Your weekly commentary – For the week ended February 16

Global equity markets finished largely flat over the week ended February 16. The week wasn’t without volatility as investors continue to monitor incoming data to predict when central banks will begin lowering interest rates. The S&P/TSX Composite Index advanced, led by the strong performance of the Energy sector. U.S. equities moved lower over the week. Yields on 10-year government bonds in Canada and the U.S. increased. The price of oil moved higher, while gold prices dropped.

Canada’s real estate market activity climbs higher

• The Canadian Real Estate Association reported that sales of existing homes rose by 3.7% in January, adding to the 8.7% increase in December, which followed five straight months of declines.
• Compared to January 2022, when demand was falling and real estate market activity slowed considerably, existing home sales rose by 22%. This marked the largest increase since 2021.
• The benchmark home price, meanwhile, dropped 1.2% over the month.
• Signs are pointing to a rebound in Canada’s real estate market as expectations grow that the Bank of Canada (“BoC”) might begin lowering interest rates later this year.
• That pivot by the BoC includes the possibility of ending its quantitative tightening program as soon as this April. Canada’s central bank has allowed government bonds on its balance sheet to mature, taking money out of the financial system, and thereby lowering its assets. The BoC appears poised to begin a period of normalizing its balance sheet.

U.S. inflation ticks lower

• The U.S. inflation rate moderated in January, falling to 3.1% compared to the 3.4% rate in December 2023.
• Despite January’s decline, inflation came in above economists’ expectations of 2.9%.
• Energy prices continued to decline in January, while the price growth for food and new vehicles slowed.
• The core inflation rate, which strips out more volatile items, was unchanged at 3.9% in January..
• With inflation just above expectations, U.S. equity markets sank on expectations the Fed might not be in a rush to lower interest rates.

U.K. economy enters technical recession

• A preliminary estimate showed gross domestic product (“GDP”) in the U.K. contracted by 0.3% in the fourth quarter of 2023. If this estimate holds, it will mean the U.K. economy has entered a technical recession after dropping by 0.1% in the third quarter.
• Weighing on growth was a decline in consumer spending. U.K. households continue to be hindered by tight financial conditions.
• The U.K. economy also saw a drop in exports over the quarter.
• The U.K. also reported that the inflation rate was 4.0% in January, unchanged from December. Inflation remains well above the Bank of England’s 2% target, which could keep interest rates at restrictive levels to help bring it down further.

Lower spending weighs on Japan’s economic growth

• According to a preliminary estimate, Japan’s economy shrank by 0.4%, annualized, in the fourth quarter of 2023.
• This pushed Japan’s economy into a technical recession after contracting in the third quarter as well.
• Japan’s GDP was negatively impacted by a fall in consumer spending. Business investment also dropped over the quarter.
• Conversely, the economy benefited from a rise in exports. This is a positive sign for Japan’s economy, which is highly dependent on foreign demand for its goods and services.

Market performance – as at February 16, 2024

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