Market Watch: April 21, 2023

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For the four trading days covered in this report, the Dow lost 100 points to close at 33,787, the S&P 500 fell by 8 points to settle at 4,130, while the tech-heavy Nasdaq dropped 64 points to close at 12,060. In Canada, the TSX climbed 51 points to end at 20,631.

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Strategy

Inflation in Canada moderated further in March

Canada’s consumer price index (CPI) moderated in March to 4.3% year-over-year (YoY) following a 5.2% increase in February, according to Statistics Canada. Base year effects continued to have a strong downward impact on inflation, with gasoline prices falling 13.8% YoY, the largest annual decline since July 2020. Grocery costs also decelerated, rising 9.7% versus February’s gain of 10.6%. Excluding food and energy, prices were up 4.5% YoY from 4.8% previously. Much of the upward pressure came from mortgage interest costs which rose 26.4% YoY in March. Excluding this category, inflation rose 3.6%, moderating from 4.7% in the previous month. The Bank of Canada’s (BoC) trim and median inflation measures also cooled, averaging 4.5% in March versus 4.9% in February. The figures reaffirm that inflation is slowing, supporting the BoC’s decision to pause rate hikes. However, the Bank said that getting inflation back to the 2% target could prove to be challenging. Complicating matters further is that wage pressures could pick up, as more than 155,000 public sector workers are set to go on strike if no deal is reached in their talks with the Federal government. Although monetary authorities are not expected to alter their policy stance at their next meeting, we think they will remain on guard to assess whether further rate hikes are necessary should inflation prove to be stickier than expected.

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