Inflation On Track to Ease in North America

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At the close of business last Friday, global equities were marginally higher on the week. The yield on the US 10-year note, at 3.56%, varied little from a week ago while the price of a barrel of West Texas Intermediate crude oil fell $4.62 to $77.94. Volatility, as measured by the CBOE Volatility Index (VIX), fell to 17.0, its lowest level since December 2021.



Purchasing managers’ indices signal continued recovery in activity across regions, with the services sector outperforming manufacturing. US Composite PMI, which includes both manufacturing and services, came in at 53.5, up slightly from last month’s 52.3 reading. The euro zone, UK, and Japan reported composite PMIs of 54.4, 53.9, and 52.5 respectively, beating expectations. The data suggests that developed economies are on course for solid growth in the second quarter.



Canada continued to see a decline in prices, which eased to 4.3% year-over-year in March, down from 5.2% in February. We remain on track for our central bank’s goal of returning inflation to the 2% level in 2024. We do not expect any more interest rate increases in the current cycle.

US Economic News

With about 17.5% of the constituents of the S&P 500 Index having reported for Q1 2023, blended earnings per share shows that earnings declined 6.3% while sales rose about 2.3% compared with the same quarter a year ago. This coming week is the largest release of 1st quarter earnings for this period. We will watch the earnings reports closely as we once again expect most of the companies in your portfolio to exceed earnings expectations.

US initial jobless claims rose 5,000, to 245,000 last week for the second straight week and continuing claims rose by 61,000, suggesting that the job market may be showing signs of cooling.

US Speaker of the House of Representatives Kevin McCarthy indicated that House Republicans will bring forward a plan to raise the debt ceiling. The proposed deal would raise the country’s borrowing limit for one year, cut federal spending back to 2022 levels, constrain spending growth to 1% annually over the next 10 years, and modify, or block certain aid and tax credit programs. McCarthy reiterated that a “no-strings-attached debt limit increase” is not an option and plans to present the Republican proposal to the House next week. The debt ceiling standoff is likely to continue as President Joe Biden stated he will not negotiate on a plan that includes concessions to avoid default.



Prices in the United Kingdom rose 10.1% in March from the prior year, a slight decrease from February but still in the double digits. Energy, food, and other goods and services were the primary drivers. The latest inflation reading was above expectations and leaves the UK with the highest inflation rate among the G7 countries. Rising prices have weakened household spending and prompted a wave of strikes aimed at higher wages, which may put upward pressure on wage growth as evidenced by wage growth of 6.6% in February, up from 5.9% in January. While the Bank of England hinted it may pause rate hikes soon, the probability of a 25-basis point hike has risen following the recent inflation data. Meanwhile, while the euro zone saw inflation decline year-over-year from 8.5% to 6.9%, it has been decelerating slower than expected and core inflation actually increased slightly from 7.4% to 7.5%.

The UK unemployment rate rose to 3.8% in February, higher than expected, and jobless claims in March jumped by 28,000.



Japan’s core CPI, which excludes fresh food but includes energy costs, rose 3.1% from a year ago, remaining unchanged from the prior month.

China’s economy grew 4.5% in the first quarter of 2023 from the prior year, a sign that activity is returning to normal. This puts the country on track to achieve its growth target of 5% or greater. The stronger-than-expected growth was primarily driven by consumption, with retail sales rising 10% year-over-year, the fastest pace in two years, which helped offset a slowdown in factory output and property investment. The economic recovery is expected to be gradual rather than V-shaped, and while China is expected to reach its growth target by the end of this year, a sustained recovery will be dependent on improvements in property investment, the unemployment rate, and confidence in the private sector.






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