Global equities are in record territory. For the week, the yield on the US 10-year Treasury note rose 0.16% to 4.16% while the price of a barrel of West Texas Intermediate crude oil rose $4.25 to $76.40. Volatility, as measured by the Cboe Volatility Index (VIX), fell to 12.9 from 13.9 a week ago.
CANADIAN ECONOMIC NEWS
Bank of Canada Governor Tiff Macklem said Tuesday that progress toward the BoC’s 2% inflation target is likely to slow. Policymakers would like to see downward momentum in underlying inflation before considering rate cuts. Macklem expects growth in Canada to remain stalled until mid-2024. We do still expect to see the first rate cut in Canada start in May of this year and like the US, we expect to see five rate cuts in 2024 followed by more rate cuts in 2025. The Canadian economy added 37,300 jobs in January as the unemployment rate fell 0.1% to 5.7%.
US ECONOMIC NEWS
With just 67% of the constituents of the S&P 500 Index having reported for Q4 2023, blended earnings per share (which combines reported data with estimates for those that have yet to report) shows that earnings rose 2.75% compared with the same quarter a year ago. Sales growth is up 3.8% year over year.
US Federal Reserve Chair Jerome Powell told 60 Minutes last Sunday that the central bank is unlikely to reach the level of confidence that inflation is headed sustainably to its 2% target in time for its March meeting. He said he expects the Fed will cut about three times this year, consistent with the December Summary of Economic Projections. The market has dialed back its rate cut expectations but still has almost five quarter-point cuts priced by the end of the year, down from nearly seven a month ago. We also think that we will see five rate cuts in 2024 followed by continued rate cuts in 2025.
The giant US services sector rebounded in January, according to the Institute for Supply Management’s nonmanufacturing index. The index rose to 53.4 in January from 50.5 in December, with the new orders subindex rising to 55 from 52.8. However, a jump in the prices-paid index to 64 from 56.7 is somewhat worrying.
US Secretary of the Treasury Janet Yellen said that she has concerns about commercial real estate but that regulators are working to ensure loan loss reserves and liquidity levels are adequate to cope with the stress.
EUROPEAN ECONOMIC NEWS
European Central Bank Chief Economist Philip Lane said Thursday that the dis-inflationary trend in the euro zone is accelerating, but that the ECB must balance the risk of over tightening with that of moving too soon to lower rates. Like the Fed, Lane said the ECB needs to see further dis-inflation to be sure that inflation readings are on a path to the central bank’s 2% target.
Industrial production in Germany declined for a seventh-straight month in December, falling 1.6% from the month before.
CHINA, EMERGING MARKETS and JAPAN ECONOMIC NEWS
China took additional steps to shore up investor confidence this past week, including replacing the head of the country’s securities regulator and intervening directly in equity markets via state asset managers. After domestic equity markets ended last week at their lowest level in five years, authorities announced that sovereign funds will increase their ETF holdings. After falling 6.3% in January, the CSI 300 index rose 5.8% this week.
Deflation in China worsened in January as consumer prices fell 0.8% year over year and producer prices dropped 2.5%.