The ongoing Russia-Ukraine conflict has added a layer of uncertainty about the global economy that weighed heavily on investor sentiment over the past week. Commodity prices have been particularly sensitive to the conflict, with nickel and wheat prices climbing sharply. Rising commodity prices helped the S&P/TSX Composite Index eke out a small gain, led by the Materials sector, while global equity markets finished lower. In the US, the S&P 500 Index was dragged down by the Consumer Staples sector. The tech-heavy NASDAQ Composite Index closed the week over 3% lower. After a volatile week, oil prices finished down, while the price of gold advanced. Yields on 10-year government bonds in Canada and the US increased over the week.
Canada's labor market roars back
The strong gains in the Canadian labor market in February have pushed the unemployment rate below pre-pandemic levels.
The Canadian economy added 336,600 jobs in February, topping the 127,500 jobs expected by economists. This was the highest number of job additions in a month since September 2020. This follows a decline of 200,100 jobs in January.
The accommodation and food services industry accounted for a large share of the gains, adding 114,000 jobs during the month.
Canada's unemployment rate now sits at 5.5%, down from 6.5% in the previous month.
The improvement in the labor market may give further credence to the Bank of Canada's belief the economy is running at full capacity, which could stoke expectations of more interest rate increases this year.
US bans Russian oil imports
In response to the Russian invasion of Ukraine, US President Joe Biden has banned imports of fossil fuels from Russia, including oil, natural gas and coal.
The move puts further economic pressure on Russia in an attempt to end its conflict with Ukraine. The UK also announced a similar measure.
The ban, however, is likely to push oil prices higher, translating to even more price pressures on American consumers.
Oil prices surged higher in response to the news, but gains pared back to close out the week lower.
US inflation at a 40-year high
Supply chain disruptions continue to put pressure on consumer prices in the US, which continue to rise at levels not seen since January 1982.
The US inflation rate reached 7.9% in February, matching economists' expectations and above the 7.5% rate in January.
A 38.0% rise in gasoline prices was the biggest contributor to inflation. Higher costs of shelter, new and used vehicles and food were also key contributors.
The US Federal Reserve Board next meets on March 16, with this data giving further evidence of a potential interest rate increase.
ECB focused on fighting inflation
Despite much uncertainty amid the Russia-Ukraine conflict, the European Central Bank (“ECB”) expressed a relatively optimistic tone.
Europe's central bank noted it would speed up its bond purchase reductions in an effort to tame inflation. The ECB also noted its Asset Purchase Program might end in the third quarter of 2022 if economic conditions warrant.
Meanwhile, the ECB elected to hold its main refinancing interest rate steady at 0.00% and indicated an interest rate increase is unlikely before the end of its asset purchases and will be gradual.
In a third and final estimate, Eurostat reported Europe's economy expanded by 0.3% in the fourth quarter of 2021, matching its second estimate.
Over 2021, the European economy expanded by a record 5.3%, which followed a sharp decline of 6.4% in 2020.
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