Global equity markets ticked higher over the week ended May 17. Lower inflation in the U.S. raised expectations the U.S. Federal Reserve Board (“Fed”) might begin cutting interest rates as early as September. In Canada, the S&P/TSX Composite Index edged higher, led by the Materials sector. U.S. equities advanced over the week. Oil and gold prices increased. Yields on 10-year government bonds in Canada and the U.S. dropped over the week.
Demand for Canadian real estate wanes
The Canadian Real Estate Association (“CREA”) reported that sales of existing homes in Canada fell by 1.7% in April.
Home sales started the year strong, but activity has pulled back, in large part due to lower demand with the Bank of Canada (“BoC”) yet to lower interest rates.
Demand has been relatively subdued, but the industry is expecting it to pick up once the BoC begins to cut rates, which should help bring down mortgage rates.
While demand is waning, houses available on the market are surging higher. The number of homes for sale on the market increased by 6.5% in April, the second largest monthly increase ever recorded.
CREA also reported that the average price of a home across Canada rose by 0.9% to $671,366 in April.
U.S. inflation slows in April
The U.S. inflation rate moderated slightly in April for the first time in three months, giving investors hope inflation is on a path to the Fed’s 2% target.
The annual U.S. inflation rate was 3.4% in April, matching expectations, and a tick below the 3.5% rate in March.
Price growth for shelter slowed over the month, while prices for new and used vehicles declined. Conversely, energy price growth accelerated in April compared to March.
The core inflation rate fell to 3.6% in April from 3.8% in the previous month.
Consumer demand also appears to be waning in recent months, which could put further downward pressure on inflation. Retail sales in the U.S. stalled in April (0.0%) after a downwardly revised 0.6% increase in March.
Lower exports weigh on Japan’s economy
A preliminary estimate showed Japan’s gross domestic product shrank in the first quarter of 2024.
Japan’s economy contracted by 2.0%, annualized, in the first quarter. This follows no growth in the fourth quarter of 2023.
A sharp decline in exports weighed heavily on Japan’s economy over the quarter. Exports are a critical part of Japan’s economic health. Relatively weak global demand for Japanese goods and services negatively impacts its economy.
Consumer and business spending also dropped over the quarter. Consumers have been navigating through difficult price pressures along with muted wage growth.
Despite the uncertain conditions prevailing in Japan’s economy, Japanese equities have delivered relatively robust returns over 2024 to date.
China’s retail sales growth slows further
China’s economy has struggled for traction in recent quarters, and two critical pieces of economic data diverged in April, showing how uneven economic conditions have been.
Retail sales growth slowed in April, suggesting that relatively modest domestic demand persists. Retail sales rose by 2.3% year-over-year in April, down from the 3.1% pace of growth in March.
This marked the fourth consecutive slowdown in retail sales in response to slower spending for oil products and home appliances, and declining sales for clothing and jewellery.
In a positive sign for China’s economy, industrial production accelerated in April. After a slowdown in March, industrial production surged higher in April, rising by 6.7% year-over-year.
Given the challenges facing China’s economy, the government has shown a willingness to provide support measures to help stabilize the economy.
Comments