Your weekly commentary – For the week ended January 5

Global equity markets started the year lower as investors digested mixed economic data, and what that might mean for central bank actions this year. The S&P/TSX Composite Index declined, dragged down by the Information Technology sector. U.S. equities also dropped over the week. Yields on 10-year government bonds in Canada and the U.S. increased. Oil prices moved higher, while the price of gold declined.

Canada’s labour market shows some weakness

• Canada’s economy eked out only 100 job additions in December, falling well short of the 15,000 job additions economists had expected.
• Gains in the scientific and technical services industry were offset by a drop in the wholesale and retail trade industry. Canada’s key manufacturing sector shed 18,000 jobs over the month.
• The labour force participation rate edged lower to 65.4%.
• Canada’s unemployment rate was unchanged at 5.8% in December.
• The lacklustre jobs report likely adds to bets the Bank of Canada might begin lowering interest rates this year.

Minutes released from Fed’s last meeting of 2023

• The U.S. Federal Reserve Board (“Fed”) released the minutes from its last meeting, which was held in December 2023.
• Fed officials believe their key interest rate is at restrictive levels, which has helped pull down inflation.
• If inflation continues to soften in line with the Fed’s projections, the U.S. central bank sees the potential for rate cuts by the end of 2024.
• Along with inflation, the Fed closely monitors the labour market, which showed signs of strength again in December.
• The U.S. economy added 216,000 jobs in December, exceeding economists’ expectations and the 173,000 job additions in the previous month. The U.S. unemployment rate remained unchanged at 3.7% in December.

European inflation rate accelerates

• At recent meetings, central banks, including the European Central Bank (“ECB”), have noted that their fight against inflation is not over. Data from December reinforces the ECB’s concern.
• Inflationary pressures in Europe picked up in December, with the inflation rate rising to 2.9%, up from the 2.4% rate in November.
• The decline in energy prices eased, while price growth for food and industrial goods remained elevated.
• Core inflation softened in November.
• The ECB has its next rate announcement on January 25 and appears poised to hold steady.

China’s manufacturing sector activity improves

• China’s manufacturing sector expanded for the second straight month in December.
• The Caixin China Manufacturing Purchasing Managers Index inched higher to 50.8 in December from 50.7 in the previous month. December’s reading was higher than the 50.3 economists had expected.
• China’s manufacturing sector benefited from a rise in new orders and output.
• However, export orders continued to fall, but at a slower pace in December compared to November.
• Despite December’s expansion, China’s manufacturing sector is struggling for traction. Relatively muted demand is weighing on this critical sector of China’s economy.

Market performance – as at January 5, 2024