As of the close of business last Friday, global equities were higher on the week despite a continued rise in bond yields. The yield on the US 10-year note reached 4.02% from 3.95% last Friday while the price of a barrel of West Texas Intermediate crude oil rose $3.25 to $77.50. Volatility, as measured by the Cboe Volatility Index (VIX), declined to 19.3 from 22.75 last Friday.
Global markets are off to a very good start to the year. Economic activity picked up in the eurozone in February as PMI rose to 52 from 50.2 in January. The uptick in the UK was more pronounced as the composite, which measures both manufacturing and services, rose to 53.1 in February from 48.5 in January. In China, PMI rose to 54.2 from 51.1 the month before. We continue to recommend an overweight to US equities. In the US, PMI rose to 51.3 from 46.8 in January. Robust service sector activity helped push most of the indices higher.
CANADIAN ECONOMIC NEWS
On Wednesday of this coming week, our central bank will make its next interest rate announcement. We expect them to keep interest rates at the current level. GDP growth ground to a halt through the fourth quarter of last year. Economic growth in Canada is flat at zero per cent. Consumers in Canada are cutting back as payments on variable-rate mortgages are taking a bite out of disposable income. Inflation in Canada is still too high but has declined from its peak. As the effects of higher interest rates continue to spread through the economy, and with expected declines in energy prices and improved supply chains, inflation is projected to fall to around 3% in the middle of 2023 and reach the 2% target in 2024.
US ECONOMIC NEWS
It remains clear that the US economy remains resilient. Employers in the US are still hiring and workers are demanding higher wages. Wage inflation continues to be a problem for the Federal Reserve. They will receive one more inflation report before their March 22nd meeting and we continue to expect another quarter-point increase in interest rates at that meeting.
EUROPEAN ECONOMIC NEWS
Thursday’s preliminary European inflation data showed the pace of improvement in inflation nearly flatlined in February at the headline level as the year-over-year change in the consumer price index fell to 8.5% from January’s 8.6% pace. However, core inflation rose to 5.6% year over year from 5.3%. We fully expect the European central bank to continue to raise interest rates throughout the first half of this year.
After years of negotiations, the United Kingdom and the European Union reached an amended trade agreement covering Northern Ireland called the Windsor Framework. The accord reduces customs checks for goods travelling between Northern Ireland and the UK while granting the UK veto power over EU legislation to which it objects. British Prime Minister Rishi Sunak said the deal is the best of both worlds for Northern Ireland, allowing it to retain access to both the internal markets of both the EU and the UK. The ratification of the agreement is expected to take months.
JAPAN, CHINA and EMERGING MARKETS ECONOMIC NEWS
China has set a growth target of 5 per cent for 2023. China has also forecast inflation at 3 per cent for 2023 and an unemployment level of 5.5 per cent. The Chinese economy is expected to create 12 million new jobs over the next year. We have observed a continuing reduction in purchasing managers’ orders from developed markets over the past 8 months, which will hurt Chinese export industries. However, this may be offset by the reopening of domestic markets.