Recovery Gained Momentum
At the close of business, last Friday global equities were higher as easing strains in the banking sector helped prompt a rebound in global equities. On the week, the yield on the US 10-year Treasury note edged up to 3.51% from 3.42% last Friday, while the price of a barrel of West Texas Intermediate crude oil gained $5 to $74.90.
As I am writing this, I received a note that OPEC is doing another cut in oil production as global economies slow. Therefore, I expect with the recent tax hike and lower production we can expect to continue to pay more at the pump. Volatility, as measured by the Cboe Volatility Index (VIX), fell to 19 from 23.
Following a nice pop to the equity markets, the question I have been asked this week is: “Is this the start of a market recovery?” We think that even though we have not received the words of a pause from the Federal Reserve, the analysts and fund managers we talked to this past week think that the nice drop in the inflation rate in the US combined with tighter credit likely following the bank collapses in the US and Europe, will probably lead to a pause. We will all be following comments from the various federal reserve speakers over the next month, as in our opinion, it is their commentary that will determine the direction of the markets over the next few months.
We will start second-quarter earnings season the week of April 10th. With a continued slowdown in global growth, expectations have been brought down substantially, so we once again expect the majority of the companies in your portfolio to exceed earnings expectations.
CANADIAN ECONOMIC NEWS
The Federal Budget
Please find below a link to an overview of the budget from Sun Life.
US ECONOMIC NEWS
The core PCE deflator, the rate to which the Fed targets monetary policy, eased to 4.6% year over year in February from 4.7% in January and rose 0.3% from the month before in February after a 0.6% advance in January. While personal income rose 0.3% in February, real personal spending declined 0.1%. Also released Friday morning was the University of Michigan’s measure of one-year inflation expectations, which came in at 3.6%, the lowest level since April 2021.
EUROPEAN ECONOMIC NEWS
Preliminary March inflation readings for the euro zone showed consumer prices rose 6.9%, a sharp slowdown from the 8.5% pace in February due to a sharp drop in energy prices from a year ago when Russia invaded Ukraine. Core inflation rose at the fastest pace on record, up 5.7% in March, faster than February’s 5.6% pace, driven by sticky services. The euro zone unemployment rate held steady at 6.6% in February. European Central Bank chief economist Philip Lane said this week that additional rate hikes may be needed if the current bout of banking stress is contained.
JAPAN, CHINA and EMERGING MARKETS ECONOMIC NEWS
The Reserve Bank of Australia is not expected to hike rates at its meeting next Tuesday after CPI fell to 6.8% in February from 7.4% in January. The inflation rate peaked at 8.4% in December.
Mexico’s central bank raised overnight lending rates to 11.25% from 11% but signalled a more neutral stance going forward.
China’s official composite PMI rose to 57 in March from 56.4 in February.