Global equity markets finished largely unchanged over the week ended June 9 as investors continued to digest economic data in anticipation of the next move by global central banks. The unexpected rate increase by the Bank of Canada (“BoC”) heightened expectations that rates may be higher for much longer. The S&P/TSX Composite Index fell, dragged down by the Health Care sector. U.S. equities, as measured by the MSCI USA Index, were relatively flat. Yields on 10-year government bonds in Canada and the U.S. moved higher. Oil prices fell over the week, while the price of gold rose.
BoC surprises markets with a rate hike
The BoC raised its benchmark overnight interest rate by 25 basis points to 4.75%.
The hike surprised economists who were widely expecting the BoC to hold steady at this meeting. Although, expectations that the BoC might return to hiking rates rose in recent weeks after Canada’s first-quarter growth came in higher than expected.
Canada’s central bank believes its interest rate increase was needed since demand pressures are still strong in Canada’s economy, which has kept inflation at elevated levels and boosted economic activity.
The BoC provided no clear direction for its next interest rate announcement but reiterated its commitment to bring down inflation further. The BoC will monitor the impact of tighter monetary policy on Canada’s economy.
Canada’s labour market pulls back
The Canadian economy lost 17,300 jobs in May, surprising economists expecting 21,300 job additions.
The loss marked the first job decline since August 2022.
Full-time employment dropped considerably during the month, while the part‑time sector added jobs. May’s decline was driven by a fall in self-employed workers.
Canada’s unemployment rate ticked higher to 5.2% in May from 5.0% in April.
Europe’s economy falls into a technical recession
Revisions to European gross domestic product revealed the region fell into a technical recession in the first quarter.
Economic growth was revised downward to a contraction of 0.1% in both the fourth quarter of 2022 and the first quarter of 2023.
Tighter financial conditions weighed on European households, dragging down spending and economic growth.
Despite the decline into a technical recession, the European Central Bank appears poised to keep raising interest rates at upcoming meetings as it grapples with high inflation.
China’s trade activity drops
Trade activity in the world’s second-largest economy fell considerably in May, suggesting global and domestic demand is weakening.
Exports from China declined by 7.5% year-over-year in May. Exports to key trading partners in the U.S. and Europe declined year-over-year.
Imports also declined, falling at an annual pace of 4.5% in May. A drop in steel and copper purchases drove May’s decline.
China’s trade surplus narrowed to US$65.81 billion in May over the previous month.
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