The theme this week is that bad news can be good news. Economists expected a 1.5% increase in growth to end the year, but after five consecutive quarters of growth, those numbers actually came back at 0.0%. Canada’s economy officially fell flat for the final quarter of 2022, and by many standards, it’s not a great reading. There was zero growth in the last few months of the year. However, it’s exactly what is needed to stem inflation. This number is in reference to real GDP which includes factoring heavy inflation into the equation of measuring total output in goods, services, government spending, and net exports. Inflation is a word we’re all quite familiar with these days. A word central banks all over the world have been actively trying to control and bring down. A year ago, the headlines printed “8% inflation!” in bold, size 72 font across every Canadian newspaper, but today, it’s not so bad. We’re looking at a year-over-year number that is trending under 6%. It may not be at the ideal 2% target, but couple that with the 0% Q4 GDP report, and I’d say we’re on the right track!

It appears as if our central bank rate hiking decisions have started to work – Dare I say; a successful soft landing piloted by Tiff Macklem and the Bank of Canada?

It’s early of course, but positive numbers out of January in terms of seeing more jobs than expected and both retail and manufacturing activity picking up, have suggested we merely skimmed the bottom and are trending upward. It’ll be interesting to see if the Bank of Canada holds rates steady at this point to see how this plays out.

In the US, inflation is a bit more ingrained in the economy. This is likely due to the manufacturing frenzy going on down there in support of consumer spending, big government, and the ongoing (and escalating) Ukrainian war. What does this mean? Well, the Fed isn’t done hiking rates, and we’ll likely see another increase later this month. This may also put a bit more pressure on our loonie, but our bankers don’t seem overly concerned with this. Investors, on the other hand, are a bit more concerned. This is why our February statements will have slightly ticked downward from a phenomenal January.

Moving west across the Pacific, China’s reopening initiative and continued fiscal and monetary support provide a constructive backdrop for this nation’s People’s Congress happening next week. The manufacturing and construction numbers that came out this week support this, as PMI data shows a second straight month of growth – the fastest two-month growth figure in over 10 years!

Over in Europe, inflation is still the main focus as bond yields have moved higher anticipating more rate hikes. Consumer prices rose 8.5% in February compared to a year ago.

As a quick recap in real talk, we still may have a bit of a tumultuous road ahead while central banks continue to forcibly restrict growth to slow inflation. If we were looking to invest new money today that’s needed in its entirety within a year, maybe even two, I wouldn’t be looking to the market as a place for those funds. Instead, I’d take advantage of very high, short-term interest rates on capital protected products. For most of us that don’t anticipate a major purchase upcoming like real estate, funds invested today with a long-term outlook will look significantly better once all these inflation-control objectives are behind us.

As always, please reach out of you have any questions or concerns about your portfolio