Investment update

Weekly insight into the marketplace.

January 16 to 20, 2023

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%
10year US 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



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