Global equity markets fell over the week as investor angst heightened amid geopolitical tensions and uncertainty in the global economic outlook. The S&P/TSX Composite Index dropped, posting weakness in the Health Care sector. U.S. equities also fell over the week. The price of oil dropped, while the price of gold finished higher. Yields on 10‑year government bonds in Canada and the U.S. finished lower.
The BoC decides to stay at 5.00%
The Bank of Canada (“BoC”) held its benchmark overnight interest rate steady at 5.00% at its October meeting, a move widely expected by economists.
The BoC believed the pause was warranted given declining inflation and slower economic activity.
Still, the BoC noted it is open to lifting rates further as inflation remains a risk, despite weakening economic growth.
In its quarterly report, the BoC projected inflation of 3% in 2024, but it expects inflation to move back to its 2% target by 2025.
The announcement sent the Canadian dollar to its lowest level since March 2023.
U.S. consumer helps boost GDP
According to an advanced estimate, the U.S. economy grew at a higher‑than‑expected pace of 4.9%, annualized, in the third quarter of 2023.
The third-quarter rate of growth marks the highest since the fourth quarter of 2021.
The U.S. economy benefited from a strong U.S. consumer, which pushed up consumer spending by 4.0%. Tight financial conditions have done little to deter consumer spending.
Trade activity also contributed to growth, with exports rising in the third quarter, rebounding from a drop in the second quarter.
A stronger-than-expected U.S. economy could result in another rate increase by the U.S. Federal Reserve Board, particularly given inflation remains elevated, despite easing.
The ECB to monitor impact of current policy
Like the BoC, the European Central Bank (“ECB”) elected to hold steady at its October meeting, keeping its policy interest rate at 4.50%.
October’s pause marks the first time the ECB has not raised interest rates in 10 meetings, keeping it at its highest level since 2001 and at levels the ECB deems restrictive.
The ECB believes the current level of interest rates should work to bring inflation down to its 2% target.
ECB President Christine Lagarde mostly ended expectations of a rate cut, at least in the near term. Lagarde also noted that another rate increase is not entirely off the table.
Global manufacturing hindered by tight financial conditions
Manufacturing activity across the world continued to contract in October, hurt by dampening demand amid high inflation and rising borrowing costs.
New orders dropped over the month in many of the world’s largest economies, negatively impacting output and, in some cases, trade activity.
In Europe, the manufacturing sector continued to contract, hurt by weakness in Germany, Europe’s largest economy. Manufacturing activity also weakened in the U.K. and Japan.
Manufacturing activity in the U.S. ticked higher and expanded for the first time since April. Still, the pace of expansion was muted amid relatively weak demand.
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