Global equity markets had an up and down week as investors digested relatively mixed economic data. The U.S. Federal Reserve Board pledged to maintain its aggressive stance against inflation, which could hinder economic growth. The S&P/TSX Composite Index advanced, led by the Materials sector. In the U.S, the S&P 500 Index fell sharply, dragged lower by the Consumer Staples sector. On its way to its seventh straight weekly decline, the S&P 500 briefly dipped into bear market territory during Friday’s session. The S&P 500 last fell into a bear market in early 2020 at the onset of the pandemic. Oil and gold prices both finished higher. Yields on 10-year bonds in Canada and the U.S. moved lower over the week.
Higher-than-expected inflation in Canada
Elevated inflationary pressures persisted in Canada. The country’s inflation rate was 6.8% in April, its highest level since 1991.
It was just above the 6.7% rate economists expected, and the 6.7% rate in March.
Gasoline prices rose by 36.3% in April, easing slightly compared to the 39.8% increase in March. Food and shelter also contributed to the increase in inflation.
On a monthly basis, prices advanced by 0.6%, the slowest pace of growth since declining in December 2021.
The result likely signals more interest rate increases by the Bank of Canada at upcoming meetings.
Canada’s shaky real estate market
With rates rising and prices remaining elevated, the Canadian real estate market may be shifting.
According to the Canadian Real Estate Association (“CREA”), benchmark home prices fell 0.6% in April, the first drop since 2020.
CREA also reported sales of existing homes fell by 12.6% in April, which was steeper than the 5.4% drop in March.
The U.K. reaches 9% inflation
The U.K.’s annual inflation rate rose to 9.0% in April, its highest rate since 1982 and a sharper pace than the 7.0% rate in March.
Rising prices for gasoline and used vehicles contributed to the increase.
In its second estimate, Europe’s inflation rate was revised lower to 7.4% in April, down from the initial estimate of 7.5%.
These results will give further credence to both the Bank of England and European Central Bank to tighten their monetary policies.
Signs point to slower growth in China
With new lockdown restrictions, geopolitical tensions and ongoing supply chain disruptions, China’s economy is widely expected to slow in the coming months. Recent key economic indicators may be pointing to such a slowdown.
Industrial production in China fell 2.9% year-over-year in April, driven by a 4.6% drop in manufacturing output. This was China’s first decline in industrial production since March 2020.
Retail sales declined by 11.1% year-over-year in April, its sharpest decline since March 2020.
Amid weakening economic conditions, the People’s Bank of China (“PBOC”) reduced its five-year Loan Prime Rate to 4.45%, from 4.60%. This rate is used as a mortgage reference rate, and the PBOC hopes to increase lending at banks to support China’s struggling property market.
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