Canada
The economy continued to struggle through the first half of the year, eking out only tepid growth while the employment picture continued to deteriorate. Canadian households are showing increasing signs of financial stress, as interest rate increases have led to sharply higher borrowing costs, especially for homeowners, and as higher prices from the surge in inflation over the last few years take their toll on finances and spending power. In light of falling inflation and anemic growth, the Bank of Canada cut their trend-setting overnight rate by another 0.25%, helping lift some of the gloom. Canadian stocks have continued their upward grind, albeit with only modest gains year-to-date for the S&P/TSX Composite relative to its U.S. peer the S&P 500 Index, as investors struggled to assess the path forward for corporate earnings for the remainder of 2024 and beyond.
United States
The world’s largest economy continues to overcome the headwinds of subdued global growth and high interest rates, defying expectations to post increasingly moderating but nonetheless impressive growth through the first half of the year. While inflation has remained sticky, prompting the U.S. Federal Reserve (Fed) to remain on the sidelines so far this year, more recent numbers are indicating that it may be finally settling into the Fed’s target band of 1% to 3%. Despite the moderation, with a presidential election looming in November and the Fed’s history of not wanting to be a factor in it, it remains increasingly likely that the central bank may wait until September’s or even November’s post-election rate-setting meeting to begin cutting rates. In the meantime, U.S. equity markets continued to scale new highs through the first half of the year, driven largely by U.S. mega-tech stocks.
Europe
After a challenging 2023, Europe is growing again, if only tepidly, buoyed by consumer spending, job growth and tourism. The region has at long last seen a significant and sustained lessening of price pressures, after suffering multi-decade highs in inflation through 2022 and 2023. The European Central Bank delivered what is expected to be the first of several cuts to its trend-setting deposit rate, raising hopes that the region will achieve its projected GDP growth of 1% for 2024. However, an alarming increase in political gains by far-right parties in recent regional elections has raised worries amongst centrist governments, with France’s President deciding to call snap parliamentary elections to challenge the surge and having to settle for mixed and generally unfavourable results. The political uncertainty has caused the region’s bond yields to spike, increasing worries that borrowing rates will remain higher for longer than expected.
Emerging Markets
While EM nations have experienced some marginal relief to their macroeconomic conditions in 2024 as the outlook continues to improve regarding U.S. interest rates and yields, the revised view of “higher for longer” continues to weigh on these countries. Higher U.S. rates mean little wriggle room for EM countries to lower their own interest rates, as they risk further devaluation against the mighty “greenback”. And, with much of EM debt priced in U.S. dollars, debt markets have been battered. China continues to experience lower-than-trend growth, as it struggles with increasingly restrictive government policies and a ravaged real estate market. Despite these challenges, solid growth is expected from EM leaders Mexico, India and Brazil, while Russia, mired in a costly war with Ukraine, is expected to struggle for the remainder of 2024 and beyond.
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