Your weekly market update

Your weekly commentary – For the week ended February 23

Global equity markets moved higher over the week ended February 23 after relatively strong earnings announcements from several corporate heavyweights, including technology and artificial intelligence leader NVIDIA Corp. In Canada, the S&P/TSX Composite Index advanced, led by the Consumer Staples sector. U.S. equities advanced over the week. The price of oil fell, while gold prices moved higher. Yields on 10-year government bonds in Canada and the U.S. declined.

Canada’s inflationary pressures soften

• Canada’s inflation rate softened considerably in January, suggesting that restrictive interest rates are helping to pull down inflation.
• The inflation rate was 2.9% in January, down from the 3.4% rate posted in December. January’s rate was also below the 3.3% rate economists had expected.
• Gasoline prices continued to decline, helping to drag down overall inflationary pressures. The price growth of food moderated in January.
• While January’s decline was welcomed by market participants, it remains above the Bank of Canada’s (“BoC”) 2% target rate, likely keeping the BoC on the sidelines from lowering rates in the first quarter.
• Despite elevated inflation, Canadian consumers showed their relative strength in December, with retail sales rising by 0.9%.

U.S. mortgage rates head higher

• Recent data shows that U.S. real estate market activity remains uncertain, with higher rates continuing to weigh on demand.
• The Mortgage Bankers Association of America (“MBA”) reported that mortgage applications in the U.S. fell by 10.6% over the week ended February 16, their second straight decline. This marked the largest decline in applications in 2024 so far.
• MBA also reported that the rate on a 30-year fixed-rate mortgage rose from 6.87% to 7.06% over the same week. Expectations that the U.S. Federal Reserve Board (“Fed”) might keep rates higher for longer is keeping yields elevated, thus keeping mortgage rates high.
• Meanwhile, sales of existing homes in the U.S. rose by 3.1% in January, the second increase in the past eight months.
• Minutes from the Fed’s last meeting showed officials believe that rates have likely peaked, but the U.S. central bank needs more proof that inflation will come back to its 2% target before beginning its pivot.

PBOC cuts key interest rate

• Markets have been calling for China’s central bank to loosen policy to help support economic conditions in the country.
• The People’s Bank of China (“PBOC”) elected to lower one of its key policy rates to help support the struggling property market.
• The PBOC reduced its five-year loan prime rate (“LPR”) by 25 basis points to 3.95%. The five-year LPR is a reference rate for mortgages in China. The PBOC hopes this might help stabilize China’s challenged property market.
• The one-year LPR was held steady at 3.45% at the PBOC’s February fixing.

Europe notches a small decline in inflation

• A final estimate showed Europe’s inflation rate edged lower in January, remaining above the European Central Bank’s (“ECB”) 2% target.
• Europe’s inflation rate was 2.8% in January, down from the 2.9% rate posted in December. Price growth slowed for food, alcohol and tobacco, while energy prices fell by 6.3% year-over-year.
• The core inflation rate, which excludes more volatile items such as food and energy, declined from 3.4% to 3.3% in January, its lowest rate since March 2022.
• The ECB has been relatively adamant that rates must remain restrictive for longer as the fight against inflation is not yet over.

Market performance – as at February 23, 2024

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