Global equity markets experienced some periods of volatility before finishing the week largely flat as uncertainty surrounding the U.S. debt ceiling troubled investors about risk assets and the global economy. In Canada, the S&P/TSX Composite Index finished in negative territory, dragged down by the Health Care sector. U.S. equities, as measured by the MSCI USA Index, fluctuated over the week but finished higher. Yields on 10-year government bonds in Canada and the U.S. increased. The price of gold fell. Conversely, oil prices ended the week higher.
U.S. personal spending increases, so does PCE
Personal spending in the U.S. rose 0.8% in April, the fourth consecutive monthly increase.
It showed the relative resilience of U.S. consumers amid rising interest rates and high inflation.
Consumers are benefiting from a strong labour market and higher income. Personal income advanced by 0.4% in April, faster than March’s 0.3% increase.
Inflationary pressures persist. The personal consumption expenditure price index, the preferred inflation measure of the U.S. Federal Reserve Board (“Fed”), rose to 4.4% in April and raised expectations the Fed could proceed with another rate increase at its next meeting in June.
U.S. manufacturing sector contracts
A preliminary estimate revealed U.S. manufacturing sector activity contracted in May, the sixth contraction in the past seven months.
The S&P Global U.S. Manufacturing Purchasing Managers Index fell to a reading of 48.5 in May from 50.2 in the previous month. (A reading below 50 denotes a contraction).
A drop in new orders and a slowdown in output drove May’s contraction.
Conversely, the sector had a few positives during the month. Employment rose while input prices eased.
Canadian household debt growing slowly
Household debt in Canada rose by 0.2% in March over February. By comparison, household debt rose by 0.7% in March of 2022.
Mortgage debt rose 0.3% during the month, partly due to a pickup in real estate activity, which helped push prices up in some markets. Meanwhile, non-mortgage debt was largely unchanged over the month.
Despite the relatively slow growth rate, household debt is creeping higher, weighing on many Canadian households. Many households are turning to debt to handle higher costs for many consumer goods.
StatsCan reported retail sales dropped for a second straight month in March.
U.K. inflation eases in April
The inflation rate in the U.K. moderated in April but is still too far above the Bank of England’s (“BoE”) 2% target.
The U.K. inflation rate was 8.7% in April, slowing from March’s 10.1% rate but above the 8.2% rate economists estimated.
It was the lowest inflation rate since the first quarter of 2022.
Prices eased for gasoline, restaurants and housing in April.
While inflation has come down, the BoE will likely stay on its path of raising interest rates. The BoE’s next meeting is on June 22.
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