Market Pulse - The week in review - Nov. 6th

THIS WEEK’S RECAP:  

 

Weaker US manufacturing data and a less aggressive refinancing schedule by the US Treasury boosted bonds, leading to a midweek revival in the equity market and a reversal in the US dollar. Labour data, a key lagging economic indicator, finally softened in October in both Canada and the US. The sustainability of these asset price moves are highly dependant on the economy's glide path. This week’s data suggests the slowdown is taking hold.

 

Canada's GDP remained nearly unchanged in August, falling below consensus expectations of a 0.1% month-onmonth gain. The slowdown in economic growth is partly attributed to the Bank of Canada's tightening cycle, but special factors like forest fires and drought conditions also contributed. Despite the economic slowdown, core inflation remains stable, and the labour market remains tight, leaving the Bank of Canada in wait-and-see mode.

 

The Federal Reserve decided to maintain interest rates at the range of 5.25% to 5.5%, citing strong economic activity and tightening financial conditions. Their balanced approach reflects a need for more data on economic growth, labour market trends, and the impact of rising yields before making further policy changes. § In Q3, Eurozone GDP declined by 0.1% q/q falling slightly more than expected. Among Eurozone countries, Germany contracted by 0.1% q/q, Italy remained flat, and France saw modest growth of 0.1% q/q, while Spain's growth was the strongest at 0.3% q/q. On the inflation side, October CPI dropped to 2.9%, the lowest since July 2021, with core inflation (excludes energy and food) at 4.2%.

 

The Bank of Japan kept the overnight interest rate at -0.1% but began moving away from their ultraaccommodative policy by removing the 1% cap on 10-year bond yields, signaling a gradual shift towards policy normalization. § The Bank of England (BoE) maintained the bank rate at 5.25%, with a 6-3 vote in favor of this decision. The BoE has become more pessimistic about the UK economy, forecasting flat to negative GDP growth but it remains reluctant to lower rates due to high inflation.

 

ON DECK FOR NEXT WEEK:

 

A key read on the health of the US borrower comes in the form of the US Senior Loan Officer Opinion Survey on Monday. § Manufacturing and services activity data will be released across major countries through the week, helping to assess the trajectory of the global economy.

 

Q3 earnings season continues.