Global equity markets finished slightly lower over the week ended April 8. In its meeting minutes, the U.S. Federal Reserve Board (“Fed”) indicated its commitment to tame inflationary pressures building in the economy, by raising rates and reducing its balance sheet. Meanwhile, ongoing uncertainty over geopolitical tensions in Ukraine and surging inflation weighed on investor sentiment. The S&P/TSX Composite Index ended the week slightly lower, hindered by weakness in the Information Technology sector. In the U.S., the S&P 500 Index declined, dragged down by the Information Technology sector. Oil prices moved lower, while the price of gold advanced. Yields on 10-year government bonds in Canada and the U.S. both ticked higher over the week.
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Businesses bracing for more inflation ahead
The Bank of Canada’s (“BoC”) quarterly Business Outlook Survey found that 70% of Canadian firms believe average inflation will be above 3% over the next two years.
Most firms think that inflation could return to the BoC’s 2% target in three years.
A record-high number of respondents indicated they are struggling to meet rising demand due to supply chain constraints.
About half of businesses also expect to deal with higher costs as a result of the Russia-Ukraine war’s impact on energy and commodities.
China to remain accommodative
The People’s Bank of China (“PBoC”) maintained its benchmark interest rates for corporate and household loans in March, as expected.
In April, the PBoC may cut its medium-term lending facility rate when the country’s first‑quarter economic growth is reported.
The central bank has reaffirmed its commitment to being accommodative and to supporting the economy amid volatile conditions.
Fed takes on more hawkish tone
In the most recent FOMC minutes, the Fed noted that more aggressive policy measures might be needed to fight high inflation.
Many of the Fed’s policymakers are now in favour of larger-than-normal 50-basis-point increases to the federal funds rate, instead of the traditional 25-point increases. Several such increases are likely this year.
In addition to raising interest rates, the Fed plans to reduce its holdings of bonds, and at a faster pace than previously planned.
More supply driving oil prices down
West Texas Intermediate crude oil futures were around US$96 per barrel on Friday, marking a second weekly decline. The benchmark has lost most of the gains sparked by Russia’s invasion of Ukraine.
Member states of the International Energy Agency agreed to release 60 million barrels of oil from strategic reserves, in addition to the 180-million-barrel release planned by the U.S. This increase to supply is designed to lower energy prices.
There is also concern about the potential for lower future demand from China, which is facing its largest wave of COVID-19 infections to date. China is the world’s largest importer of oil.
The European Union has banned imports of coal from Russia and is preparing an embargo on oil, gas and nuclear fuel.
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