| Your weekly commentary – For the week ended June 23 | | Global equity markets declined over the week ended June 23 as comments by U.S. Federal Reserve Board (“Fed”) Chair Jerome Powell pointed to more interest-rate increases this year. And across the Atlantic, the Bank of England (“BoE”) announced a larger-than-expected 50-basis-points (“bps”) rate hike. Inflation remains a concern for global central banks. In Canada, the S&P/TSX Composite Index fell, dragged down by the Real Estate sector. U.S. equities, as measured by the MSCI USA Index, declined. Oil and gold prices both declined. Yields on 10-year government bonds in Canada and the U.S. were largely unchanged. | Canadian retail sales climb higher- Retail sales in Canada rose 1.1% in April, topping the 0.4% increase economists expected.
- A rise in sales at general merchandise retailers and at clothing and accessories stores drove the first increase in three months.
- The result could suggest Canadian households are willing to spend rather than save, believing tight financial conditions are slowly loosening, with inflation easing and interest rates at or close to their peak.
- The Canadian consumer has been a key driver of Canada’s economic growth since the pandemic. The data suggests consumers remain relatively strong, benefiting from a strong labour market.
| Raising the capital requirements for Canadian banks- The Office of the Superintendent of Financial Institutions (“OSFI”) raised capital requirements for Canada’s major banks.
- OSFI raised the domestic stability buffer by 50 bps to 3.5%. This will result in the common equity tier one ratio for banks to increase to 11.5%, compared to the current 11.0%.
- The Canadian regulator believes Canadian banks face risks, including high levels of household and business debt, which could worsen if economic conditions deteriorate.
- According to DBRS Morningstar, the increase to the stability buffer is positive and could create some additional resiliency amid much uncertainty.
- The banking sub-sector on the S&P/TSX Composite Index finished lower over the week.
| Major global central banks adjusting policy- The BoE raised its policy interest rate by 50 bps to 5.00%, the highest level since 2008. The increase surprised economists expecting a 25-bps-rate hike.
- The BoE raised its key interest rate at its 13th consecutive meeting as it seeks to bring down elevated inflation, which was 8.7% in May, above expectations.
- Meanwhile, the People’s Bank of China (“PBOC”) went in the opposite direction. The PBOC reduced its one and five-year loan prime rates by 10 bps, the first reduction since August 2022. China’s central bank hopes the reduction in its key interest rates will help support China’s economy.
- While the Fed paused interest rates at its last meeting, Chair Powell stated in his Semi‑Annual Monetary Policy Report to U.S. lawmakers the Fed believes it will need to keep raising interest rates this year to tame inflation and slow growth. At the last meeting, Fed officials said they expect their key rate will reach 5.6% by year-end.
| Slower global business activity in June- Data showed business activity worldwide softened in June compared to May, suggesting the global economy is facing headwinds and demand may be waning amid tight financial conditions.
- Manufacturing activity in the world’s largest economy, the U.S., contracted again in June, with weak demand weighing on new orders. Meanwhile, the service sector in the U.S. slowed. Overall, business activity in June expanded but was slower than in May.
- In Europe, business activity slowed but expanded at a slight pace. The main driver of the slowdown was a drop in its service sector, which was hindered by easing new orders and output. Europe’s manufacturing sector contracted for an eleventh straight month. The manufacturing sector in Germany, Europe’s largest economy, contracted at its sharpest pace since 2020.
- The story was similar in the U.K., where the service sector slowed, while manufacturing contracted again. In Japan, manufacturing activity contracted in June, following an expansion in May.
| | Equity markets | Level | YTD | 1 Yr | | S&P/TSX Composite Index C$ | 19,418.23 | 0.17% | 3.75% | | MSCI USA Index US$ | 4,129.54 | 13.44% | 14.34% | | MSCI EAFE Index US$ | 2,097.68 | 7.91% | 14.17% | | MSCI Emerging Markets Index US$ | 991.91 | 3.72% | -0.34% | | MSCI Europe Index US$ | 1,887.38 | 9.00% | 16.80% | | MSCI AC Asia Pacific Index US$ | 162.94 | 4.62% | 3.57% | | Fixed income market | Level | YTD | 1 Yr | | FTSE Canada Universe Bond Index C$ | 1,067.96 | 1.60% | 2.89% | | FTSE World Broad Investment Grade Bond Index US$ | 207.23 | 2.48% | -0.87% | | Currency | Level | YTD | 1 Yr | | CAD/USD | 0.7586 | 3.06% | -1.18% | | Commodities | Level | YTD | 1 Yr | | West Texas Intermediate (US$/bbl) | 69.16 | -13.83% | -33.67% | | Gold (US$/oz) | 1,921.21 | 5.33% | 5.40% |
| | Market performance – as at June 23, 2023 | 2023 Mid-year Market Outlook
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