Strong US Economic Growth

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Global equities rose from a week ago as the US economy grew at a faster rate than expected. The yield on the benchmark US 10-year note remains relatively unchanged at 4.15%. The price of a barrel of West Texas Intermediate crude oil rose to $77.51 from $73.43 last Friday. Volatility, as measured by the Cboe Volatility Index (VIX), remains flat at 13.38.



The Bank of Canada held its policy rates steady, with expectations of rate cuts for the BoC sometime in 2024. We think the Bank of Canada is likely to begin reducing rates in May of this year.



With close to 25% of the constituents of the S&P 500 Index having reported for Q4 2023, blended earnings per share shows that earnings fell 1.6% compared with the same quarter a year ago. Sales growth is up 3.1% year over year.

The US economy came in stronger than predicted in the fourth quarter of 2023, growing 3.3% at an annualized rate and adjusted for inflation. The consensus estimate was for a 2% expansion. Economic activity was lifted by strong consumer and government spending as well as subsiding inflation. The US Federal Reserve’s preferred inflation measure, core personal consumption expenditures (PCE), rose 2.9% on an annual basis in December, the slowest pace in three years. 2023 marked a year where inflation moderated at a much faster rate than anticipated. Overall, the economy grew 2.5% in 2023, remaining resilient despite forecasts of a recession and further increasing the chances for a “soft landing.”

The US flash composite purchasing managers index rose to 52.3, up from 50.9 in December, driven by an increase in both services and manufacturing activity. Flash manufacturing PMI hit 50.3 and services came in at 52.9. Typically, a level above 50 indicates expansion in the private sector, while below 50 signals contraction. These readings further support predictions that the economy will continue to expand this year.



The United Kingdom saw an increase in business activity and signs of an improving manufacturing sector, while flash PMIs for France, Germany and the euro zone remain below 50.

The European Central Bank held their policy rates steady, with expectations of rate cuts for the ECB sometime in 2024. We believe with the more persistent inflation problems in Europe, we don’t expect them to begin dropping rates until the fall of 2024.

Germany’s consumer confidence is expected to deteriorate in February, with a forward-looking consumer sentiment index predicting that confidence will drop to -29.7 from -25.4 in January. Consumers are reluctant to spend amid ongoing concerns over inflation.



China has pledged to cut the reserve ratio requirements for banks by 50 basis points, starting February 5, to boost its economy, with the People’s Bank of China stating that there is room for additional monetary policy easing. With lackluster economic and credit growth, China hopes to encourage borrowing and spending by reducing the amount of liquidity that banks are required to hold as reserves. The cut to bank reserves will pump roughly $140 billion of cash into the banking system. Chinese equities and the yuan rallied following the announcement.

The Bank of Japan held their policy rates steady, while signs of future rate hikes are emerging for the BOJ.



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