Volume 28, Issue 17
April 22, 2024.


Apr 19

Apr 12


Net Weekly
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S&P 500











Source: Globe & Mail


Did We Say Rate Cuts?

Douglas Porter, CFA

Chief Economist


Fed rate cut expectations continue to melt in the face of an amazingly resilient U.S. economy and highly uncooperative inflation. This week’s blow was landed by the consumer, with retail sales handily topping expectations in March, and now up a sturdy 4% from year-ago levels. Following hard on the heels of yet another disappointing CPI report, and an earlier solid jobs gain, the run of robust data has the hawks squawking and the doves retreating. Chair Powell allowed in Tuesday remarks that it will take “longer than expected” to gain confidence that inflation is in a good place. NY Fed President Williams went one step further and said—out loud—that it’s “possible” that rates may even need to go higher, but to be clear, that’s not his base case. Hardly soothed by that caveat, the sell-off in Treasuries resumed, with twoyear yields flirting with 5% and 10s now up 80 bps since the start of 2024 to just over 4.6%.

Initially, equities had bravely looked past this year’s steady rise in bond yields and fading Fed expectations. After all, solid economic growth had supported earnings, and everyone knew the Fed would be eventually easing. But whispers of whether rates actually are restrictive enough to quell the economy and inflation have moved from the fringe to the mainstream in recent days. And stocks are accordingly buckling. After peaking in the last trading day of March on a 10% Q1 advance, the S&P 500 is nearing a 5% pullback on three consecutive weekly losses. The Nasdaq was a tad slower to catch on, hitting a record high just last Thursday, but has since got the message, swiftly dropping more than 5%.

It’s not just monetary policy that is coming under the microscope amid sticky inflation. Fiscal policy has been no help in the inflation battle, with the deficit remaining enormous at $1.7 trillion over the past 12 months. And oil prices have been a major thorn this year, rising over 20% (from $70 to above $86) before backing off this week to around $83. Gasoline prices have tagged along, jumping more than 30% since January at the wholesale level, also before ebbing a bit this week. Overall, energy prices have gone from being very helpful in the inflation fight last year, to being at best a neutral party.

The fundamental issue is that growth just isn’t weak enough to truly undercut inflation pressures. Yes, the unemployment rate has nudged up a bit from the low, but remarkably stable jobless claims give no sign of serious stress. Consumer confidence is low, but that’s simply not translating into soft spending. And exports have managed to overcome a strong dollar due to betterthan- expected external growth—we now see the global economy holding up with a decent 3.2% advance this year, matching the 2023 outcome. Next week’s first estimate on U.S. Q1 GDP is expected to show 2.0% a.r. growth: a cooling, but not weak. In turn, the core PCE on Friday is projected to rise 0.3% (a tenth below CPI), only trimming the yearly rate a tick to 2.7% (core CPI is 3.8%).

While Canadian growth and inflation are both notably chillier than recent U.S. trends, domestic yields have been lifted by the gravitational pull of Treasuries. Even with a third consecutive friendly CPI this week, GoC yields still pushed higher, with 10-years at their highest level in five months at around 3.75%. With almost all major measures of inflation now tucked just below 3%, and short-term trends even softer, and the jobless rate above 6% and rising, the domestic case for rate cuts is strong. Unfortunately, the U.S. case is crumbling, leaving Governor Macklem to reassure that the BoC can carve its own path. True, in theory, but the Canadian dollar looms as a reality check. Markets are leaning to a bit more easing this year from the Bank (2-to-3 cuts; we’re at 3) than the Fed (1-to-2 cuts, we’re clinging to 2), but are only willing to price in one step beyond for the Bank.

The loonie actually firmed slightly this week, despite a mild CPI, hawkish Fedspeak, and a dip in oil prices. We won’t give credit to this week’s spending-heavy federal budget, although the tax bite wasn’t quite as bad as many feared, prompting some relief. And, in the sometimes twisted logic of the market, easier fiscal policy initially tends to strengthen a currency, all else equal. Macklem noted last week that the BoC’s forecast for real government spending had been notched up half a point due to the provincial budgets (to 2.75% this year), and the federal effort will pile on. The Governor suggested that such spending was “not making it any easier to get inflation down to our 2% target”. Nevertheless, we continue to look for the Bank to lead the way, with a June cut still a live possibility. Now, if the U.S. could produce just one decent inflation report—and put rate hike whispers back to bed—we’d be all set.


Frank and Mark.


Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.



The TSX gave back a more modest amount compared to the US as the sector mix was relatively favourable.  Canada’s federal budget landed with a bit of a thud in the investment community. The headline tax measure is a long-speculated increase in the capital gains inclusion rate, from 50% to 66.7%, although limited to corporations, trusts, and individuals with gains exceeding $250,000. While the capital gains threshold for individuals sounds high on the surface, consider that high real estate values will mean that many sellers of investment or cottage properties will get dinged by the higher inclusion rate. This will similarly be a concern for Baby Boomers passing down property to younger generations. This immediately had many wondering if the change, which takes effect on June 25, 2024, will trigger a wave of selling—maybe, but not necessarily. Presumably some owners of assets with a pending or looming sale will be incentivized to pull it forward, and Ottawa is indeed expecting some of that behaviour in the way they account for revenues—a high initial take followed by a lull. Some of the other rumoured tax changes were absent, namely a wealth tax, increase in marginal tax rates and targeted corporate tax changes. But, given the now steady yearly roll out of tax increases, allocators of capital are probably already asking: what’s next?

YTD, the TSX is up 4.05, and the benchmark 10-year yield ended the week to yield 3.74%.


U.S. & Global

Equity markets continued their correction last week, with some firm economic data unable to counter the reality that rate cuts are not coming as soon or aggressively as previously thought. The S&P 500 fell 3.2% by late Friday, with technology, consumer discretionary and communication services posting the deepest declines alongside some steep selloffs from the likes of Netflix.

Rate cut expectations continue to get dialed back, with Fed Chair Powell suggesting this week that the likelihood of near-term easing is getting declining. This comes in the wake of sturdy labour market data and frustratingly slow progress in underlying inflation metrics. For example, 3-month annualized rates of core and supercore inflation, in both the CPI and PCEPI, are running in the 3.5%-to-8.2% range. And for each of those four individual indicators, the 3-month rate has accelerated above the 6-month rate, which is also above the 12-month rate. This is not the stuff of rate cuts. As Powell said this week, “the recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence”. After getting hopped up on rate cut expectations coming into the year, when there was about 125 bps of easing priced in, the market is now pricing in just 40 bps, with the first full 25 bps only occurring by November.

YTD, the DJIA is up 0.79%, the NASDAQ is up 1.80%, and the S&P 500 is up 4.14%.  The 10-year Treasury yield ended the week to yield 4.62%.


Source: BMO Capital Markets


The Good: CPI-Median eased to +2.8% y/y (Mar.)—and other core metrics also slowed; Manufacturing Sales Volumes +0.1% (Feb.); Core Wholesale Trade Volumes +0.2% (Feb.); Household Mortgage Credit steady at 3.4% y/y (Feb.); New Motor Vehicle Sales +25.4% y/y (Feb.).


The Bad: Housing Starts -6.9% to 242,195 a.r. (Mar.); Construction Investment -1.1% (Feb.); Global Investors sold a net $8.87 bln in Canadian securities (Feb.);  Federal Budget Deficit estimated at $39.8 bln (FY24/25)—1.3% of GDP.


The Good: Retail Sales +0.7% (Mar.); Industrial Production +0.4% (Mar.); Initial Claims steady at 212k (Apr. 13 week); Empire State Manufacturing Survey +0.5 pts to 46.0; Philly Fed Index +1.8 pts to 49.8 (Apr.)—both ISM-adjusted; NAHB Housing Market Index unch at 51 (Mar.).

The Bad:  Existing Home Sales -4.3% to 4.19 mln a.r. (Mar.); Housing Starts -14.7% to 1.32 mln a.r. (Mar.); Building Permits -4.3% to 1.46 mln a.r. (Mar.); Leading Indicator -0.3% (Mar.); Global Investors sold a net $145.7 bln in U.S. securities (Feb.).



Rescuer 'gobsmacked' after pet snake survives year apart from owner, crow attack

A pet snake was missing for more than a year before it was dropped by a crow into a garden in northern England and reunited with its owner.

The Royal Society for the Prevention of Cruelty to Animals was called to rescue the corn snake, which had slithered up onto a nearby garage roof in Spennymoor, County Durham, the BBC reported.

A resident came over and was “absolutely delighted” to find her pet Agnus, who had been missing for a year.

The RSPCA was “gobsmacked” that the snake survived both the crow attack and being without heat for such a long time.

Snakes aren’t able to produce their own body heat, so they rely on their environment to maintain their body temperature.

The three-foot-long snake had been picked up by the crow and dropped when the crow “realized it had bitten off more than it could chew,” RSPCA Insp. John Lawson said.

“After I rescued the snake, a resident living nearby came over and was absolutely delighted as it was her missing pet from a year ago called Agnus,” he said.

Agnus was taken to a vet and treated for a respiratory infection from being outside in the cold, then reunited with her owner.

“The vet believes Agnus had gone into brumation mode, similar to hibernation, and her body had shut down in order to survive,” Lawson said.

“It really is amazing that she survived for so long without heat — and also survived after a crow had decided to try to fly off with her.”