Market Pulse - The week in review
Duncan Presant - Mar 08, 2023
▪ Chinese manufacturing activity moved back into expansionary territory in February, to which global markets responded very positively. China’s National People’s Congress begins on Sunday where they are expected to reestablish an annual growth target
THIS WEEK’S RECAP:
▪ Chinese manufacturing activity moved back into expansionary territory in February, to which global markets responded very positively. China’s National People’s Congress begins on Sunday where they are expected to reestablish an annual growth target rate of 5.5-6%, a very important piece to the global economy.
▪ In Canada, on the economic front, GDP for December missed expectations by a small margin, coming in at -0.1%. The economy is slowing, though in a very unbalanced fashion as labour has held in well thus far despite a downturn in business spending. On the reporting front, Canadian banks had another round of strong results largely driven by their trading businesses on the back of a volatile quarter in fixed income markets. Most of the banks’ shared a cautious tone on the economy in coming quarters.
▪ In Europe, preliminary estimates for February inflation reflect how difficult a task lays ahead for the European Central Bank, where considerable interest rate increases are still expected. Like other Western economies, labour costs remain uncharacteristically elevated.
▪ In the US, the economic data was a mixed bag this week as were the reactions across asset classes. US bond yields reflect concerns of stubborn inflation, driven by labour costs. The US 10 yr yield rose another 15bps this week and crossed back above the 4% threshold. Equities were more stable this week, but this follows several weeks of weakness; stubborn inflation is not good for stocks, but a resilient economy offsets some of that.
ON DECK FOR NEXT WEEK:
▪ Several central banks have policy setting meetings, including the Reserve Bank of Australia, the Bank of Canada on Wednesday, and the Bank of Japan. We do not expect the Bank of Canada to change their target interest rates as they continue to monitor incoming economic data and allow time for prior rate hikes to slow economic activity.
▪ Friday morning will bring a key event with both Canadian and US employment updates for February being released. Job activity has been exceptionally resilient on both sides of the border. Markets along with policymakers will be watching these results very closely to see whether a slowdown is in fact materializing.
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