Your weekly commentary – For the week ended March 8

Global equity markets finished largely flat over the week ended March 8. Despite signs pointing to central banks holding steady in the short term, investors are expecting interest rates to begin coming down later in 2024. The S&P/TSX Composite Index advanced, led by the Materials sector. U.S. equities posted a loss. The price of gold rose over the week, while the price of oil edged lower. Yields on 10-year government bonds in Canada and the U.S. declined.

BoC keeps policy rate unchanged

• The Bank of Canada (“BoC”) held its benchmark overnight rate steady at 5.00% at its second meeting of 2024, matching economists’ expectations.

• This marked the fifth straight rate hold by the BoC, which is looking for more progress to bring inflation back to its 2% target.

• While inflation is coming down, the BoC noted it might be premature to begin considering interest rate cuts. Canada’s central bank believes the path to 2% inflation might not be smooth, suggesting the BoC still has more work to do.

• Another critical area of focus for the BoC is Canada’s labour market, which continued to show its relative strength in February. The economy added 40,700 jobs in February, the most since September 2023. However, Canada’s unemployment rate ticked higher to 5.8%.

• Markets still expect the BoC to begin lowering interest rates later this year.

U.S. economy adds more jobs in February

• The U.S. economy added 275,000 jobs in February, topping economists’ expectations and January’s 229,000 job additions.

• The government added a significant number of jobs over the month, contributing to the robust hiring environment in February.

• Despite the increase in jobs, the U.S. unemployment rate rose to 3.9% in February from 3.7% in the previous month. Data showed many individuals entered the labour market, but did not immediately find jobs.

• In a separate report, ADP said that private businesses in the U.S. added 140,000 jobs in February, which was below January’s figure but above economists’ expectations.

ECB holds steady

• At its March meeting, the European Central Bank (“ECB”) kept its policy interest rate steady at 4.50%.

• The ECB believes it will likely need to keep its key interest rate at restrictive levels for longer as it seeks to pull inflation back to its 2% target.

• Europe’s central bank also lowered its projection for European economic growth this year from 0.8% to 0.6%.

• The ECB expects inflation of 2.3% this year, before reaching 2% in 2025.

• While tight financial conditions are weighing on European households, they did manage to push up spending in January. Retail sales rose by 0.1%, the third increase in the past four months.

China sets 5% economic growth target.

• The annual meeting of the National People’s Congress was held last week.

• There, China’s government announced it was targeting economic growth of 5% in 2024, largely unchanged from its 2023 target. China’s economy expanded by 5.2% in 2023.

• The government will look at measures to help boost domestic demand, which it hopes might help offset at least some of the weakness in the property market.

• The People’s Bank of China recently lowered its five-year loan prime rate, which is a reference rate for mortgages.

• Business activity in China is showing a relatively solid start to 2024. Business activity expanded in February, albeit at a relatively slower pace by historical standards.