May 12, 2023
Weekly Market Update
There’s been a lot going on this week, and we’ll start here at home. Intense wildfires in Alberta have prompted widespread evacuations from residential areas, causing massive disruption to many lives. The wildfires have also shut down several oil and natural gas wells and pipeline systems, which will lower the production of oil and other energy-related products.
- The Province of Alberta declared a state of emergency as 109 blazes spread across the province, including 30 designated out-of-control, as of Sunday evening. Approximately 30,000 residents have evacuated these areas.
- The wildfires also affected energy production in regions close to the blazes. In total, there could be a production decline of 145,000 barrels of oil per day based on closures at Paramount Resources, Crescent Point Energy, Vermillion Energy, Pipestone Energy and Kiwetinohk Energy, among others.
- Energy products account for approximately 20% of Canada’s exports. Any prolonged drop in energy production could hurt exports, leading to a pullback in Canada’s economic growth. Canada has the world’s third-largest oil reserves.
These types of disasters have a significant impact on Canadians’ lives, businesses and the economy. Energy product exports are a key part of Canada’s overall economic health. A pullback in production could hinder trade activity, hurting Canadian growth. There could be some added volatility in the energy sector as a production drop could hurt profits for some affected energy companies.
Looking to our neighbours to the South, the latest inflation data released by the US Bureau of Labor Statistics indicates that the April consumer price index (CPI) was 4.9%, below economists’ estimates of 5%. The measure suggests that prices are cooling as the economy recalibrates to account for over a year of interest rate increases by the US Federal Reserve Board (Fed).
- The CPI has not been this low for two years. Shelter costs rose more slowly in April by 0.4% month-on-month. Shelter makes up 30% of the total basket of goods and services in the index.
- Energy prices fell 5.1% in April year-on-year following the 6.4% decline in March. Prices of fuel oil, gasoline, natural gas fell while electricity price increases slowed.
- Excluding energy, the cost of services rose 0.4% in April versus the previous month and 6.8% annually. Services-related inflation has been more persistent than commodities. It is a key metric that policymakers follow.
- Grocery prices dipped by 0.2% on a monthly basis and for the second consecutive month. The decline will be welcomed by consumers. However, on an annual basis, food prices rose by 7.1%.
- It appears that US inflation is heading toward more sustainable levels. However, Fed Chair Jerome Powell cautioned that the downward trajectory could be bumpy.
Across the pond in the Eurozone, economists surveyed by the European Central Bank (ECB) this April forecasted eurozone inflation of 5.6% in 2023 and 2.6% in 2024, reflecting a downward revision compared to the previous survey. Conversely, expectations for gross domestic product (GDP) growth were raised following higher-than-expected activity in the fourth quarter of 2022.
- Moderating energy prices helped lower inflation expectations in the eurozone, although wage growth drove forecasts higher for core inflation (which excludes food and energy).
- Zero GDP growth was expected for the first quarter of 2022 in the eurozone versus the previously forecasted decline. Growth for the second quarter was expected to be 0.1%.
- Unemployment is expected to rise to 6.8% in 2023 and 2024. The ECB believes the rate could decline to 6.5% in 2027.
- A potential US recession could challenge economic activity in the euro area. This concern also applies to the Canadian economy. Policymakers are mindful of how a US downturn or stress in global banking might influence Canadian economic activity.
- BoC focused on achieving price stability without compromising financial stability. According to Bank of Canada (BoC) Governor Tiff Macklem, the BoC can combat inflation and manage banking concerns at the same time.
While inflation expectations declined in Europe, prices must moderate a lot more to reach the ECB’s 2% target.
According to the latest report by the Organization for Economic Cooperation and Development (OECD), household income fell by a record margin of 3.8% in 2022 on an annual basis. The decline in OECD countries occurred despite some growth in household income in the second half of 2022.
- Among G7 countries, household income declined by 3.9%. The decline in the US was 6% as the government ended programs that supported households during COVID-19.
- Chile’s household income declined by 15.1%, the highest drop outside the G7. In 2021 the government granted permission for people to make early pension withdrawals. This policy ended in 2022.
- In OECD countries where the end of pandemic assistance programs had less impact, inflation watered down consumer spending power.
- Although household incomes fell annually, some countries reported an increase per capita in the fourth quarter of 2022. These included Canada, the US, the UK and France. UK households benefited as the government supported energy consumption during the quarter.
As always, please give us a call if you have any questions, or if you’d like to book an appointment for a portfolio review. There are still a few spots available for our upcoming Women and Wealth round table, so contact Kelly if you’d like to reserve a seat.