First Quarter Earnings Season Begins

colored graphs with Q1 sticky note

At the close of business last Thursday, global equities were modestly lower on the week amid signs the US economy is losing steam. The yield on the US 10-year note declined to 3.28% from 3.51% last Friday to the lowest level since September. The price of a barrel of West Texas Intermediate crude oil jumped more than $5 to $80.60 after OPEC+ announced a surprise output cut. Over the past two weeks, the price of a barrel of crude has gained more than $10. Volatility, as measured by the Cboe Volatility Index (VIX), was steady at 19.



The Bank of Canada is expected to hold interest rates steady when it makes its next announcement on April 12th. Inflation is continuing to slow despite strong employment growth, which suggests our economy remains strong. We are hearing lots of talk about a recession later in 2023 or early in 2024. It is looking more like we will suffer a mild recession at some point later this year. With this, we expect to see interest rates begin to come down in the second half of this year.



As Q1 earnings season gets set to begin this week, a softer macro backdrop and sticky wage inflation are headwinds for corporate earnings. This coming week we will receive reports from the big banks and a key inflation report which will provide insight into what the Federal Reserve’s next move will be.

For many months, asset markets rallied each time the market sensed the US Federal Reserve was preparing to pause or pivot its tightening cycle. However, while evidence implying a pause from the Fed may be approaching, equities marginally lost ground. The Atlanta Fed GDPNow model shows that Q1 US GDP likely slowed to a 1.5% growth rate from a 3.5% rate two weeks ago. A sharp drop in the Institute for Supply Management’s nonmanufacturing PMI, a fall in the manufacturing PMI to recessionary levels, and a larger-than-expected decline in the number of US job openings in February were among the higher-profile data points this past week. The Federal Reserve will make its next interest rate announcement on May 3rd.



The European Central Bank this past week issued a bulletin warning that funds invested in illiquid property assets that allow investors to liquidate holdings on short notice face a liquidity mismatch that could force the funds into fire sales. The central bank urged funds to develop policies to address the risks they pose to commercial real estate markets and to financial stability. Remedies proposed by the ECB include requiring investors to give more notice and introducing minimum holding periods. We saw a similar situation back in 2008 with the financial crisis. Some Canadian real estate funds halted withdrawals for their funds until markets stabilised.

Swiss National Bank Vice President Martin Schlegel said this past week that Crédit Suisse would likely have gone bankrupt had the government not arranged for a takeover by UBS.

Finland was officially welcomed into NATO on Tuesday. Sweden is expected to join soon. Russia’s invasion of Ukraine prompted the two Nordic countries to seek security under NATO’s collective defence pact.



Nikkei reported on Wednesday that China is weighing a ban on rare-earth magnet technology to counter the US advantage in the high-tech arena.

During a state visit to Beijing this past week, French President Emmanuel Macron called on Chinese President Xi Jinping to reason with Russian President Vladimir Putin and help bring the conflict in Ukraine to an end.

Haruhiko Kuroda’s second term as governor of the Bank of Japan ended on Saturday. He will be replaced by Kazuo Ueda, whose job it will be to unwind the $11.7 trillion balance sheet built up under Kuroda’s watch.






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