| | Close
May 1 | Close
Apr 24 | Weekly
Change | Net Weekly
Change % |
DJIA | 49,499.27 | 49,230.71 | +268.56 | +0.55% |
Nasdaq | 25,114.44 | 24,836.60 | +277.84 | +1.12% |
S&P 500 | 7,230.12 | 7,165.08 | +65.04 | +0.91% |
| S&P TSX | 33,891.18 | 33,904.11 | -12.93 | -0.04% |
Source: Globe & Mail
BoC Keeps Everything on the Table
Benjamin Reitzes
BMO Canadian Rates & Macro Strategist
The Bank of Canada held policy rates steady at 2.25% this
week, as widely expected. Policymakers were already dealing with heightened
uncertainty before the war in Iran, amid persistent Canada-U.S. trade tensions.
The surge in oil prices introduces a different type of uncertainty: the
potential for higher inflation. There are material risks around the forecast,
though the Bank’s base case is relatively benign, with mediocre growth, tame
core inflation as oil retreats from current levels, and steady tariffs. We
continue to expect policy rates to be steady throughout 2026, but the risks
around that view are rising.
The policy statement accompanying the rate announcement
largely stuck to the facts of the current macroeconomic backdrop. Governor
Macklem’s opening statement was far more interesting and caught the market’s
attention. He outlined scenarios which could bring lower rates and higher
rates, as well as the base case noted above. While on the surface, the risk
appears to be two-sided, the wording was skewed toward hawkishness. Mr. Macklem
noted that the Bank “may need to cut the policy rate further to support
economic growth” if there is a substantial increase in U.S. tariffs or trade
restrictions on Canada. With policy rates already at the bottom of the neutral
range, and the strong likelihood that such an outcome would drive a potentially
massive fiscal response, the BoC doesn’t appear keen to be easing aggressively.
On the other side of the spectrum, the Governor outlined
that “if oil prices continue to increase, and particularly if they remain
elevated” and that leads to broadening inflation pressure, “there may be a need
for consecutive increases in the policy rate.” The word “consecutive” is the
hawkish part, as the Bank makes it clear that it would need to hike more than
once in an inflationary scenario. That’s not shocking if you consider the
starting point for policy rates. At 2.25%, policy is at the bottom of the BoC’s
neutral range, and slightly stimulative. If the Bank really needs to choke off inflation,
policy rates would have to be at least at neutral, and more likely somewhat restrictive.
The market latched on to those comments, pricing nearly 3 hikes by yearend at
one point before backing off to around two 25 bp hikes at the time of writing. Realistically,
it will take a few CPI reports to build the case for a hike. However, given the
disinflationary momentum seen in core inflation since late last year, it’s
unclear whether Canadian businesses will be able to pass along higher costs
amid lacklustre demand. That suggests that the earliest possible timing for a
hike would be around September, but that would take almost uniformly bad
inflation data.
Meantime, back on the economic front, Canada continues to
hang in there. StatCan’s early reading on Q1 GDP growth came at 1.7% a.r., a
touch above BMO and the BoC’s 1.5% forecast. That’s also just shy of the 2%
pace in the U.S. over the same period. Zooming out a bit, the U.S. is
materially outperforming Canada over the past year, but at least Q1 wasn’t too
bad. Unfortunately, March GDP growth was flat, pointing to ebbing momentum in
Q2 as the oil shock hits.
Key Takeaway: The Bank of Canada made it crystal clear that
it will not allow inflation to take root with the post-pandemic inflation shock
still relatively fresh in everyone's minds. The coming inflation reports will
be scrutinized for signs of broadening inflation pressure if energy prices
don’t retreat in the near future. With the economy still struggling to maintain
momentum, rate hikes are the last thing it needs.
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
Ottawa is projecting a $65.3 billion deficit (1.9% of GDP)
for FY26/27 in the Spring Economic Update, little changed from the $65.4
billion forecast in the original budget plan (recall that was tabled in
November). A broadly stronger revenue environment has helped, but that
improvement was fully soaked up by new program announcements. The deficit for
FY25/26 (the fiscal year that just ended in March) did come in better than
expected at $66.9 billion, down from the $78.3 billion assumed in the fall.
Deficits track very modestly lower through the forecast horizon, but remain
well in the red at $56.2 billion by FY29/30. All in, the five-year cumulative
improvement in the bottom line runs at $12.5 billion, confirming the better
news that Ottawa was floating in recent days.
YTD, the TSX is up 6.87%, and the benchmark 10-year yield ended the week to yield 3.61%.
U.S. & Global
Equity investors continue to shrug off the ongoing blockade
in the Strait of Hormuz, which lifted Brent to a post-conflict high last week,
and has pinned WTI above $100. After choking on high oil prices through March,
the S&P 500 rallied more than 10% in April and the Nasdaq jumped more than
15%, despite WTI finishing the month little changed from March’s closing level.
So what gives? And why have equities been able to power through the “biggest
oil supply shock in history”?
First, as we argued in these pages at the onset of the
conflict, the U.S. economy is less energy-intensive today than during past oil
price shocks. At roughly 20 million bpd of consumption, that’s less than 0.7
barrels to produce $1,000 of real GDP (in 2025 dollars). That compares to
around 1 barrel 20 years ago; and more than 2 barrels during the bad days of
the 1970s shocks. If we scale the current surge in oil prices for the fact that
intensity is lower, it suggests there is plenty of room still between where we
are now and the type of shocks that triggered recessions in the past.
Meantime, U.S. growth remains firm on the back of consumer
spending and business investment—growth in final sales to private domestic
purchasers (i.e., private final domestic demand) was a solid 2.5% a.r. in Q1,
with real consumer spending still rising through the shock in March. More
notably, investment related to the AI boom has continued into 2026, with real
spending on software, computer equipment and data centres growing more than 30%
annualized in Q1, or almost 25% from a year ago. Total dollar investment in
that space (not all AI-related) is now running at a massive $1.2 trillion
per-year pace, or almost 4% of GDP. Quarterly results from the hyperscalers
this week confirmed that the AI buildout is still running, with capex plans
increasing.
Sturdy domestic demand and firm productivity trends also
mean that the profit engine is still running. With more than 300 companies in
the S&P 500 reporting Q1 results, including the megacap tech/communication
services names this week, more than 80% have topped expectations. That leaves
consensus earnings growth running at 28% y/y, which has kept valuations in
check despite the rebound in stock prices.
Meantime, yields in the U.S. and Canada backed up last week,
with the U.S. 10-year pushing back above 4.4% at one point, while the short end
in Canada sold off—2-year GoCs poked through 3% mid-week. That came as both the
Federal Reserve and the Bank of Canada left policy rates unchanged, with vibes
getting a bit more hawkish. Notably, three FOMC voters dissented against
leaving an easing bias in this week’s statement, with core inflation not only
stubborn but accelerating, growth sturdy and the job market apparently holding
up. Giving more fodder to the dissenters, April’s ISM factory prices paid index
jumped above 80 for the first time since 2022.
The market has now effectively priced out any further Fed
easing in 2026, and Canada now has about 50 bps of tightening priced in by
year-end. On the latter, we would still take the ‘under’. Governor Macklem’s
comment this week that “there may be a need for consecutive increases in the
policy rate” if high oil prices lead to broader inflation increases, might have
spooked the market with asymmetric upside risk. It stands to reason that, with
rates already at the very low end of the (reiterated) neutral range, it would
simply take more hikes to find restrictive territory than it would take cuts to
add stimulus. For now, both central banks look firmly on hold through the
summer.
YTD, the DJIA is up 2.99%, the NASDAQ is up 8.06%, and the S&P 500 is up 5.62%. The 10-year Treasury yield ended the week to yield 4.43%.
Source: BMO Capital Markets
The Good:
Monthly Real GDP +0.2% (Feb.)—but StatCan estimates March
growth was flat; Provincial GDP figures show Canadian economy expanded 1.6% in
2025; Province of Newfoundland & Labrador is projecting a $688 mln deficit
(FY26/27) —improving from last year.
The Bad:
Ottawa projects a $65.3 bln deficit (FY26/27); —little
changed from fall budget Job Vacancy Rate stuck at 2.8% (Feb.).
The Good:
Real GDP +2.0% a.r. (Q1 A)—but below expected Real Personal
Spending +0.2%; Personal Income +0.6% (Mar.); Employment Cost Index +3.4% y/y
(Q1)—slowest in almost 5 years; Core Durable Goods Orders +3.3% (Mar. P); Housing
Starts +10.8% to 1.50 mln a.r. (Mar.); Initial Claims -26k to 189k (Apr. 25
week) —lowest since 1969; Conference Board Consumer Confidence Index +0.6 pts
to 92.8 (Apr.).
The Bad:
Core PCE Prices +3.2% y/y (Mar.); ISM Manufacturing Prices
Index surged to 84.6 (Apr.)—highest since April 2022; Goods Trade Deficit
widened to $87.9 bln (Mar. A); Building Permits -10.8% to 1.37 mln a.r. (Mar.);
S&P Case-Shiller Home Price +0.9% y/y; FHFA Home Prices +1.8% y/y (Feb.); Leading
Index -0.6% (Mar.).
Wierd News
Source: Associated Press
A citizen campaign returns iconic kiwi birds to New
Zealand’s capital after a century-long absence
WELLINGTON, New Zealand (AP) — The kiwi, New Zealand’s
sacred national bird, vanished from the hills around Wellington more than a
century ago. Now the capital’s residents are waging an improbable citizen
campaign to return the endangered flightless birds to the city.
“They are a part of who we are and our sense of belonging
here,” said Paul Ward, founder of the Capital Kiwi Project, a charitable trust.
“But they’ve been gone from these hills for well over a century and we decided
as Wellingtonians that wasn’t right.”
On a hill wreathed in mist above the dark sea that runs
between New Zealand’s North and South Islands, Ward and others crossed rugged
farmland late on Tuesday night, carrying seven crates in silence by dim red
torchlight. Inside each one nestled a kiwi, including the 250th bird relocated
to Wellington since the Capital Kiwi Project began.
Birds receive a quiet welcome to new homes
The kiwi gives New Zealanders the name by which they’re
often known. It’s a shy and odd-looking bird with underdeveloped wings and a
whiskery face.
Spiritually significant for many New Zealanders, the kiwi’s
image appears everywhere, including on the tail of the country’s air force
planes — curious for a bird with no tail which can’t fly.
It’s thought that there were 12 million of the birds roaming
the landscape before humans arrived in New Zealand. Today only about 70,000
kiwi are left across the country, with the population dropping 2% each year.
In the hills where Wellington’s kiwi now live and breed, the
only late-night sound on Tuesday was the whoosh of wind turbines. Ward and his
friends set their crates down in pairs, slid them open and gently tilted the
boxes.
Some in the small group of hushed onlookers were tearful.
One man chanted a karakia, a Māori prayer.
From each crate, a long, curved beak eventually protruded as
kiwi took their first tentative steps into the shadowed landscape, then sped to
a run and disappeared into the darkness.
Kiwi make their first Parliament visit
One place kiwi had never set foot until this week was inside
New Zealand’s Parliament. Hours before Wellington’s seven newest residents were
transported to their hillside home, they were carried into Parliament’s grand
banquet hall by handlers for a celebration of the 250th kiwi’s arrival in the
city.
Lawmakers and schoolchildren alike expressed whispered
delight at seeing the timid, nocturnal birds up close, many for the first time,
as conservation workers cradled the large birds like human babies, with their
gnarled feet outstretched.
“This animal has given us as a people so much in terms of
our sense of identity,” Ward told The Associated Press. “We want to challenge
our civic leaders, our politicians and say this is a relationship we need to
honor.”
Rare birds move from sanctuaries to urban life
New Zealand is home to some of the world’s strangest and
rarest bird species. Some have only survived because of against-all-odds
conservation programs, at times with uncertain funding.
Initiatives decades ago saw all surviving birds of some
species moved onto offshore, predator-free islands or into sanctuaries where
they could be carefully monitored and protected, but where few New Zealanders
would ever see one.
Ward and his group had a different dream: that New Zealand’s
iconic national bird could flourish alongside people in a bustling capital
city, where human encroachment and introduced predators had wiped out the kiwi
before.
“Where people are is also the places where we can bring them
back because we’ve got the means to do that guardianship,” Ward said.
Thousands of traps protect capital’s kiwi
Although unmanaged kiwi populations are shrinking, their
numbers have thrived in carefully managed wild bird sanctuaries — so much, in
fact, that some of these protected areas have run out of room for them.
That’s prompted their relocation to places like Wellington,
where groups such as Ward’s rally residents to embrace their new neighbors.
Kiwi have been spotted by late night mountain bikers and on backyard security
camera footage in the capital, he said.
“They’re living and calling and being encountered on the
hills surrounding our city,” Ward said.
That’s taken work. Over the past decade, efforts between
landowners, the local Māori tribe and the Capital Kiwi Project have produced a
sprawling, 24,000-hectare tract of land where kiwi can roam.
It’s dotted with more than 5,000 traps for stoats, the main
predator of kiwi chicks. So far, the Wellington population has a 90% chick
survival rate.
New Zealand aims to become predator free
The kiwi initiative is part of New Zealand’s quest to rid
the island nation of introduced predators, including feral cats, possums, rats
and stoats, by the year 2050. Since a previous government established the
target in 2016 its chances of success have been debated, but community groups
have taken up the work in earnest.
Parts of Wellington are now entirely free of mammalian
predators apart from household pets, and native birds flourish. Volunteers
monitor suburbs with military precision for the appearance of a single rat.
“When I think of endangered species globally, for the most
part you can’t do much other than campaign or donate money,” said Michelle
Impey, chief executive of Save the Kiwi. “But we have this incredible movement
throughout the country where everyday people are taking it on under their own
steam to do what they can to protect a threatened species.”