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Market Watch: March 22

Mar 25, 2024 | 3:46 PM

Week in review

Equity markets rally on central banks’ moves

Equity markets applauded the U.S. Federal Reserve’s (Fed) policy rate decision, economic projections, and Fed Chair Jerome Powell’s press conference. Despite a minor decline on Friday, major global indices closed with strong weekly gains. In the absence of economic data, all eyes were on the remarks from central banks around the globe. On Thursday, an unexpected rate reduction by Switzerland’s central bank helped push markets upwards as investors realized that central banks may not necessarily await the Fed’s rate cuts to implement their own.

Highlights:

• U.S. markets returned 2.31 per cent¹ for the week on the back of the optimism around the Fed’s rate-easing stance and social media platform Reddit Inc.’s successful Initial Public Offer.
• Canadian markets returned 0.64 per cent² for the week, mainly driven by domestic economic data suggesting a soft landing. Materials and energy stocks were detractors as oil prices fell.
• European markets were 1.27 per cent³ higher for the week, influenced by the Bank of England’s recent monetary policy announcement and the Swiss National Bank’s decision to lower its primary rate.
• Emerging markets were rangebound for the week, closing 0.49 per cent⁴ higher, as the Taiwan Weighted Index touched a record high due to optimism for its tech sector amidst rising artificial intelligence (AI) and semiconductor demand. Conversely, Hong Kong’s Hang Seng index fell, impacted by electric vehicle stocks.

charges pending

Red Deer RCMP arrest two individuals following ramming of police vehicle

17h ago

Riverside Drive & southbound 67 Street

Red Deer temporary road closure of street ramp on Saturday

17h ago

breach

Town of Ponoka gives cybersecurity update: investigation ongoing

17h ago

Bond yields rally following Fed’s dovish message

Though the Fed decided to leave interest rates unchanged, U.S. Treasury yields fell fuelled by an upbeat sentiment as the Fed elected to keep three policy rate cuts pencilled in for this calendar year. Global bond yields responded positively to this week’s flurry of central bank moves, which included the Bank of Japan ending negative interest rates, the Bank of England (BoE) and the Reserve Bank of Australia (RBA) leaving its monetary policy rate unchanged, and finally, the Fed maintaining its outlook for rate cuts later in the year. In Canada, bond yields rallied following lower-than-expected inflation for February.

Highlights:

• The two-year U.S. Treasury yield fell six basis points (bps) while the 10-year yield was down two bps. In Canada, the two- and 10-year yields were down by six bps and one bps, respectively.
• Primary volume for investment-grade bonds started the year strong, 35 per cent ahead of the year-ago calendar through mid-March. According to Bloomberg, the high-yield bond primary market is also busy, and the month is likely to end as the second busiest March in the past five years.

Weekly dashboard

(Market Watch website)

Canada’s inflation unexpectedly cools to 2.8 per cent in February

Canada’s inflation rate unexpectedly fell last month, and underlying price pressures are quickly fading. According to Statistics Canada (StatCan), the Consumer Price Index (CPI) rose 2.8 per cent in February on an annual basis, down from 2.9 per cent in January. Analysts were expecting an upturn to 3.1 per cent. This was the second consecutive month that CPI growth has undershot estimates by a wide margin. The inflation rate has also resided within the Bank of Canada’s (BoC) target range of one to three per cent for two consecutive months, the first time that’s happened since early 2021. The results suggest monetary policy is working to bring inflation under control, and likely on a faster timeline than the BoC expected. In January, it projected that annual inflation would average 3.2 per cent in the first quarter.

Highlights:

• After many months of decline, gasoline prices rose four per cent in February from January. This increase was offset by a 26.5 per cent decrease in cellphone plans and a 13.2 per cent drop in internet service. Clothing and footwear prices fell 4.4 per cent and 5.3 per cent, respectively, over the past year.
• The grocery sector was another area of progress. The price of food purchased from stores rose 2.4 per cent in February on a 12-month basis, down from 3.4 per cent in January. Grocery inflation peaked at more than 11 per cent in 2022 and 2023.
• Core inflation, the central bank’s preferred measure of inflation that strips out volatile price movements, was down as well. On a three-month annualized basis, core inflation slowed to an average of 2.2 per cent from 3.1 per cent in January.

U.S. Federal Reserve holds interest rates steady, still sees three cuts in 2024

U.S. Federal Reserve (Fed) officials signalled that it still expects to cut its key interest rate three times in 2024, despite signs that inflation remained elevated at the start of the year. For now, the officials kept its benchmark rate unchanged for a fifth straight time. Speaking at a news conference, Chair Jerome Powell said the surprising pickup in inflation in January and February hadn’t fundamentally changed the Fed’s picture of the economy. The central bank still expects inflation to continue to cool, though more gradually than it thought three months ago.

Highlights:

• In new quarterly projections, policymakers forecast that stronger growth and inflation above its two per cent target level would persist into next year and still expect an unusual combination: A healthy job market and economy in tandem with inflation that continues to cool, just more gradually than they had predicted three months ago.
• For this year, the Fed projected that the economy will expand 2.1 per cent, an increase from its December forecast of just 1.4 per cent.
• New Fed projections show that in 2025, it now foresees only three rate cuts, down from the four it envisioned in its December forecasts, as it expects “core” inflation, which excludes volatile food and energy costs, to still be 2.6 per cent by the end of 2024, up from its previous projection of 2.4 per cent.

Bank of Japan scraps radical policy, makes first rate hike in 17 years

The Bank of Japan (BOJ) ended eight years of negative interest rates and other remnants of its unorthodox policy, making a historic shift away from its focus on reflating growth with decades of massive monetary stimulus. While the move was Japan’s first interest rate hike in 17 years, it still keeps rates stuck around zero as a fragile economic recovery forces the central bank to go slow on further rises in borrowing costs. The shift makes Japan the last central bank to exit negative rates and ends an era in which policymakers sought to prop up growth through cheap money and unconventional monetary tools. In a sign future rate hikes will be moderate, the BOJ also said it expects “accommodative financial conditions to be maintained for the time being.”

Highlights:

• The BOJ ended its policy put in place in 2016 by former Governor Haruhiko Kuroda that applied a 0.1 per cent charge on some excess reserves financial institutions parked with the central bank.
• The BOJ set the overnight call rate as its new policy rate and decided to guide it in a range of 0-0.1 per cent partly by paying 0.1 per cent interest to deposits at the central bank.
• The central bank also abandoned yield curve control, a policy in place since 2016 that capped long-term interest rates around zero and discontinued purchases of risky assets.

In the news: Antitrust lawsuit filed against Apple over monopoly allegations

The U.S. Justice Department has filed a significant antitrust lawsuit against Apple, alleging that the tech giant unlawfully monopolized the smartphone market. Critics have long accused Apple of harming competition through restrictive app store terms, high fees and its tightly controlled ecosystem. The lawsuit challenges various practices, including the company’s 30% commission on app store sales and its control over interactions with third-party tech companies. The tech giant is also accused of preventing other companies from offering apps that compete with Apple products, such as its digital wallet. This legal action reflects growing scrutiny of tech giants’ anticompetitive practices, which are often used to reinforce market dominance, and aims to hold Apple accountable under U.S. antitrust law.

Behind the headline:

• The lawsuit aims to prevent Apple from stifling competing technologies in areas like streaming, messaging and digital payments. Additionally, it seeks to curb Apple’s ability to use contract language that perpetuates market dominance.
• The lawsuit comes in the wake of the recent Epic Games v. Apple lawsuit, which challenged Apple’s iOS App Store policies. Specifically, Epic contested Apple’s restrictive in-app purchasing methods and the 30 per cent commission.
• While the court ruled mostly in Apple’s favour in Epic Games v. Apple, it found the company’s anti-steering policies anti-competitive and is now required to allow developers to offer users alternative payment options within their apps listed in the App Store.

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