What We Are Watching This Week

  • US Retail Sales
  • US Housing Starts and Building Permits
  • Industrial Production and Capacity Utilization

Highlights From Last Week

  • Consumer Price Index
  • Producer Price Index
  • Consumer Sentiment
  • Bank of Canada Rate Announcement

The week saw a downturn in major equity benchmarks due to concerns over potential conflict in the Middle East and signs of ongoing inflation pressures. Large-cap stocks outperformed small-caps, with the Russell 2000 Index experiencing its largest daily drop in nearly two months and falling into negative territory for the year. Growth stocks performed better than value shares, affected by sectors sensitive to interest rates, including REITs, regional banks, housing, and utilities. On Friday, April 12, 2024, Canada’s primary stock index, the TSX, experienced its most significant decline in nearly two months, driven by losses in financial and resource sectors. By noon, the index had continued to decrease, extending a two-day downward trend, with healthcare and consumer stocks also registering losses. The pan-European STOXX Europe 600 Index closed down by 0.26% in local currency terms, mirroring declines in major stock indexes. Germany’s DAX fell by 1.35%, France’s CAC 40 Index declined by 0.63%, and Italy’s FTSE MIB slid by 0.73%. However, the U.K.’s FTSE 100 Index defied the trend, posting a gain of 1.07%. The weakness of the British pound against the U.S. dollar supported the index, including numerous multinational companies with significant overseas revenue streams.

In March, consumer goods and services saw a notable 0.4% price increase, marking the third consecutive month of elevated inflation. This surge, which was unexpectedly high, surpasses economists’ forecasts of 0.3%, posing challenges for the Federal Reserve’s potential interest rate cuts. The Consumer Price Index (CPI) report for March indicates inflation well above the 3% mark, significantly diverging from the Fed’s 2% target. Over the past year, the CPI rose to 3.5%, its highest level since September, with energy and shelter costs contributing significantly to this increase. The core CPI, which excludes food and energy prices, also rose by 0.4% in March and remained steady at 3.8% over the past year.1

On Wednesday, the Bank of Canada decided to maintain its overnight rate target at 5%, alongside the Bank Rate at 5.25% and the deposit rate at 5%, adhering to its stance on quantitative tightening. This decision comes as global economic expansion slowed in the fourth quarter, with the U.S. witnessing strong growth fueled by robust consumption and exports while the Euro area stagnated. Inflation declined gradually in both regions. Bond yields rose, corporate credit spreads narrowed, and equity markets surged. Canadian economic growth exceeded expectations in Q4, with a 1% GDP expansion driven by modest consumption and strong export growth despite a decline in business investment. Employment growth trailed population growth, and inflation softened to 2.9% in January, mainly due to moderating goods price inflation. However, elevated shelter prices continued to contribute to overall inflation. Core inflation measures remained between 3% to 3.5%, with some CPI components still above historical averages. Bank Governor Tiff Macklem highlighted global risks like Red Sea shipping route attacks potentially increasing inflation, emphasizing the need to allow higher interest rates time to impact. Rate cuts aren’t yet considered, and future inflation progress is expected to be gradual. The Bank maintains its commitment to restoring price stability for Canadians.2

In the week ending April 6, the U.S. Labor Department reported that the seasonally adjusted initial claims decreased by 11,000 to 211,000 compared to the previous week’s revised level. The 4-week moving average also decreased by 250 to 214,250. The total number of continued weeks claimed for benefits across all programs for the week ending March 23 was 1,965,545, down by 72,582 from the previous week. In the comparable week of 2023, there were 1,871,936 weekly claims filed for benefits across all programs.3

According to the U.S. Bureau of Labor Statistics, the Producer Price Index (PPI) for final demand saw a 0.2% increase in March, adjusted for seasonal variations. This follows a 0.6% rise in February and a 0.4% increase in January. These changes in the PPI for final demand provide valuable insights into the cost of goods and services in the market. On an unadjusted basis, the final demand index rose by 2.1% over the 12 months ending in March, marking the largest advance since April 2023, when it increased by 2.3%. The March uptick in the final demand index can be attributed to a 0.3% increase in prices for final demand services, while prices for final demand goods dipped slightly by 0.1%. Excluding the volatile categories of food, energy, and trade services, the index for final demand increased by 0.2% in March, following a 0.3% rise in February. Over the 12 months ending in March, prices for final demand, excluding these categories, rose by 2.8%.

In March, the price increase for final demand services was primarily driven by a 3.1% rise in the index for securities brokerage, dealing, investment advice, and related services. Additionally, indexes for professional and commercial equipment wholesaling, airline passenger services, investment banking, deposit services (partial), computer hardware, software, and supplies retailing increased. However, prices for traveler accommodation services decreased by 3.8%. Furthermore, indexes for automobiles, retailing (partial), machinery, equipment parts, and supplies wholesaling declined. Prices for final demand goods decreased by 0.1% in March, mainly due to a 1.6% decrease in the index for final demand energy. Conversely, prices for final-demand foods and goods, excluding foods and energy, rose by 0.8% and 0.1%, respectively.

Regarding specific products, gasoline prices declined in March, dropping by 3.6%. Prices for chicken eggs, carbon steel scrap, jet fuel, and fresh fruits and melons also fell. However, prices for processed poultry surged by 10.7%. Additionally, indexes for fresh and dry vegetables, residential electric power, and motor vehicles increased.

US Consumer sentiment has remained remarkably steady for the fourth consecutive month, with little perceived economic progress. Since January, sentiment has stayed within a narrow range, indicating minimal significant shifts. Consumers have noticed little difference in the economy since the beginning of the year, with stable expectations regarding personal finances, business conditions, and labor markets. However, there has been a slight increase in inflation expectations in April, suggesting concern that the slowdown in inflation may have halted. Overall, consumers are withholding judgment on the economy, especially considering the forthcoming election, which many believe could significantly influence its direction. Year-ahead inflation expectations have risen slightly to 3.1%, surpassing the pre-pandemic range, while long-run inflation expectations have also increased to 3.0%.5

WKYear to Date
S&P400 Mid-cap-3.08%4.25%

Important Information: 

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.  

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.  

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.  

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions. 

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