Global equity markets rose over the week ended April 26 as investors flooded back into stocks after pulling them lower over most of April. Strong earnings results in the U.S., particularly for several technology companies, boosted sentiment. In Canada, the S&P/TSX Composite Index moved higher, led by the Consumer Staples sector. U.S. equities also advanced over the week. Yields on 10-year government bonds in Canada and the U.S. increased. The price of oil edged higher, while gold prices finished down.
Canadian retail sales see another decline
Consumer demand in Canada is slowing amid tight financial conditions, adding to evidence the Bank of Canada might need to start lowering interest rates in the near term.
Retail sales in Canada fell by 0.1% in February, surprising economists who had expected a 0.1% increase. February’s decline was the second straight after falling by 0.3% in January.
Sales at gasoline stations fell over the month. Sales also fell for electronics, jewellery and shoes.
Canadians have cut back on discretionary spending, allocating money to necessities instead.
Statistics Canada estimated retail sales posted no growth in March, which likely points to flat retail sales growth over the first quarter. Consumer strength appears to be diminishing.
U.S. economic growth expands at slower pace
According to an advanced estimate, the U.S. economy expanded by 1.6%, annualized, in the first quarter of 2024. This marks its slowest pace of growth since contracting in the second quarter of 2022.
Consumer and business spending moderated over the quarter, weighing on growth. There was a sharp drop in exports, which dragged down the net exports reading, hindering U.S. economic activity.
A bright spot for the U.S. economy was its residential real estate market, which expanded at a faster pace in the first quarter compared to the previous quarter.
In addition to slower growth, concerns mounted that inflationary pressures remained high with the gross domestic product deflator rising to 3.1% in the quarter, from 1.7% in the previous quarter. Furthermore, the personal consumption expenditure price index, the U.S. Federal Reserve Board’s (“Fed”) preferred inflation gauge, rose to 2.7% in March from 2.5% in February.
The elevated inflationary pressures pushed back expectations of a rate cut from the Fed. Furthermore, slowing growth and still-high inflation left market participants wondering about the viability of a soft landing.
European manufacturing activity weakens
Struggles in Europe’s manufacturing sector persisted in April, resulting in a deeper contraction compared to March.
A preliminary estimate showed the Hamburg Commercial Bank Eurozone Manufacturing Purchasing Managers Index fell to 45.6 in April from 46.1 in the previous month. The sector continued to be dragged down by weak new orders, which also weighed on output and employment.
Despite another contraction in Europe’s manufacturing sector, overall business activity ticked higher in April. A strong services sector continues to drive business activity across Europe.
The weakness in Europe’s manufacturing sector has hindered the progress of the economies of several countries across Europe.
Weak demand, particularly for manufactured goods, could be providing additional signals to the European Central Bank that a rate cut might be warranted.
BoJ holds steady
The Bank of Japan (“BoJ”) held its policy interest rate steady at a target range of 0.00%–0.10% at its April meeting.
This comes after the BoJ raised its policy interest rate at its previous meeting, its first increase in seventeen years, ending an eight-year period of negative interest rates.
The BoJ hopes that the increase at its last meeting will help keep a lid on inflationary pressures, which have picked up in 2024.
In its outlook, the BoJ raised its projection for inflation over 2024 to 2.8% from 2.4%. Japan’s central bank also lowered its projection for Japan’s economic growth this year.
The BoJ appears likely to hold steady at these levels, at least for the near term, as it continues to monitor the path of inflation and the yen.
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