back into contraction territory, while Italy’s economy posted modest growth despite the restrictions.2 The consumer price inflation rate in the Euro Area was confirmed at 2% year-on-year in May 2021, the highest since October 2018, due to the low base year. Upward pressure came from energy (13.1% versus 10.4% in April).3 Amongst the largest Euro Area economies, the highest jobless rates were recorded in Spain (15.4%), Italy (10.7%) and France (7.3%).4 Britain’s job market showed signs of recovery. In the three months to April, it stood at 4.7%, down from 5.1% at the end of 2020.5

Thanks to an extremely accommodative policy mix, the U.S. economy continues to recover, growing by an annualized 6.4% in the first quarter.6 After a decade of disappointment, U.S. productivity growth is on the rise again. Time will tell if this is a structural upshift that will be sustained. The U.S. unemployment rate dropped to 5.8% in May 2021, the lowest since March 2020.7 The annual inflation rate in the U.S. accelerated to 5% in May of 2021 from 4.2% in April, the highest reading since August of 2008 amid low base effects from last year, rising consumer demand as the economy reopens, soaring commodity prices, supply constraints, and higher wages as companies grapple with a labor shortage. This inflation is uneven with the 20% that is COVID-19-skewed, up at a 22% annual rate over the past six months, while the other 80% that represents the part of the economy not being affected has seen its CPI rise at a 1.6% annual rate and was up 0.15% in May.8 At the June meeting, The Federal Reserve held its target range for interest rates steady at 0% to 0.25% but said it will probably increase it by the end of 2023 to 0.6%. The hike will come sooner than the Fed had expected in March, mostly because of a faster pandemic recovery, vaccination uptake, and rising domestic inflation.9

Canadian GDP is estimated to have gone down in April, the first decline since the spring of last year due to the third wave lockdown. Canada’s annual inflation rate quickened to 3.6% in May of 2021 from 3.4% in April. The Canadian dollar has appreciated to above 83 US cents, up from 78 cents in January. The Bank of Canada has attributed much of this increase to improving fundamentals like rising commodity prices.10

U.S. equities ended May on a modest note as inflation concerns dominated the headlines. The S&P 500 posted a gain of 0.7%, the S&P MidCap 400 posted 0.2% and S&P SmallCap 600 posted 2.1%. Canadian equities gained in May, with the S&P/TSX Composite up 3.4%. The S&P Europe 350 added 2.7%, making several new all-time highs. The Australian benchmark, S&P/ASX 200, closed the month up 2.3%. Most Asian single-country indices posted gains in May, including the S&P China 500 up 1.3%, and the S&P Korea BMI, up 0.7%, while the S&P Singapore BMI was down 0.6%.

In June, we maintained the asset allocation we established in May. Equity exposure across all models reflects our view that markets are looking through the uncertainty of the pandemic and towards the resumption of more normal life once populations are vaccinated. The recent shift in the bond-equity correlation into positive territory appears to be a function of the persistency in inflation. Fiscal spending that funds local governments supports our exposure to treasuries and municipal bond exposure in the U.S. We continue to include exposure to gold as a portfolio stabilizer.

The economic reopening and the global stimulus that is underway will lead to improved household liquidity, healthy consumer balance sheets, and a healing labor market. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China Retail Sales, National Bureau of Statistics of China. June 9, 2021.

2 Trading Economics. Euro GDP, EUROSTAT. June 8, 2021.

3 Trading Economics. Euro Area Inflation. June 17, 2021.

4 Trading Economics. Euro Unemployment Rate. June 1, 2021.

5 Trading Economics. U.K. Unemployment Rate. June 15, 2021.

6 Trading Economics. U.S. GDP. June 4, 2021.

7 Trading Economics. U.S. Unemployment Rate, Bureau of Labor Statistics. June 4, 2021.

8 Trading Economics. U.S. Inflation Rate. June 10, 2021.

9 The Federal Reserve. FOMC Statement. June 16, 2021.

10 Trading Economics. US CAD Exchange Rate, Statistics Canada. June 16, 2021.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. May 31, 2021. Index performance is based on total returns and expressed in the local currency of the index.