Your weekly commentary – For the week ended February 2

Global equities ended the week largely flat as investors considered whether the U.S. Federal Reserve Board (“Fed”) is likely to hold steady over the near-term. A better-than-expected jobs report in the U.S. raised expectations rates will stay higher for longer. The S&P/TSX Composite Index edged lower, hindered by weakness in the Energy sector. Conversely, U.S. equities posted a gain over the week. Yields on 10-year government bonds in Canada and the U.S. fell. Gold prices advanced, while the price of oil declined.

Canada’s economy expands in November

• After five straight months of falling or no growth, Canada’s economy showed signs of life in November and potentially should for December. Canada’s economy benefited from a rise in its manufacturing and wholesale trade industries.
• Statistics Canada (“StatsCan”) reports Canada’s economy expanded by 0.2% in November, topping the 0.1% increase economists had expected.
• StatsCan also estimates the Canadian economy grew by 0.3% in December. If that holds, Canada may see an annualized growth of 1.2% in the fourth quarter.
• Canada’s gross domestic product shrank by 1.1% in the third quarter.
• Despite improving growth, activity remains relatively muted. Combined with falling inflation, the Bank of Canada may be preparing to lower interest rates this year.

The Fed signals rate cuts in 2024

• At its first meeting of 2024, the Fed held the target range of its federal funds rate steady at 5.25%-5.50%, keeping it at its highest level since 2001.
• The Fed noted it will carefully monitor incoming economic data before making any interest rate changes.
• The Fed largely pushed back on potential rate cuts in the near-term, noting it won’t begin lowering rates until it is more comfortable inflation will drop to its 2% target. This signalled to markets that interest rate cuts are likely later this year.
• Investors shifted expectations for rate cuts to later in the year, which pushed down equity markets at the time of the announcement.

Europe’s economy avoids technical recession

• Europe’s economy continued to gain traction in the fourth quarter of 2023, narrowly avoiding a technical recession.
• A flash estimate showed Europe’s gross domestic product posted no growth (0.0%) over the fourth quarter, after shrinking by 0.1% in the third quarter.
• Europe’s economy continues to struggle under the weight of tight financial conditions, which has negatively impacted household and business activity.
• Among the continent’s largest economies, Italy and Spain expanded, while the German economy shrank.
• Over 2023, the European economy expanded by 0.5%. With weak conditions likely to persist and inflation subsiding, the European Central Bank may begin lowering rates this year.

China’s manufacturing sector contracts

• Activity in China’s manufacturing sector continued to contract in January, hindered by a drop in new orders and exports.
• January’s contraction was the fourth straight for China’s manufacturing sector.
• The NBS Manufacturing Purchasing Managers Index edged higher to 49.2 in January from 49.0 in December.
• Meanwhile, the services sector expanded, which helped push overall business activity higher over the month.
• China’s economy has been negatively impacted by relatively muted demand, both domestically and from abroad. Markets are hoping Beijing will loosen policy further to help support economic activity.

Market performance – as at February 2, 2024

Some of the awarded funds are former Great-West Life or London Life funds; however, these mandates are on the Canada Life segregated fund shelf as well. As of Jan. 1, 2020, The Great-West Life Assurance Company, London Life Insurance Company, and The Canada Life Assurance Company became one company – The Canada Life Assurance Company. As a result, all segregated fund policies and contracts that were with Great West Life or London Life are now with Canada Life.

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This commentary represents Canada Life Investment Management Ltd.'s views at the date of publication, which are subject to change without notice. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This commentary is intended as a general source of information and is not intended to be a solicitation to buy or sell specific investments, nor tax or legal advice. Before making any investment decision, prospective investors should carefully review the relevant offering documents and seek input from their advisor. You may not reproduce, distribute, or otherwise use any of this article without the prior written consent of Canada Life Investment Management Ltd. Privacy, legal, copyright and trademark information

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