Global equity markets moved higher over the week ended May 10 with investors hopeful central banks will soon begin loosening monetary policy. In Canada, the S&P/TSX Composite Index advanced, led by the Materials sector. The Information Technology sector posted a significant decline in response to the fall in the share price of Shopify Inc., who reported weak earnings results. U.S. equities increased over the week. Yields on 10-year government bonds in Canada increased, while those in the U.S. finished little changed. Oil and gold prices finished the week higher.
Canadian economy returns to adding jobs
The Canadian economy added 90,400 jobs in April, rebounding from the 2,200 job losses in March. April’s increase easily topped the 20,000 job additions economists had expected.
Both full- and part-time jobs gained in April. Job additions were notable in the accommodation and food services industry, and in the health care industry.
Canada’s unemployment rate was unchanged at 6.1% in April, a tick below economists’ expectations.
While the headline job gains were impressive, they have not kept up with population growth and wage gains have slowed.
April’s results are not likely to deter the Bank of Canada from soon beginning to lower interest rates.
European retail sales climb higher
European retail sales surged higher at the end of the first quarter, suggesting European consumer strength might be picking up as inflation comes down and interest rate cuts appear to be nearing.
Retail sales rose by 0.8% in March, the largest monthly increase since September 2022.
March’s increase came amid higher sales for automotive fuel and for food, drinks and tobacco.
On an annual basis, retail sales rose in March for the first time since September 2022.
There are signs Europe’s economy is beginning to stabilize despite the persistence of tight financial conditions. An advanced estimate showed Europe’s economy grew by 0.3% in the first quarter, which would be its largest expansion since the third quarter of 2022.
Rate cuts from the BoE might be on the agenda
For a sixth straight meeting, the Bank of England (“BoE”) held its Bank Rate steady at 5.25%. The BoE believes its current level is restrictive, and that it has helped bring inflation down substantially over the past year.
The vote by BoE officials suggests the central bank might be closing in on lowering interest rates. Two of nine officials voted for a 25-basis-point rate cut at this meeting. However, they were outvoted by the other seven members, who are seeking more confidence inflation will moderate further.
The BoE noted inflation is likely to reach its 2% target this quarter, but geopolitical tensions could weigh on the downward path of inflation.
Markets are currently expecting two rate cuts from the BoE this year. BoE governor Andrew Bailey said there is a chance of a rate cut at its next meeting in June but stopped short of guaranteeing it.
The U.K. economy showed signs of stabilizing in the first quarter of 2024. Preliminary data showed the U.K. economy expanded by 0.6% over the quarter, its fastest pace of growth since the last quarter of 2021.
OECD says household income grew in fourth quarter
The Organisation for Economic Co-operation and Development (“OECD”) reported that global household income per capita rose by 0.4% in the fourth quarter of 2023, reversing a 0.2% fall in the previous quarter.
Looking at 2023, there was a 1.2% increase, largely due to the steep fall in 2022 as COVID-19 assistance payments were ending.
While inflation has come down, wages have continued to grow at a relatively strong pace in response to tight labour markets. Strong labour markets have helped spur growth in many countries and regions around the world.
Canada’s household income per capita dropped in the fourth quarter by 0.7%. Real gross domestic product per capital also declined, falling by 0.8%. The decline of both measures came amid high population growth in Canada.
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