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Weekly Market Update
The sky is blue and the markets are green; a good Friday thus far! But on to business: The Bank of Canada (BoC) released its Summary of Deliberations, which are the minutes from its last meeting held on April 12. At that meeting, the BoC held its key interest rate at 4.50%, its second consecutive rate hold. BoC officials considered the possibility of another rate increase at the meeting.
- The Summary of Deliberations from the BoC’s last meeting revealed that officials considered raising the benchmark overnight interest rate amid stronger-than-expected economic growth.
- However, the BoC decided to hold steady at 4.50% due to easing domestic demand and inflationary pressures.
- The BoC believes a high interest rate is warranted to bring inflation back to its 2% target. While it considered raising rates further, it does believe the impact from its current level is working to balance supply and demand in the Canadian economy. BoC officials were concerned that while they expect inflation to reach 3% by mid-2023, the path to 2% is uncertain.
- Cutting interest rates also came up at this meeting. But the potential for a reduction in interest rates in 2023 seems unlikely, according to officials. They noted that expectations for a rate cut had been driven by market anticipation of a steep recession this year. Even though that is a possibility, a slowdown is a more likely scenario, according to their projections.
The notes show the BoC seems content with its decision to pause interest-rate hikes, while a rate cut seems unlikely over the near term.
Turning to our neighbors down south, a preliminary estimate showed US gross domestic product (GDP) growth slowed in the first quarter of 2023. Economic growth was widely expected to slow as tighter financial conditions weighed on economic conditions in the US and abroad.
- The US economy expanded at an annualized pace of 1.1% in the first quarter of 2023. This marked a significant slowdown from the 2.6% pace of growth in the final quarter of 2022 and came in below economists’ expectations.
- Relatively strong US consumers helped drive growth over the quarter. Household spending rose 3.7% over the quarter, faster than the previous quarter. Despite tighter financial conditions, US consumers remain relatively resilient, supported by a strong labour market and savings accumulated during the pandemic.
- But a decline in some key components of US GDP weighed on growth. A drop in business investment, particularly in inventories, detracted from growth over the quarter. Meanwhile, real estate investment fell for an eighth consecutive quarter, with higher mortgage rates continuing to burden housing demand.
- After the announcement, the focus of investors turned to the US Federal Reserve Board (Fed). With inflation still high and the labour market robust, the Fed looks poised to raise rates again at its next meeting on May 3, despite the slowdown in economic growth
The Conference Board in the U.S. released data on its most recent consumer confidence survey. It found that U.S. consumers’ optimism toward current conditions was unchanged in April over March. Still, their outlook deteriorated due to concerns about the possibility the U.S. economy could pull back and the labour market might weaken
- The U.S. Conference Board Consumer Confidence Index fell to 101.3 in April from 104.0 in March. Economists expected a reading of 104.0.
- U.S. consumers’ confidence in the current business environment remained unchanged in April compared to March. However, their confidence in the outlook for the U.S. economy over the next six months declined.
- Compared to March, fewer Americans believed business conditions would get better in the next six months. Fewer people believe there will be more jobs in six months and income will increase.
- Concerns about a potential recession are mounting. The results suggest U.S. consumers are becoming more concerned about a potential recession and the impact a recession may have on the labour market, which has recently shown signs of less momentum. These concerns could claw back spending, as suggested by indications that fewer consumers intend to make a large purchase in the next six months.
Despite these headwinds, our Economic Team is still forecasting positive GDP for the United States in 2023 and 2024. So while growth may be slow, it does not necessarily mean the U.S. will slide into a recession. As always, please give us a call if you’d like to discuss these matters, or to book an appointment to review your portfolio