May 26, 2023
Weekly Market Update
Equity markets in Canada resumed a four-day trading week, following a May long weekend packed full of events tempting people to part with their Canadian dollars. Retail sales data for March, released at the end of last week, showed that sales volumes slowed.
- Canadian retail sales softened. Statistics Canada (StatsCan) reported retail sales fell by 1.4% in March compared to February. CIBC economist Andrew Grantham highlighted the decline was driven by car and gasoline sales. It pointed to ‘cracks’ appearing in consumer spending habits.
- Material prices fell less than expected. According to StatsCan, raw material prices fell 10.8% annually in April 2023. Economists expected a 24.5% decline.
- Producer prices declined for second month in a row. The average price of goods and services fell by 3.5% in April, following a 2.2% decline in March.
- Softwood lumber prices trended down. Prices fell 7.4% in March and 4.7% in April as rising interest rates dampened the Canadian and US housing markets. US housing starts were 22.3% lower in April compared to the same period in 2022.
The drop in retail sales volume at the end of the first quarter of 2023 points to the increasing pressure on household finances.
Looking across the pond, lower but still-elevated inflation in the United Kingdom likely increased the probability that the Bank of England will continue raising interest rates. Economists are divided over whether the Bank of Canada (BoC) and the US Federal Reserve Board will pause or raise rates at their next meetings.
- According to the UK Office for National Statistics, consumer prices rose 8.7% annually in April. The increase exceeded forecasts of 8.2% but was down from the 10.1% gain in March.
- UK food prices rose significantly by 19.2%. Higher internet bills, recreational goods and used-car prices contributed to inflation in the UK.
- In the US, the debt ceiling deadline is a major source of uncertainty. The estimated deadline is June 1, and concerns are growing that an agreement might not be reached in time to avoid a US default.
Interest-rate decisions by major central banks may diverge based on differing global price trends. The US debt ceiling deadline has added further uncertainty in financial markets.
In the Eurozone, the gross domestic product (GDP) in Germany, one of the world’s largest economies and largest in Europe, shrank in the first quarter of 2023. The GDP decline pushed Germany into a technical recession (which occurs when an economy has contracted for two straight quarters), adding to the uncertainty surrounding the strength of the global economy.
- According to a second and final reading, Germany’s GDP contracted by 0.3% in the first quarter of 2023. A preliminary estimate showed no growth (0.0%) over the quarter.
- With a second consecutive quarterly decline, Germany’s GDP fell into a technical recession. As one of the world’s largest economies, the country’s recessionary environment raised concerns among market participants about the overall health of the global economy.
- The US economy also posted a slowdown in growth over the first quarter. In a second estimate, the US economy expanded by 1.3%, annualized. Despite being revised higher from the initial estimate, it represented a slowdown from the 2.6% growth pace during the previous quarter.
- The outlook for the US economy looks precarious. Lawmakers have yet to agree on the US debt ceiling, with a deadline of June 1 quickly approaching. A lack of a deal could lead the US to default and push the US economy into a recession.
- Canada reports its first quarter GDP on May 31. Canada’s economy posted no growth (0.0%) on an annualized basis in the fourth quarter of 2022
As always, please give us a call if you have any questions, or if you’d like to book a portfolio review. And thank you to everyone that came out to our Women and Wealth chat and shared their stories; it was fun, interesting, and inspiring!
Source: CIBC Morning Market Brief