At the close of business on Friday, with the exception of the tech-heavy Nasdaq, global equities were little changed on the week. The yield on the 10-year US Treasury note rose 8 basis points to 4.59% after $108 billion in Treasury auctions and cautionary words from US Federal Reserve Chair Jerome Powell. The price of a barrel of West Texas Intermediate crude oil fell sharply to $76.80 from $83.50 a week ago. Volatility, as measured by the Cboe Volatility Index (VIX), held steady at around 15.
CANADIAN ECONOMIC NEWS
Our inflation rate fell to 3.8 percent last month as price pressures eased across the economy. We expect the Bank of Canada to remain on hold. Grocery prices were up 5.8 percent year-over-year. The biggest upward pressures on annual inflation last month were mortgage interest costs, rent, food purchased from restaurants, gasoline and electricity.
US ECONOMIC NEWS
With just under 92% of the constituents of the S&P 500 Index having reported for Q3 2023, blended earnings per share show that earnings rose 4% compared with the same quarter a year ago. Sales growth is up 2.2% year over year.
In the wake of the most recent Federal Open Market Committee meeting and a softer-than-expected employment report, US bond yields slipped substantially, and enough, it would appear, to prompt Fed Chair Powell to caution markets not to loosen financial conditions excessively. Powell warned markets that the Fed won’t hesitate to tighten more if appropriate and said he is not confident that the central bank has achieved the policy stance necessary to hit its 2% inflation target. Markets reacted by tightening conditions, pushing bond yields and the dollar higher and equities lower. They now believe the Fed’s first rate cut will occur in July of next year rather than in June.
EUROPEAN ECONOMIC NEWS
Former European Central Bank president and prime minister of Italy, Mario Draghi, said this week that he is “almost sure” that Europe will be in recession by year-end. Draghi warned that the European Union’s past model of relying on the US for defence, China for trade, and Russia for energy had ended.
European Central Bank President Christine Lagarde said the ECB will not start cutting rates “in the next couple of quarters.”
CHINA, EMERGING MARKETS and JAPAN ECONOMIC NEWS
On Tuesday, the Reserve Bank of Australia hiked its cash rate 0.25% to 4.35%, its highest level in twelve years. However, markets expect the tightening move to be the last of the cycle. The central bank eased its tightening bias, saying “whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.” This is a statement markets interpreted as dovish.
The International Monetary Fund raised its 2023 and 2024 economic growth forecasts for China after repeated rounds of fiscal and monetary stimulus. The IMF sees 2023 growth beating China’s 5% target, reaching 5.4% this year before tailing off to 4.6% next year amid subdued external demand and continued weakness in property markets. The IMF’s recent World Economic Outlook had pegged 2023’s growth rate at 5% and 2024’s at 4.2%. Over the medium term, growth is projected to gradually decline to about 3.5% by 2028 amid headwinds stemming from weak productivity and an aging population, the IMF said. Data released this week show that growth continues to face challenges as China’s exports slumped 6.4% in October, the sixth straight monthly decline, while foreign direct investment posted its first decline since 1989.