Market Insights

US retailers’ optimism over stronger than expected sales in the first quarter of 2021 could be dampened by their struggle to rebuild inventory levels amid the ongoing shipping container shortage. Retailers saw a big pickup in apparel as Americans begin to socialize again. The greenback traded in a narrow range awaiting possible further weak job results with the release of the US non-farm payroll report, which would keep the Fed from tapering and weigh on the currency. While the loonie had a week of tight, choppy trading, the currency is expected to drop to 1.18 as previously stated here, thanks to a supportive monetary policy and firm commodity prices. With consumers sitting on hoards of cash they are ready to spend and strong monetary and fiscal stimulus, expect to see GDP growth in the US remain above historical averages, boosting earnings per share for the foreseeable future.

Scotiabank analysts weigh in on what the pandemic means for retail, foreign exchange and equities.


  • With most major retailers reporting better than expected first-quarter results, we’re getting a better sense of how the post-pandemic consumer is likely to behave. Walmart said Q1 definitely saw a positive impact from stimulus cheques. Online sales, the company’s strongest channel, advanced 37% year over year, while physical stores posted a healthy 6% increase in comparable sales. The company said its optimism is now higher as it appears US consumers want to get out and shop. Home Depot saw a whopping 29.3% increase in comparable sales, driven by a gain of 10.3% in the average basket and 19.3% in traffic. Department store operator Macy’s saw Q1 comparable sales rise 62.5%, with 34% growth in the digital channel, and Target’s results topped forecasts with same store sales rising 23%. The company said it is seeing a more optimistic consumer, excited about getting back to a more normal life. Macy’s and Walmart are reporting customers are buying items such as teeth whitener and luggage as travelling and going to parties return. Target reported that apparel was its strongest category, with sales up 60%. Strength in apparel is partly attributable to weakness last year when consumers were more focused on groceries. In markets that are more open, retailers are seeing sales of dresses and other going out clothes begin to recover. Another bright spot was Mother’s Day, which Target noted was one of the strongest in years.
  • Sales through all channels in Q1 in the US rose 13.1% to $1.01 trillion, the highest year over year increase since 1993, and more than double the 6.1% growth in Q1 2020. Nearly $1 in every $5 spent in the US in Q1 came from online orders, according to Digital Commerce 360 estimates. E-commerce reached $196.7 billion, up 39% from Q1 2020. The rate of growth almost tripled from the 13.8% growth trend evident last year. This certainly indicates the pandemic-related boost to online spending has yet to taper off. These data imply online penetration in the US of 19.5%, where there has been a steady escalation of e-commerce sales. In 2012, e-commerce represented only 7.6% of total retail sales; a year ago penetration was 15.9%. Online share surpassed 20% in Q2 and Q4 2020 as a result of restrictions and lockdowns. Digital Commerce 360 estimates’s US revenue jumped 42.3% in Q1, with the company accounting for 30.7% of all US ecommerce. Data from Statistics Canada released at the end of May showed online sales in Canada now comprise 6.7% of total retail sales, trailing the US substantially.
  • Inventory shortages could put a damper on the new optimism being heralded by most US retailers. Retailers are concerned they won’t be able to meet the demand, hampered by a serious shortage of shipping containers. Inventories are at historical lows and there are worries about the ability to be adequately stocked for the holiday season. US Census Bureau figures suggest most retailers have little more than one month’s stock. Many chains have warned that port congestion is raising freight costs and lengthening the time it takes to bring goods to the US. Ships from Asia are waiting 12 to 15 days to unload. Domestic freight carriers are accelerating peak season surcharges by months. This could all make 2021 a difficult year for retail just when it looks like the US economy is emerging from the pandemic woes.

—  Patricia Baker, Director, Retailing, Global Equity Research

Foreign Exchange

  • The USD has traded in a narrow channel since mid-May, showing limited signs of counteracting its strong negative trend, as markets await a clear indication from Fed officials the bank is ready to begin to talk about tapering. Dollar price action was cautious this week ahead of Friday’s May US non-farm payrolls report owing to the possibility of a weak jobs print — following a surprisingly low gain in April — as firms face hiring difficulties. An unimpressive employment situation, which would translate into a more patient Fed, may pull the USD to a new low since early 2018, with the added headwind of strong gains in commodities (front-month WTI Crude Oil is trading at its highest mark since October 2018).   
  • The CAD spent the past week in a tight, choppy range. Holidays in the UK and the US at the start of the week and key data reports at the end of the week have served to dampen FX trading activity in the past few days. We remain constructive on the outlook for the CAD and continue to target a drop to the 1.18 range early next year. Canadian data reports this week highlighted decent Q1 growth but a disappointing start to Q2, with April gross domestic product (GDP) contracting 0.8% month over month. This was due mainly to renewed lockdowns imposed across the country and won’t alter the Bank of Canada’s current policy trajectory, which we think will see the amount of monetary support the central bank is providing for the Canadian economy gradually reduced in the coming months (and well ahead of the Fed’s policy tapering). A supportive monetary policy backdrop and firm commodity prices constitute key supports for the CAD.   
  • We are, however, carefully monitoring USDCAD price action around the 1.20 level, where the USD has effectively settled over the past few weeks. We think the market is consolidating ahead of another push lower (in USD terms). But the longer the pause in the CAD rally lasts, the greater the risk of a correction and perhaps a broader stabilization in the USD sell-off.

—  Shaun Osborne, Managing Director, Chief FX Strategist, and Juan Manuel Herrera, FX Strategist


  • Above trend EPS, above-average returns. As we’ve pointed out in the past, we would not be surprised if GDP growth were to remain above recent historical averages due to the massive monetary and fiscal stimulus, the strong appetite to revert back toward normalcy, and consumers sitting on hoards of cash with the personal savings rate near a 60-year high. The 2010 to 2019 period (pre-pandemic) delivered pretty muted GDP growth in both Canada and the US, but the outlook for 2021, 2022, and potentially 2023 could exceed that. Obviously, growth will moderate from torrid levels expected this year as we are already at peak macro momentum (comps will get tougher in the second half), but the good news is that strong growth has positive implications for earnings.
  • EPS accelerating above trend. A sustained pace of GDP expansion bodes well for earnings, which look primed to accelerate above their long-term trend. From 1969 to 2019, S&P 500 earnings expanded at a compound annual growth rate of 6.7%, which pegs trend EPS at $183 in 2021, $195 in 2022, and $208 in 2023. Bottom-up EPS expects S&P 500 EPS to reach $185 in 2021, $207 in 2022, and $229 in 2023. Strong equity gains have typically been a hallmark of periods when actual EPS exceeded trend EPS (76-81, 88-90, 94-00, 04-07, and 11-14). The S&P 500 delivered strong total return performances over theses periods. Such a backdrop won’t prevent normal 5% to 10% pullback along the way, but it does suggest that the uptrend in stocks might not be over yet. 
    • Risk: Corporate taxes are likely to rise in coming years. Still, unless tax increases happen all at once (in one year), the negative impacts on earnings could potentially be mitigated by strong top-line growth.

—  Hugo Ste-Marie, Director Portfolio & Quantitative Strategy; Jean-Michel Gauthier, Associate Director, Portfolio & Quantitative Strategy; and Simone Arel, Research Associate, Global Equity Research

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