Your weekly market update

Your weekly commentary – For the week ended February 9

Global equity markets struggled for direction over the week ended February 9. Investors treaded cautiously as they tried to gauge what economic data might mean for global central banks. In Canada, the S&P/TSX Composite Index finished lower, dragged down by the Materials sector. Conversely, U.S. equities edged higher over the week. The yield on 10-year government bonds in Canada and the U.S. increased. Oil prices jumped higher over the week, while the price of gold stumbled.

Canada adds more jobs than expected

• Canada’s economy added 37,300 jobs in January, topping the 15,000 job additions expected by economists and December’s 100 job additions. Job additions were relatively broad-based, with the retail and finance industries seeing large gains.
• This marked the sixth straight month of job gains for Canada’s economy, showing the labour market remains relatively robust.
• Canada’s unemployment rate edged lower to 5.7% in January from 5.8% in the previous month.
• The Bank of Canada (“BoC”) released its Summary of Deliberations last week. The minutes showed BoC officials don’t have a firm grasp of when the central bank can begin lowering interest rates. There are concerns that lowering rates too soon could boost demand for consumer products and real estate, adding to already elevated inflationary pressures.
• Despite the BoC’s uncertainty as to the timing of its interest rate cuts, markets still expect the BoC to start lowering rates this year.

Fed officials push back on lowering rates soon

• As investors search for clues for when the U.S. Federal Reserve Board (“Fed”) might begin lowering interest rates, several officials made comments last week largely pushing back the timing of the Fed’s potential pivot.
• In a television interview with 60 Minutes, Fed Chair Jerome Powell noted a rate cut is unlikely at its March meeting. He reiterated comments from the Fed’s previous meeting, which stated officials are seeking data that reinforces their confidence inflation will indeed return to the Fed’s 2% target.
• Governor Adriana Kugler, a new member of the Fed Open Market Committee, said she isn’t prepared to start lowering rates just yet.
• Meanwhile, Governor Neel Kashkari said he would feel comfortable with two or three rate cuts this year, which would be below market expectations.
• Recent data shows the Fed might be successful in bringing down inflation without sending the economy into a deep recession. The U.S. services sector expanded in January at its fastest pace since September 2023.

Deflation continues for fourth straight month in China

• Consumer prices in China dropped by 0.8% year-over-year in January. It was the fourth straight month of falling prices and the steepest drop since 2009.
• Pulling down overall prices was a 5.9% drop in food prices, which was the largest decline ever. Transport prices also declined.
• Producer prices also saw a decline in January, falling by 2.5% year-over-year.
• Four consecutive months of deflation and challenges in key pockets of China’s economy might prompt the People’s Bank of China to loosen policy further.

European retail sales decline

• Tight financial conditions continue to weigh heavily on European households.
• Retail sales in Europe plummeted by 1.1% in December, their sharpest decline since 2022. The drop was largely in line with economists’ expectations.
• This came during the crucial holiday season for European retailers, pointing to relatively muted economic activity over the month.
• Sales for food, drinks and tobacco declined by 1.6% in December. Fuel and e-commerce sales also dropped over the month.
• While the European Central Bank (“ECB”) seems committed to keeping rates at restrictive levels to bring inflation down further, demand is weakening, which could nudge the ECB to begin lowering interest rates sometime this year.

Market performance – as at February 9, 2024

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