Your weekly commentary – For the week ended March 1

Global equity markets finished higher over the week ended March 1. Stocks swung between gains and losses as investors continued to make predictions on when and how deep central bank cuts will be this year. In Canada, the S&P/TSX Composite Index finished higher, led by the Health Care sector. U.S. equities ticked higher over the week. Oil and gold prices also increased. Yields on 10-year government bonds in Canada and the U.S. declined.

Canada’s economy rebounds in Q4

• Canada’s economy returned to growth in the fourth quarter of 2023, potentially allowing the Bank of Canada (“BoC”) to keep interest rates higher for longer to help bring inflation down further.
• Canada’s gross domestic product expanded by 1.0%, annualized, in the fourth quarter. This topped the 0.8% increase expected by economists, and the previous quarter’s 0.5% contraction.
• Economic growth benefited from strong exports, particularly for energy products. In addition, consumer spending edged higher over the quarter and also contributed to growth.
• Conversely, business investment shrank over the quarter, weighing on overall economic growth.
• Excluding the pandemic in 2020, which weakened Canada’s economy considerably, the economy expanded at its slowest pace since 2016.

U.S. inflation metre moderates further

• The U.S. personal consumption expenditure price index (“PCE”) slowed to 2.4% on an annual basis in January from 2.6% in the previous month, matching economists’ expectations.
• A fall in energy prices contributed to January’s slowdown. The PCE is the preferred inflation gauge for the U.S. Federal Reserve Board (“Fed”). By moderating in January, markets were hopeful the Fed could begin reducing interest rates sometime this year.
• Personal spending rose by 0.2% in January. While it was a slowdown from the 0.7% increase in December, it did reflect a relatively resilient U.S. consumer despite tight financial conditions.
• Personal income increased by 1.0% in January. The increase was driven by a rise in government benefits.

China’s manufacturing activity dips again

• Manufacturing sector activity in China contracted for a fifth consecutive month in February, hampered by relatively weak demand. The sector was also impacted by the Lunar New Year, which shut down manufacturing facilities.
• The NBS Manufacturing Purchasing Managers Index edged lower to 49.1 in February from 49.2 in the previous month.
• The sector continued to be impacted by slower foreign sales. Demand has weakened as global consumers grapple with high interest rates and elevated inflation.
• On the other hand, services sector activity posted a small expansion in February.
• Overall, business activity grew in February, albeit at an extremely slow pace.

Europe’s inflation rate edges lower

• A flash estimate showed Europe’s inflation rate was 2.6% in February, marking a slowdown from the 2.8% rate posted in January.
• February’s rate was, however, slightly above the 2.5% rate economists had expected.
• The slower rate came amid a fall in energy prices, while the price growth for food and services softened.
• The core inflation rate also slowed, but remained high at 3.1%.
• Despite coming down, inflation is running above the European Central Bank’s (“ECB”) 2% target. This likely fuels the ECB’s desire to keep interest rates higher for longer as it continues to work to bring inflation down further.

Market performance – as at March 1, 2024

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