Canada
With inflation now largely contained and within their target range of 1% to 3%, the Bank of Canada has moved steadily, if cautiously, over the summer and early fall to bring down their trend-setting overnight rate from 5.00% to 3.75% with four sequential rate cuts. This in turn has helped to reduce Canadians’ borrowing rates and bond yields, providing some relief to harried mortgagors and borrowers, as well as lowering financing costs for businesses. The economy’s tepid performance and the rising unemployment rate over the last several quarters suggest that the relief is needed, and has also raised expectations of more rate cuts to come. Canadian stocks have begun to show signs of life after trailing their U.S. counterparts for most of the year, and despite recent U.S.-election- and geopolitical-driven volatility, the country’s benchmark S&P/TSX Compositive has achieved new all-time highs.
United States
With increasing signs of moderating growth and cooling inflation, the U.S. Federal Reserve (the Fed, the U.S. central bank) at long last cut their trend-setting overnight rate on September 18, and surprised many with their aggressiveness in cutting by 0.50% versus the 0.25% expected. This sends an important message of relief to borrowers, consumers, businesses, and markets, while signalling the beginning of what is expected to be a significant and material reduction in interest rates and bond yields over the coming months. Worries that the economy was failing around mid-summer led to a swoon in stock prices, but investors quickly re-assessed their dark outlook and gradually embraced the view that the economy is likely to achieve a “soft landing” over the coming months. This, in turn, led to a sharp bounce back and strong rally through to the summer’s end. The broadening of stocks participating in the rally beyond large-cap technology shares has also buoyed investor sentiment, while leading key indices to all-time highs.
Europe
With the region’s inflation rates falling sharply in August, the European Central Bank moved for a second time this year to lower their key deposit facility rate by a quarter-percentage point to help ease the economic strain that has caused GDP to suffer over the last two-plus years. Despite the positive news on the interest rate side, Europe’s major economies are still struggling to accelerate, buoyed by strong tourism but missing strength in private consumption and critically important global demand for its goods and services from key markets, particularly China. After narrowly avoiding a recession in 2023, eurozone growth projections for 2024 continue to fall, and is now expected to land at around 0.8% (from the previously predicted 0.9%). Despite the dark outlook, European bourses have largely delivered positive, if varying returns across the region.
Emerging Markets
While economic growth has been varied by country and region, overall, the EM appear to be on track to post positive and solid growth in 2024 and beyond. After generating over 4% GDP growth in 2023, EM economies are expected to moderate slightly this year, as the long-standing headwind of the strong U.S. dollar fades and potentially becomes a tailwind for these U.S. dollar-sensitive countries. Interest rate cuts by the Fed are also expected to help reduce borrowing costs for debt-laden EM countries, freeing up capital for growth and adding to domestic consumption. China continues to lag expectations but is still poised to generate 5% GDP growth in 2024 (and 4.5% in 2025), according to the International Monetary Fund (IMF). India also remains a bright spot for the EM, with the IMF anticipating 7% growth for 2024 (and 6.5% for 2025). Conversely, Russia and Latin American EM are likely to see continued slowing growth through the end of 2024 and into 2025.
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