Global equity markets dropped over the week ended March 4. Concerns about the global economic recovery mounted as the conflict between Russia and Ukraine intensified. The conflict also weighed on inflation expectations, amid fear it will result in oil supply disruptions that could push consumer prices even higher. Despite the volatility, the S&P/TSX Composite Index advanced, led by the Materials sector. South of the border, the S&P 500 Index finished in the red, hurt by weakness in the Financials sector. Oil and gold prices both moved higher over the week.
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Liftoff has begun
The Bank of Canada (“BoC”) raised its benchmark overnight interest rate by 25 basis points to 0.50%.
This was the first interest rate increase by the BoC since 2018. In March 2020, the BoC reduced its rate to 0.25% as the onset of the COVID-19 pandemic dragged down the Canadian economy.
With inflationary pressures building, the BoC believed a rate increase was needed to help tame inflation.
In a speech following the rate announcement, BoC Governor Tiff Macklem said that in addition to raising rates, the central bank would further tighten policy by shrinking its balance sheet by reducing its Government of Canada bond holdings.
The central bank also acknowledged the risks posed to economic growth by the conflict between Russia and Ukraine, which could also contribute to even higher consumer prices.
Strong growth despite Omicron
Canada's economy expanded at an annual pace of 6.7% in the fourth quarter of 2021, topping economists' expectations for a growth rate of 6.5%.
This marked the fastest pace of growth since the fourth quarter of 2020, benefiting from strong business investment.
Canada's economy proved resilient in the face of the rapid spread of the Omicron variant, which resulted in new lockdown restrictions late in the quarter, and the heavy flooding in British Columbia, which temporarily closed off transportation to and from major ports.
Over 2021, Canada's economy grew by 4.6%, reversing a 5.2% contraction in 2020.
Strong consumer spending and a robust real estate market, which benefited from higher savings and relatively low mortgage rates, were the main contributors to the growth.
Job additions top expectations by a wide margin
The US economy added 678,000 jobs in February, the highest number of job additions since July 2021.
This topped economists' expectations of 423,000 job additions.
The leisure and hospitality industry posted the largest gains, followed by the professional and business services industry.
The US unemployment rate fell to 3.8% in February, from 4.0% in the previous month; this is the lowest rate since the onset of the pandemic.
The strong job numbers reinforced expectations that the US Federal Reserve Board will raise its federal funds rate at its March meeting.
Oil prices reach triple-digits
The price of oil surged past US$100/barrel.
Russia's invasion of Ukraine has put significant pressure on oil prices, which touched US$116/barrel last week, its highest level since 2008.
The International Energy Administration expressed concern about the supply-demand imbalance in the oil market along with the climbing prices, but said some members, including the US, will release 60 million barrels into the market in an attempt to tame prices.
Meanwhile, the Organization of the Petroleum Exporting Countries and Russia (“OPEC+”) held their monthly meeting during the week. OPEC+ decided to maintain its production increase of 400,000 barrels of oil per day in April.
Oil prices have risen by more than 50% so far this year.
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