Great Expectations for 2024

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Global equities were modestly lower on the week despite a surge in US inflation readings and dwindling anticipation of rapid rate cuts from the US Federal Reserve. The yield on the benchmark US 10-year Treasury note continued its sharp rise, jumping to 4.31% from 4.16% a week ago. The price of a barrel of West Texas Intermediate Crude oil added to recent gains, reaching $77.50. Volatility, as measured by the Cboe Volatility Index (VIX), rose to 14.4 from 12.9 last Friday.



A bright spot for home sales in Canada as sales increased 22 percent year over year. Homeowners interested in selling are encouraged by a drop in fixed income mortgage rates and expected Bank of Canada rate cuts starting likely in May of this year.



Earnings News

With 79% 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 3.1% compared with the same quarter a year ago. Sales growth is up 3.9% year over year.

Investors pared back expectations of near-term Fed rate cuts after consumer prices rose a more-than-expected 0.3% month over month in January, up from 0.2% in December, slowing the pace of disinflation. On a year-over-year basis, the inflation rate dipped to 3.1% from 3.4% while the core rate held steady at 3.9%. Most concerning was a 0.85% month-over-month rise in core services ex housing, a metric watched closely by the Fed. Some observers have cautioned that there have historically been uncaptured seasonal effects in January CPI data and that the composition of the Consumer Price Index differs significantly from the Fed’s preferred PCE measure. However, Friday’s much larger than expected jump in producer prices, led by a rise in services prices, reignited fears that inflation has yet to be tamed. The odds of a May rate cut were trimmed to just 29% on Friday morning from nearly 70% early Tuesday.

Our position has not changed. We continue to believe the increase in inflation was partly because of Christmas spending and we still expect rate cuts to begin mid-May of this year.

Signs that consumer spending entered 2024 with less momentum than thought helped calm fears that the US economy was destined for no landing, not the soft landing that investors had hoped for. January retail sales unexpectedly fell 0.8%; the prior two months’ readings were revised lower. It should be noted that retail sales account for only about a quarter of consumer spending; services making up the rest.

US regulators are “closely focused” on risks in commercial real estate loans and have stepped up downgrades of banks’ supervisory ratings and increased enforcement actions amid a continued downturn in the real estate sector. On Thursday, the central bank issued guidelines for its annual stress tests that emphasize the risks inherent in commercial real estate.



A slump in German office property prices accelerated in the fourth quarter to a 13% year-over-year decline, according to German banking association VDP. For the full year, prices dropped more than 10%.

Inflation in the United Kingdom came in lower than expected in January, falling 0.6% month over month while holding steady at 4% year over year. Core inflation was unchanged at 5.1%.

The European Commission sees slower growth but lower inflation in 2024. It cut its growth forecast to 0.8%, down from its fall forecast of a 1.2% expansion. The commission sees euro zone inflation falling to 2.7% in 2024 from 5.7% in 2023, a steeper drop than its earlier 3.2% forecast.

This week, European Central Bank President Christine Lagarde cautioned against rushing to cut interest rates amid rising wage pressures.



Japan reported a second consecutive quarter of negative economic growth in the fourth quarter of 2023. Japan’s economy shrank 0.4% last quarter. Despite these technical recessions, economists do not fear deep economic pullbacks in Japan because labour markets there remain strong.

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