Market update

Another turbulent week for global markets, though this week ends with a positive result. This week breaks a 7 week losing streak for S&P 500 and NASDAQ.

Markets were further encouraged on Thursday by optimistic retail earnings outlooks and waning concerns of aggressive rate hiking from the US Federal Reserve.

The Markit flash reading of U.S. Manufacturing PMI fell to 57.2 in May, in line with expectations, while the May flash reading of U.S. Services PMI fell to 53.5, below expectations of 55.2.

US new home sales in April slumped 16.6% to a seasonally-adjusted annual rate of 551,000 units versus a forecast of 750,000. It is the lowest reading since April 2020.

The eurozone flash PMI reading in May came at 55.8, slightly ahead of expectations.

Oil prices rose due to tight supplies and expectations of rising demand from the summer driving season, and data showed a bigger than expected drawdown in U.S. crude inventories.

Gold prices are up as investors weigh the Fed minutes with U.S. economic data releases.

Asian markets also rallied on Friday with Shanghai's deputy mayor stating that the city may be able to start easing some COVID restrictions this month

Weekly change: TSX: 2.7% ; DOW: 5.9%; S&P 500: 4.0%; NASDAQ: 6.4%; GOLD: 0.1%

Bloomberg Market Updates - https://www.bnnbloomberg.ca/markets

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Inflation: A deeper dive by Avery Shenfeld, Andrew Grantham and Karyne Charbonneau Link to Article

Interesting analysis of the cyclical and non-cyclical factors contributing to inflation in North America.

While Canadian cyclical inflation is at a 20 year high, it still only contributes to 20% of the current inflation we are seeing in the economy.

As the analysis suggests, even if the BOC had raised interest rates earlier and managed to get cyclical inflation down to zero today, total inflation would still be around 5.5%.

As house prices have risen over the last two years, home replacement costs and other owned accommodation expenses have risen in a disproportionate manner, emphasizing that supply chain issues and labour shortages impact inflation.

We may not see the easing CPI readings we hope for right away, with concerns over food supply growing with each passing day of strife in Ukraine. China has yet to let up on its zero-Covid lockdowns.

Inflation expectations are better anchored, and household incomes aren’t keeping pace with inflation which will impact demand. As of yet, we haven’t seen a big shift in consumer spending behaviour. Therefore, a return to neutral interest rates, slowing economic growth to something close to or a bit under its long-run trend, should be good enough to return inflation back to the 2% target by 2023.

 

Higher rates will not cure what ails Canadian housing by Benjamin Tal & Katherine Judge Link to article

After years of fighting supply issues using demand tools, governments at all levels finally recognize that over time, the housing affordability crisis will worsen without adequate supply policies.

Housing demand is grossly undercounted – 2021 household formation projections are based on 2016 data and materially understate the number of immigrants and non-permanent residents (NPRs) since 2016. There are other factors that further understate demand.

Construction industry doesn’t have the capacity to meet governments’ elevated targets. Labour supply issues amplified during the pandemic as demand grew, higher building costs eroding developers’ margins and the construction industry didn’t benefit from higher immigration in 2021.

This current housing market slow down should be taken as an opportunity to continue to implement and fine tune housing policies aimed at preventing a re-tightening in market conditions as we see an uptick in activity again.

 

Global Insights

Our thoughts go out to the victims and those impacted by the recent shootings in the US, none more so than that which took place in Uvalde, Texas – A gunman murdered 19 children and two teachers in the deadliest U.S. school shooting in nearly a decade, prompting President Joe Biden to urge Americans to confront the country's gun lobby and pressure Congress to tighten gun laws.

Reuters

Shanghai took more gradual steps on Friday towards lifting its COVID-19 lockdown restrictions, while Beijing was investigating cases where its strict curbs were affecting other medical treatments. China soldiered on with its uneven exit from restrictions. Electricity consumption in Shanghai at 83% of 2021 levels; bus routes reopening.

Reuters

Canadian retail sales were flat in March as a slump in new car sales offset healthy consumer spending gains elsewhere.

BNN Bloomberg

Energy transportation giant Enbridge Inc. will be going ahead with two pipeline projects to service a new liquefied natural gas facility in the US, part of the Canadian company's push to grow its LNG business as global demand soars.

BNN Bloomberg

Global oil benchmark Brent crude could rise past $150 a barrel if there is a sharp contraction in Russian oil exports, Bank of America Global Research said on Friday.

Reuters

 

 

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