In this issue:

• Bonds Erase Early Year-To-Date Gains

• UK and European Equity Update

• First Home Savings Account (FHSA)

• Chart Corner

Investors may be feeling somewhat confused given the solid start to the year. It has been a welcome one given last year's struggles. Global markets have benefited from a combination of subtle changes that have taken place in recent months. It's also a reminder of an important, but often overlooked factor in investing: time.

At first glance, it may seem that not much has changed over the past year. After all, inflation is still high, interest rates are still rising, and expectations remain for future economic growth to slow. That was exactly the case a year ago. Beneath the surface, however, things are different. The pace of inflation is slowing and its trajectory over the next year may take it closer to the more normal levels we accustomed to years ago than the elevated levels we saw last year. Meanwhile, interest rates are rising, as they were in 2022. But, unlike last year, the scale of the rate hikes are diminishing and policy makers are increasingly talking about "disinflation" rather than just "inflation". Lastly, expectations for slowing growth and an outright recession remain. But, the global economy to this point has been arguably resilient, and some estimates for economic growth have actually moved higher of late as a result. Needless to say, these shifts, while seemingly marginal, have been key drivers of the greater stability in equity and bond markets in recent months.

Bonds Erase Early Year-To-Date Gains

Global bonds have seen their yields rise meaningfully in recent sessions, partially reversing January's fixed income rally, as major central banks signal further rate hikes in their continued fight against firm inflation in the U.S. and global economies. Coming into 2023, market expectations were mostly pointing towards a pause amongst central bank policy, which led many investors to increase their debt holdings while locking-in attractive yields. Nonetheless, growing concerns of further monetary policy tightening in the face of resilient economic data prints and tighter labour markets have increased uncertainty surrounding the outlook for inflation, and subsequently driven volatility amongst risk assets and pushed bond yields higher.

UK and European Equity Update

The UK and European equity markets have had strong rallies since their troughs six months ago. Back then, anxiety was at its highest. In the UK, the country was in the throes of former Prime Minister Liz Truss' ill-fated economic plan, and market turmoil threatened to engulf the pensions industry. In Europe, governments feared energy shortages believing the war in Ukraine would switch off large swathes of the industrial complex during the winter. Since then, a new government has restored some stability to the UK, while in Europe, mild weather and high levels of natural gas storage mean energy shortages are unlikely this winter. Thus, in both instances, a crisis was avoided. Read More

The newly introduced tax-free First Home Savings Account (FHSA) is a new registered account to help individuals save up to $40,000 on a tax-free basis to purchase their first home. The FHSA is a mix between a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA). Like an RRSP, contributions you make to a FHSA are tax-deductible; like a TFSA, withdrawals you make to purchase a first home (including the investment income earned) will not be taxable. Our firm’s article provides a summary of key features of the FHSA. The FHSA rules will take effect on April 1st. Please contact our team if you would like more information on the FHSA and opening an account for you or your loved ones.

~Shawn Milligan | Senior Wealth Advisor | The Milligan Private Wealth Management Team | RBCDS     

         

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