Global equity markets ticked higher over the week ended June 2. An agreement to extend the U.S. debt ceiling boosted investor sentiment. In Canada, the S&P/TSX Composite Index finished higher, led by the Real Estate sector. U.S. equities, as measured by the MSCI USA Index, advanced. Oil prices fell amid uncertainty about demand and relatively weak global economic conditions. The price of gold was largely unchanged. Yields on 10‑year government bonds in Canada and the U.S. declined.
Canada’s GDP grows more than expected
Canada’s economy expanded at an annualized pace of 3.1% over the first quarter of 2023, topping the 2.5% rate of growth economists estimated.
It was also a strong rebound from the 0.1% contraction posted in the fourth quarter, which was revised lower from its initial calculation of flat growth.
The Canadian consumer helped push growth higher over the quarter, with higher household consumption. A rise in next exports also contributed to growth but was partially offset by another drop in real estate investment.
Economic growth came in above the Bank of Canada’s (“BoC”) outlook. In response, market participants considered whether stronger growth and persistently elevated inflation could force the BoC to return to lifting interest rates.
Agreement reached on U.S. debt ceiling
As the June 5 deadline quickly approached, U.S. President Joe Biden and Republican Speaker Kevin McCarthy reached an agreement on the U.S. debt ceiling over the weekend of June 27.
June 5 was the date when the Treasury Department expected to run out of money to pay for existing obligations.
The President and Speaker communicated with their respective sides to finalize the deal. The House of Representatives and Senate both approved the bill, preventing a potential default.
Without a deal, a U.S. government default would likely have had a significant impact on its ability to raise funds and could have pushed the U.S. economy into a recession.
U.S. job openings show signs of still tight labour market
Job data released last week shows the U.S. labour market remains tight, which might keep the U.S. Federal Reserve Board on its path of tightening monetary policy.
Job openings in the U.S. rose to 10.1 million in April from 9.7 million in the previous month. It was the first monthly increase since December 2022.
Meanwhile, data from May showed the U.S. economy added 339,000 jobs, well above economists’ expectations.
While the U.S. unemployment rate ticked higher to 3.7% from 3.4% during the month, all signs point to a still strong U.S. labour market.
European inflation rate moderates
A flash estimate from EUROSTAT revealed Europe’s inflation rate moderated in May to 6.1%. Inflation was 7.0% in April.
If this holds, it would be the lowest rate of inflation since February 2022.
The drop in May’s inflation print was largely due to a decline in energy prices. Costs of services and non-energy industrial goods eased over May.
Despite May’s decline, it might not be enough to deter the European Central Bank (“ECB”) from continuing to lift interest rates. Inflation remains well above the ECB’s 2% target.
Business activity in China expands at slower pace
The NBS Composite Purchasing Managers Index showed business activity in China expanded in May, but slower than in April, suggesting China’s economy is experiencing uneven economic growth.
China’s service sector was the main driver of growing business activity, despite slowing in May. The sector benefited from easing lockdown restrictions.
Conversely, the manufacturing sector contracted for a second straight month in May, burdened by a drop in output and new orders.
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