| | Close
Apr 26 | Close
Apr 19 | Weekly
Change | Net Weekly
Change % |
| DJIA | 38,239.66 | 37,986.40 | +253.26 | +0.67% |
| Nasdaq | 15,927.90 | 15,282.01 | +645.89 | +4.23% |
| S&P 500 | 5,099.96 | 4,967.23 | +132.73 | +2.67% |
| S&P TSX | 21,969.24 | 21,807.37 | +161.87 | +0.74% |
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Source: Globe & Mail
BoC: Stuck Between the Fed and a Weak Economy
Benjamin Reitzes
Canadian Rates & Macro Strategist
Pressure is building on the Bank of Canada. The economic data have shown a solidstart to 2024, with activity surging in January, and we’re expecting a solid February as well (see Key for Next week). However, the early March figures have been downright ugly. According to StatCan’s flash estimates, wholesale and manufacturing activity fell sharply in the month, while retail sales were flat. The economy seems to have hit a wall after the early strength. That’s eerily similar to what we saw in early 2023. In that year, recall that GDP growth in January and February was greater than the rest of the year combined. There could be some residual seasonality in these figures, perhaps a final “gift” from the pandemic.
One of the takeaways from the Bank of Canada’s latest meeting was a more upbeat outlook for the domestic economy, informed by the strong start to the year and a firmer U.S. backdrop. The preliminary March data should plant some seeds of doubt in the strong growth forecasts. We’ll see if those soft figures are confirmed when the final releases come next month, but they support the argument for rate cuts in the not-too-distant future. A June start to cuts still hinges on the April CPI report in a few weeks, but if the economic data turn south again, pressure will build on the BoC.
On the flip side, U.S. inflation has perked up in recent months and the economy continues to roll. That’s prompted the Fed to back off from its more dovish language and markets to push back the timing of the first cut to late 2024. While there could very well be some residual seasonality to U.S. inflation as well, we won’t know that for some time, which will keep the Fed cautious on talking up cuts for at least the next few months. That will make it challenging for the BoC to ease without the Fed moving in the same direction. The BoC can diverge somewhat from the Fed, but as Governor Macklem noted last week, there’s a limit.
Key Takeaway: The Bank of Canada is stuck between potentially renewed economic softness coupled with slowing inflation, and a Fed that’s showing no urgency to start easing. If the March data confirm the economy hit a wall, BoC cuts are just a matter of time. Another soft core CPI print in April would likely prompt a June cut, otherwise a July start seems likely. No matter when the easing cycle begins, look for a gradual move lower as highlighted in the Summary of Deliberations from the April 10 policy meeting.
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
The S&P/TSX followed roughly the same pattern as global markets last week, but on a much more muted scale, finishing up just 0.7%. On a sector basis, consumer staples led the way, while industrials lagged the pack. More broadly, sentiment may have been taken down a notch following the latest Summary of Deliberations from the Bank of Canada, which hinted at a gradual pace of rate relief. While we still lean towards a June start for BoC rate cuts, we’ve pushed back our expectation for a second cut to September.
YTD, the TSX is up 4.82, and the benchmark 10-year yield ended the week to yield 3.81%.
U.S. & Global
Corporate earnings to the rescue… After being stuck in the mud for much of April, global equity markets were thrown a lifeline from a string of solid corporate earnings, which helped take the sting out of yet another uncomfortably warm inflation reading. Still, the acceleration in the three-month annualized trend for the U.S. core PCE deflator to 4.4% in March will keep policymakers on high alert. While the month-over-month moves in February and March were slightly milder than January’s hot print, the overall trend is unlikely to foster the level of confidence the Fed wants in order to initiate rate relief anytime soon. That was the final nail in the coffin for our prior expectation of a July commencement of Fed rate cuts, which we now see beginning in September, with a follow-up cut in December.
The S&P 500 added 2.7% last week, with broad-based gains led by technology, consumer discretionary and banks. Energy underperformed but continues to be among the top sectors year-to-date. Equity performance around the globe largely mirrored the moves in North America. European bourses overcame a mid-week lull, with the major indices finishing broadly in the black, led by a solid 3.1% gain in the UK’s FTSE 100. Germany’s DAX index also put in a strong showing, rising 2.4%, snapping a three-week losing streak. Economic data on the continent were mixed and largely second tier this week. As such, the ECB continues to steer expectations toward a first rate cut in June, though sticky services inflation, reflected in the April PMI data, remains a clear risk to the outlook.
YTD, the DJIA is up 1.46%, the NASDAQ is up 6.11%, and the S&P 500 is up 6.92%. The 10-year Treasury yield ended the week to yield 4.66%.
Source: BMO Capital Markets
The Good: New Home Prices unch (Mar.)—good for inflation; Industrial Product Prices -0.5% y/y (Mar.); Job Vacancy Rate 3.7% (Feb.)—appears to be stabilizing.
The Bad: Retail Sales Volumes -0.3% (Feb.); Manufacturing Sales -2.8% (Mar. A); Core Wholesale Trade -1.3% (Mar. A); Raw Materials Prices +0.8% y/y (Mar.)—first annual gain in six months; Ottawa posted a budget deficit of $17.3 bln (Apr.-to-Feb.)—vs. $3.1 bln surplus in same period of 2022-23.
The Good: Real Personal Spending +0.5% (Mar.); New Home Sales +8.8% to 693,000 a.r. (Mar.); Pending Home Sales +3.4% (Mar.); Chicago Fed National Activity Index 0.15 (Mar.); Initial Claims -5k to 207k (Apr. 20 week); Retail Inventories +0.3% (Mar. P).
The Bad: Real GDP slowed to +1.6% a.r. (Q1 A); Core PCE Price Index +0.3% (Mar.)—still hot; Core Durable Goods Orders slowed to +0.2% (Mar. P); Goods Trade Deficit widened to $91.8 bln (Mar.); Wholesale Inventories -0.4% (Mar. P).
Source: Canoe.com
Rescue cat nicknamed ‘Thicken Nugget’ swims to lose excess weight
A plus-size rescue cat in Indiana has taken up swimming to help shed some extra pounds.
Ty was 30 pounds when he arrived at the Vanderburgh Humane Society, taking staffers by surprise.
To get Ty – affectionally nicknamed “Thicken Nugget” – in tip-top, adoptable shape, the shelter raised money for water therapy at the Canine Aquatic Center, according to a Facebook post.
Given that many if not most cats love the water, Ty initially wasn’t a fan of the swimming lessons.
But the orange feline eventually grew to trust being in the water and in a recent update by the shelter, all of Ty’s hard work has been paying off.
“Remember Ty? He is well on his way to reaching his goal weight, thanks to everyone who donated towards his water therapy at Canine Aquatic Center!” the shelter shared in a recent post.
“He is swimming twice a week, is much more mobile and down from 30 pounds to 26.8,” they detailed. “He’s even swimming across the pool all by himself. Go Ty, go!”
The Canine Aquatic Center also shared an update of the “chonky cat” on Facebook, including videos and photos of Ty swimming across the pool wearing a little life vest.
“It took time and reassurance but this guy is quite the trooper and does not fuss or fight and is swimming across the pool by himself,” the humane society shared on Facebook of his first three-plus pounds lost.
According to the shelter, the extra weight was impacting Ty’s quality of life, and they hoped to help him lose about 15 pounds before finding him a forever home and having “a long, happy and healthy life.”
