Investment update

Weekly insight into the marketplace.

Canadian inflation slowed in December

Gas prices fell 13.1%, mortgage-interest costs were up 18%, and grocery bills stubbornly hovered around 11%. These were the biggest factors in Statistics Canada’s latest Consumer Price Index (CPI) report, released on Tuesday. The inflation rate was 6.3% in December – down from the 6.8% increase in November, and slower than the 6.4% that economists expected. Core inflation (the Bank of Canada’s preferred inflation gauge) was 5.6%, down from 5.8% the previous month. The December report (the third straight to show slowing inflation) is unlikely to deter the Bank of Canada from raising its key interest rate by the anticipated 0.25% on January 25. Following that decision, however, it’s widely expected that the central bank will press “pause” on this current phase of monetary-policy tightening.

The Bank of Canada released two key reports

The central bank’s fourth-quarter surveys on business outlook and consumer expectations (both released Monday) provided more insights that could sway some of its high-profile decision-making. The business-outlook indicator fell to 0.7% in Q4 (down from 1.74% the previous quarter), highlighting a deterioration in business sentiment. About 70% of businesses surveyed believe that the economy is heading into a recession, and a higher number than usual expect their sales to decline, as higher interest rates and inflation hinder consumer spending. Supporting that belief, the consumer survey revealed that 87% of respondents have reduced spending on travel, accommodation, food service and recreation, while 58% cut costs on groceries. The data suggest that the bank’s outsized rate hikes over the last several months are having the desired effect; therefore, the bank may not have to raise rates much higher to restore a level of balance to supply and demand. Retail-sales data, released Friday, showed a holiday-spending bump of 0.5% in December, up from a 0.1% decline in November.

Q4 earnings, economic data and Fedspeak converged on markets

Small, broad-based gains helped Canada’s TSX stay afloat through most of the week. Activity on Wall Street was a little more tumultuous, beginning with fourth-quarter earnings reports on Tuesday (markets were closed Monday for Martin Luther King Jr. Day). JPMorgan, Bank of America, Citigroup, Wells Fargo, Morgan Stanley and Goldman Sachs all reported heavy investment-banking-fee losses, which were down by almost 50%. On Wednesday, markets opened to a trio of disappointing economic-data reports: U.S. retail sales, producer price inflation and industrial production. All of which declined at a faster pace than expected. Multiple Federal Reserve (the Fed) policy-makers also spoke last week, with opinions divided on whether the central bank should slow, or maintain, the current pace of interest-rate hikes. Adding to the week’s clouded outlook, Google, Microsoft and Amazon announced layoffs, impacting a combined 40,000 jobs. By the end of an up-and-down week, the Dow had declined -2.70%, the S&P 500 was down 0.66%, while the Nasdaq rallied to a 0.55% gain.

The stock and bond market^*

Index	Close	Week	YTD
S&P/TSX Composite	20,503.21	0.70%	5.77%
Dow Jones Industrial Average	33,375.49	-2.70%	0.69%
S&P 500 Index	3,972.61	-0.66%	3.47%
NASDAQ Composite	11,140.43	0.55%	6.44%
10-year Canadian Bond Yield	2.85%	-0.05%	-0.45%
10-year U.S. Treasury Yield	3.48%	-0.03%	-0.35%
WTI Crude Oil (US$/barrel)	$81.40	1.66%	1.11%
Canadian Dollar	US$ 0.7472	0.12%	1.27%
Bank of Canada Prime Rate 6.45%

*Weekly performance ending January 20, 2023. Source: Refinitiv.

Key take-away

Interest-rate changes can impact your investments in many ways. Bonds can be particularly sensitive to interest-rate changes, as many pay a fixed rate of interest over time. Our professional fund managers know and employ strategies that can manage interest-rate risk. They can also quickly adjust allocations when market conditions change. A Co-operators financial representative would be happy to review your portfolio with you to ensure that you’re on track to reaching your goals. Talk to us today.

What’s ahead

Bank of Canada interest-rate announcement (January 25): In its last meeting of 2022, the Bank of Canada raised the overnight rate by 50 basis points to 4.25%. The central bank is widely expected to raise the key rate again, by another 25 basis points, before pausing this current cycle of monetary-policy tightening.

Circle these dates

January 31 to February 1: U.S. Federal Reserve meetings and statement

February 20: North American markets closed for holidays

The commentary in this report is based on current market conditions and market media sources available to the public and may change without prior warning at any time. The forecasts provided herein are not guarantees of future performance and include risks, uncertainty and assumptions. While Co-operators Life Insurance Company (“Co-operators”) believes these assumptions are reasonable, there is no guarantee they will be confirmed. This report is not a guarantee of future investment performance, nor should undue reliance be placed on this report. This report is provided as a general source of information for a specific point in time and should not be considered solicitation to buy or sell any investment. Nothing contained in this report constitutes investment, legal, tax or other advice. The content in this report should not be relied upon in making an investment or other decision, and individuals should obtain relevant and specific professional advice and read the terms and conditions contained in the relevant offering documents carefully before any investment decision is made. Co-operators is not responsible for any loss or damage as a result of reliance on the information contained in this report. Co-operators makes no representations or warranties as to the information contained herein and does not guarantee its accuracy, timeliness, completeness or usefulness. Co-operators is committed to protecting the privacy, confidentiality, accuracy and security of the personal information it collects, uses, retains and discloses in the course of conducting business. Please visit cooperators.ca/privacy for more information. Co-operators® is a registered trademark of Co-operators Group Limited and is used with permission. Investing in your future. Together.TM is a trademark of Co-operators Group Limited. If you are a client who has received this, and you have questions or want to discuss your investments, please contact your Financial Advisor.

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