Global equity markets finished largely flat for the shortened week ending April 14, as investors prepare for further monetary tightening by the U.S. Federal Reserve Board and other global central banks. Losses in the Health Care sector over the course of the week pulled down the S&P/TSX Composite Index. In the U.S., the S&P 500 Index dropped, dragged down by the Information Technology sector. Yields on 10-year government bonds in Canada and the U.S. ticked higher. Oil and gold prices advanced over the week.
Interest rates poised to rise ‘very, very quickly’
As expected, the Bank of Canada (“BoC”) raised its benchmark overnight interest rate by 50 basis points (“bps”) to 1.00%.
This was its first 50 bps interest rate increase since 2000, as the BoC looks to aggressively combat surging inflation in Canada, which has reached its highest level since 1991.
The BoC also announced it would begin its quantitative tightening program by reducing its balance sheet. The BoC will not replace Government of Canada bonds that mature.
Comments by Governor Tiff Macklem suggested more rate increases will be needed this year, with high inflation likely to persist.
U.S. inflation highest in four decades
Consumer prices in the U.S. continued to push higher, with the inflation rate reaching an annual rate of 8.5% in March, its highest level since 1981.
Energy prices were the biggest contributor to rising prices, including gasoline which rose by 48.0%.
The core inflation rate, which excludes volatile energy and food prices, rose by 6.5% year-over-year, below the 6.6% expected by economists.
U.K. sees slowdown in growth
Economic growth in the U.K. slowed in February, rising by 0.1% compared to 0.8% in the previous month.
Gains in the travel and tourism industry were partially offset by a drop in industrial production, particularly in its manufacturing sector.
Meanwhile, the unemployment rate fell to 3.8% in February, its lowest level since before the pandemic.
Inflation continues to be a concern, rising to 7.0% year-over-year in March, its highest level since 1992. This may prompt the Bank of England to raise its key interest rate further.
The BoE has raised its key policy rate at three consecutive meetings to its current level of 0.75% (from 0.10% in December).
No changes from the ECB
The European Central Bank (“ECB”) held its main refinancing interest rate at 0.00% at its April meeting but reiterated its commitment to fighting inflation.
Europe’s central bank repeated its commitment to ending its asset purchase program in the third quarter of 2022 amid surging inflation which the ECB expects to persist over the coming months, largely due to rising energy prices.
The ECB also noted that any increases to its key policy rate will be gradual and is not likely to begin until the conclusion of its asset purchase program.
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