Your weekly commentary – For the week ended April 12

Global equity markets ended the week lower as higher-than-expected inflation in the U.S. raised expectations that the U.S. Federal Reserve Board (“Fed”) would start lowering rates later in 2024. In Canada, the S&P/TSX Composite Index declined, dragged lower by the Health Care sector. U.S. equities edged lower. Yields on 10-year government bonds in Canada and the U.S. increased. Gold prices moved higher, while the price of oil fell over the week.

BoC keeps policy rate unchanged

• At its first meeting of the second quarter of 2024, the Bank of Canada (“BoC”) announced it was holding its benchmark overnight interest rate steady at 5.00%.
• With inflation risks persisting in Canada’s economy, the BoC believes it needs to push back on rate cuts for now and hold its interest rate at restrictive levels.
• The BoC wants to see inflation on a sustainable path to its 2% target, but it acknowledged that the recent runup in commodity prices could put upward pressure on inflation. Canada’s central bank expects inflation of around 3% in the first half of 2024, before coming back to its 2% target in 2025.
• Still, the BoC noted it is seeing economic conditions that could warrant a rate cut. Markets are expecting a rate cut by this summer.
• Elsewhere, the European Central Bank held its policy interest rate steady at 4.50%, but it expects to carefully consider a rate cut as early as June given expectations of slower inflation and weaker economic growth.

U.S. inflation rate above expectations

• The path of the U.S. inflation rate to the Fed’s 2% target stumbled in March.
• The annual inflation rate in the U.S. was 3.5% in March, increasing from the 3.2% rate in February, and above the 3.4% rate economists had expected.
• Upward pressure came from a rise in gasoline prices, which advanced by 1.3% year-over-year in March following a 3.9% decline in February. The price growth for food and shelter remained elevated in March.
• Markets reacted negatively to the news, believing the higher-than-expected inflation rate in March will push back Fed interest-rate cuts until later in 2024.

China’s trade activity contracts

• Trade activity in China fell in March, pointing to an economy still struggling for traction amid relatively weaker demand both domestically and from abroad.
• Exports from China fell by 7.5% year-over-year in March, the first decline since October 2023.
• Imports also declined, falling by 1.9% year-over-year in March, disappointing economists who were expecting an increase.
• The drop in imports sheds more light on the relatively weak demand prevailing in China’s economy. This has hindered economic growth over the past year.
• Still, China’s economy saw a trade surplus of US$58.6 billion (C$80.5 billion) in March.

U.K. gross domestic product edges higher

• Gross domestic product in the U.K. expanded by 0.1% in February, which matched expectations, but slowed from the 0.3% increase in January.
• The economy benefited from a rise in the services sector over the month, which offset a decline in the construction and mining industries.
• Industrial production was also a key contributor to growth over the month. Industrial output rose by 1.1% in February, its biggest increase since June 2023.
• Economic activity in the U.K. seems to be picking up after several quarters of weak economic growth. Still, challenges persist, particularly for consumers who are facing ultra-tight financial conditions.

Market performance – as at April 12, 2024

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