Global equity markets finished the week largely flat as a lower-than-expected reading of U.S. inflation raised expectations that the U.S. Federal Reserve Board (“Fed”) would pause, but the debt ceiling impasse in the U.S. raised concerns about a recession. In Canada, the S&P/TSX Composite Index ticked lower, as did U.S. equities, as measured by the MSCI USA Index. Oil and gold prices declined. The yield on the 10-year Government of Canada bond finished lower over the week.
U.S. inflation rate moderates
Inflationary pressures in the U.S. continued to moderate in April, which might reinforce the Fed’s suggestion it could pause interest rate hikes.
The U.S. inflation rate was 4.9% in April, below the 5.0% rate posted in March.
It was the lowest rate since April 2021 as food price growth slowed, while gasoline and fuel oil prices dropped.
The core inflation rate, which excludes more volatile items such as food and energy products, eased slightly to 5.5% in April from 5.6% in March.
Tighter financial conditions weighing on Canadian households
Data from the Office of the Superintendent of Bankruptcy Canada shows many Canadian households are feeling more pressure to manage their debt amid tighter financial conditions.
Total consumer insolvencies rose by 28.0% in March over the same month last year.
Consumer proposals jumped by 36.2% to 9,337 in March, the highest level since 2011. Higher interest rates and elevated inflation is putting the pinch on many Canadians, who are now looking to restructure their debt to avoid potential bankruptcy and alleviate some financial pressure.
Consumer bankruptcies rose by 3.8% year-over-year in March.
China’s trade activity lacklustre
Exports from China rose by 8.5% year-over-year in April, driven by a rise in shipments to Russia and the European Union.
Despite the positive reading, it was a slowdown from the 14.8% annual increase in March and was compared to the same month last year when the country was in lockdown restrictions, which hindered business activity.
Meanwhile, imports dropped by 7.9% on an annual basis, suggesting there are still some lingering effects of lockdown restrictions on household and business demand.
China’s trade surplus widened over the month of April, but the underlying numbers reflect some ongoing weakness in China’s economy.
A 25 bps rate hike from the BoE
At its May meeting, the Bank of England (“BoE”) raised its key interest rate by 25 basis points to 4.50%. This marks the BoE’s twelfth straight rate increase aimed at taming persistently elevated inflationary pressures. Inflation reached over 10% in the U.K.
The BoE now projects inflation to slow to 5.1% by the end of 2023, up from its earlier projection of a 3.9% rate this year. By the end of 2024, the U.K. central bank expects inflation to return to its 2% target.
The BoE raised its projection for economic growth this year to 0.25%. Its earlier projection shows the U.K. economy shrinking this year.
Comments from the BoE point to another rate increase at its next meeting in June.
A preliminary estimate revealed the U.K. economy expanded by 0.1% in the first quarter of 2023, matching growth from the previous quarter.
Comments