Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

You can catch up on the past four weeks’ Weekly Update in the link to my Blog.

Read my latest Smart Investor newsletter on my website. The Q1 2024 edition covers Market Review for 2023, a Turning Point on interest rates, and advantages of Bonds. Plus my Book List for 2023.

 

Markets

Market scorecard as of close on Friday May 17, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	22,465	0.7%	7.2%
U.S.	S&P 500	5,303	1.5%	11.2%
U.S.	NASDAQ	16,666	2.0%	11.0%
Europe/Asia	MSCI EAFE	2,381	1.5%	6.5%

Source: FactSet

• Canadian equities finished higher Friday, near best levels. TSX posted a 0.7% weekly gain, with Friday's strong finish pushing the index to a new record close (after subdued trading in prior four sessions).

• US equities ended mixed in a quiet Friday trading session, though still locked in a fourth straight week of gains. The S&P 500 finished up 1.5% for the week. U.S. stocks rallied during the week with the S&P 500 Index setting a new record high, driven by economic data that investors perceived as soft enough to open the door to more interest rate cuts, but not so weak as to trigger fears of a hard landing.

 

Economy

Canada

• CPI growth decelerated to 2.7% year-over-year from 2.9% in March, remaining below the upper end of the Bank of Canada’s 1% to 3% target range for the fourth consecutive month and with details pointing to further softening in underlying inflation trends.

• • The case for interest rate cuts from the Bank of Canada continues to build, with today's report in line with RBC Economics’ own base case for a first cut in June.

• Canadian jobs data for April was somewhat weaker than it appeared on the surface. The economy added 90,000 jobs, which exceeded expectations but was insufficient to keep up with population growth. The unemployment rate held steady at 6.1%, a percentage point higher than a year earlier, a level which has helped to moderate wage growth.

• The Canadian Real Estate Association reported a 1.7% m/m decline in home sales for April, with Vancouver being a notable outlier due to a slight increase in seasonally adjusted sales. Persistent challenges such as poor affordability and high interest rates continue to deter potential buyers.

U.S.

• Year-over-year headline CPI reading in the U.S. edged lower in April to 3.4% from 3.5%. The headline CPI readings represent a small relief after a string of upside surprises in U.S. inflation data in Q1. We (RBC Economics) expect the Fed will stay on the sideline for most part of the year before opting for a first rate cut later in December. That's of course contingent on CPI readings continuing to move lower in the interim.

• Other significant economic data included retail sales that came in flat, elevated unemployment claims, and weak industrial production, housing data, and sentiment surveys. Investors interpreted all of this as positive for stocks as the data implied a greater likelihood of interest rate cuts from the Fed. The bond market seemed to agree, with yields moving lower in tandem with negative economic surprises.

Further Afield

• Higher interest rates seem to be finally cooling the UK labour market. The unemployment rate edged up to 4.3% in the three months to the end of March on a year-over-year basis, though this should be taken with a grain of salt given the marked decrease in the survey response rate since the pandemic.

• China is studying a proposal to have local governments buy up unsold homes, according to a Bloomberg report. Local governments will be asked to help purchase unsold homes from distressed developers at steep discounts using loans provided by state banks, and many of the properties will then be converted into affordable housing.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman