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What happened last week?
Equities reversed recent losses based on strong earnings for the S&P 500 where nearly half the companies have delivered Q1 2024 results. 77% of firms beat earnings per share expectations and aggregate earnings are 8.4% above estimates. The Canadian earnings season trails the U.S. with the widely held big banks reporting toward the end of May for this cycle. FactSet Insight
Thursday brought the latest real Gross Domestic Product (GDP) data from the Bureau of Economic Analysis (BEA) showing that annualized economic growth has slowed to 1.6% in Q1 2024, down from 3.4% and 4.9% in Q4 and Q3 of 2023, respectively. Slowing GDP growth relieves pressure to maintain current interest rates if it leads to lower inflation levels and job creation. BEA GDP release CNBC and GDP
Friday brought the Federal Reserve’s preferred inflation indicator, the Personal Consumption Expenditures (PCE) price index, also from the BEA. As predicted by analysts and stated by Jerome Powell, Fed Chair, U.S. consumer inflation is reluctant to return to pre-pandemic levels despite the elevated levels of interest rates. Inflation arose due to a shortage of supply, which drove prices higher. As supply chain issues resolved and inflation persisted, central banks increased interest rates designed to curtail demand, and inflation back to low and predictable levels. For March, U.S. PCE was 2.7% year-over-year, compared with January and February’s 2.5%. All three months are above the Fed’s goal of an average of 2%, and the last month is increasing. BEA PCE release CNBC and PCE
Canada is ahead of the U.S. in its inflation fight evidenced by slowing economy and job growth. Although the U.S. sets the tone for interest rates globally, Canada can change interest rates ahead of the Americans. Markets will react if the Bank of Canada is too far ahead of the Federal Reserve, either in timing or size of interest rate reductions. Recent economic news, especially March’s PCE reading, is pushing the likelihood of lower Federal Reserve interest rates further into the future, which wills likely delay a rate cut here.
CNBC and PCE
What’s ahead for this week and beyond?
In Canada, Gross Domestic Product for February, and March’s imports, exports and trade balance are scheduled to be released.
In the U.S., Wednesday will bring the latest monetary policy update from the Federal Reserve. A change to rates would surprise markets, and since the Fed has a tradition of telegraphing its opinions and intensions well in advance. The non-farm payroll report will be released on Friday.
Globally, the Eurozone will report consumer inflation expectations, consumer confidence, business climate, and economic, services and industrial sentiment. Japan will release an employment report, construction orders, housing starts and retail sales.
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