Your weekly commentary – For the week ended January 12

Global equity markets ticked higher over the week ended January 12. Sentiment was relatively mixed as investors digested new economic information and how it might impact the monetary policy decisions of the U.S. Federal Reserve Board (“Fed”) and other major central banks. The S&P/TSX Composite Index edged higher, led by the Information Technology sector. U.S. equities posted a gain over the week. Yields on 10-year government bonds in Canada and the U.S. finished lower. Oil prices dropped, while the price of gold was largely unchanged.

Canada’s exports fall, trade surplus narrows

• Canada’s trade surplus narrowed in November in response to a small drop in exports and increased imports.

• Canada’s trade surplus was $1.57 billion in November, down from $3.20 billion in October. Still, another month with a trade surplus might make trade a positive contributor to gross domestic product in the fourth quarter.

• Exports from Canada dropped by 0.6% over the month, which was the first drop in exports since June 2023. Contributing to the decline was a drop in shipments for minerals and metal products.

• Conversely, imports advanced, rising by 1.9% in November, benefiting from higher purchases of energy products and machinery.

U.S. inflation rate quickens in December

• The U.S. inflation rate edged higher to 3.4% in December from 3.1% in the previous month. December’s rate was also more than the 3.2% economists had expected.

• This marked the first increase in U.S. inflation in four months in large part due to a slower price drop in energy prices. Prices for automobiles accelerated in December, while prices for food and shelter remained elevated.

• The core inflation rate, which excludes more volatile items, ticked lower to 3.9% in December from 4.0% in November.

• Strong inflationary pressures persist, suggesting the path to the Fed’s 2% target might be rocky.

European retail sales fall

• Tight financial conditions persist in Europe and are weighing on households. For the third time in four months, retail sales declined in November.

• Retail sales across Europe fell by 0.3% in November, which matched expectations.

• A drop in sales for food, alcohol and tobacco offset an increase in sales for automotive fuel.

• Consumer demand has weakened, which has negatively impacted economic growth but has helped to bring down inflation.

• Expectations are rising that the European Central Bank (“ECB”) may be in a position to start reducing interest rates, but the ECB has been quick to counter that restrictive rates are still needed to bring inflation down to its target.

Consumer prices in China decline

• Consumer prices in China dropped by 0.3% in December over the same month in the previous year.

• The decline was driven by a fall in prices for food and transportation.

• This marks the third straight month of deflation in China’s economy due in part to relatively weak demand, which fuelled expectations that the People’s Bank of China might need to loosen policy further to help spur economic activity.

• Producer prices dropped by 2.7% year-over-year in December, their 15th consecutive decline.