Market Watch: May 20, 2022

In Canadian inflation news, Statistics Canada reported on Wednesday that Canada’s official inflation rate rose at a 6.8% annual pace in April, a new 31-year high. Largely to blame were food and shelter costs, which have risen 9.7% and 7.4%, respectively.

It was another dark day for North American markets on Wednesday, with the Dow and S&P 500 suffering their worst session since June 2020. There was more bad news in retail, as shares of Target sank 25% after reporting sharply lower earnings, fueling investor fears of a possible recession. It was the company’s worst one-day performance since Black Monday in 1987. By Wednesday’s close, the Dow had fallen 1,164 points, the S&P 500 dropped 165 and the Nasdaq plunged 566. In Canada, the TSX also fell sharply, losing 389 points, on weakness in consumer staples, materials, financials and technology.

U.S. equity markets were slightly down Thursday as concerns over a slowing U.S. economy continue to mount. In the U.S. bond market, the yield on 10-year Treasuries fell roughly 50 basis points from Wednesday. Thursday’s decline put yields on track to fall for seven of the last nine trading days, as investors increasingly flock toward safe-haven assets. In Canada, the TSX bucked the trend, climbing 80 points on Thursday.

U.S. Markets on Track for Another Week of Losses; TSX Up Slightly

For the four trading days covered in this report, the Dow lost 943 points to close at 31,253, the S&P 500 dropped 123 points to settle at 3,901, while the tech-heavy Nasdaq sunk 417 points to close at 11,388. In Canada, the TSX rose 82 points to end at 20,182.

Strategy Canadian inflation accelerated to a new three-decade high in April to 6.8% YoY

Canadian inflation accelerated to a new three-decade high in April to 6.8% YoY (6.7% expected/6.7% in March), according to data released by Statistics Canada. The average of the three-core metrics, the Bank of Canada’s preferred gauge to measure underlying price pressures, also hit a three-decade high of 4.23%, with the common, median, and trim measures increasing to 3.2%, 4.4%, and 5.1%, respectively. Goods and services inflation advanced 9.1% and 4.6%, respectively, but energy recorded the largest annual gain of 26.4%. On a monthly basis, shelter costs (+1.1%) contributed most to underlying price gains, along with food and health services. There were some signs of moderating price pressures compared to last month. Although prices accelerated slightly more than expected by 0.6% MoM (0.5% expected), the gain was significantly less than the 1.4% observed in March. Today’s data adds to the urgency for the Bank of Canada to deliver subsequent rate increases at their upcoming meetings. After Governor Macklem and his colleagues raised interest rates by 50bps last month, markets are expecting a similar move at both the June and July meetings. A separate report released today also showed that home prices in Canada rose 18.8% compared to the same period last year (18.4% in March) and 2.0% compared to last month, though price gains could show signs of slowing in the months ahead as borrowing costs pick up.

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Market Watch: May 20, 2022

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