Market Watch: March 21

Despite what would largely be considered a week of negative data releases for North American markets, major indices closed moderately higher for the week after the U.S. Federal Reserve (Fed) downplayed growth and inflation concerns. U.S. equity markets were influenced by mixed retail sales data and the anticipation of the Federal Reserve’s policy decision which ultimately left rates unchanged with lower growth projections and higher inflation projections. By week’s end, disappointing forward guidance from major firms like FedEx and Nike weighed on markets, leaving the index just barely in the black. Canadian markets reacted to higher-than-expected inflation and declining retail activity, with sentiment dampened by tariff pressures; gains in several of the larger weighted sectors including financials, energy and materials helped to buoy the index. In Europe, equities rose on optimism surrounding Germany’s fiscal expansion plan but faced geopolitical tensions impacting sentiment. China’s markets gained momentum from a comprehensive consumption package aimed at boosting domestic demand.

Highlights:

U.S. markets returned 0.53%¹ for the week with a number of items weighing on markets including mixed retail sales data and the Fed’s decision to keep rates unchanged while revising growth projections lower, all of which led to cautious investor sentiment throughout the week.
Canadian markets returned 1.76%² for the week with investors reacting to higher-than-expected inflation and declining retail activity, with sentiment further dampened by ongoing tariff pressures and concerns about economic stability.
European markets returned 0.90%³ for the week, rising on optimism surrounding Germany’s fiscal expansion plan, but faced headwinds from geopolitical tensions, including renewed fighting in Gaza and Ukraine.
Emerging markets closed 0.16%⁴ higher for the week gaining momentum from a comprehensive Chinese consumption package aimed at boosting domestic demand, signaling the government’s efforts to stabilize the economy amid fading export tailwinds and broader global uncertainties.

Bond yield mixed as Fed holds rates steady, readjusts growth and inflation projections

U.S. fixed income markets saw short-term yields rise and long-term yields decline as the Federal Reserve left its policy rate unchanged and revised growth projections lower, while credit spreads tightened following the Fed’s indication to overlook temporary tariff-induced price increases. Canadian fixed income markets saw yields move slightly lower for the week despite upwards pressure driven by higher-than-expected inflation data, with the curve steepening as investors adjusted their expectations for future monetary policy actions. European fixed income markets were influenced by Germany’s fiscal expansion plan and geopolitical tensions, leading to mixed movements in yields and cautious investor sentiment amid ongoing uncertainties.

Highlights:

The 2- 10-year U.S. Treasury yields were 1 basis point (bps) higher and 3 bps lower, respectively. In Canada, the 2- and 10-year yields were both 4 bps lower. Bond yields and prices move inversely to one another.
With Federal Open Market Committee officials coming out of their black-out, Chicago Fed President Goolsbee suggested he still sees policy rate cuts in the cards, though the risks are rising to that outlook.
Credit spreads have been oscillating within a range but generally trending wider/higher as risk assets remain volatile. With wider spreads and lower yields, issuers were able to tap the market this week as demand for fixed income products remains robust.

Weekly dashboard

Canada’s annual inflation rate jumps to 2.6% in February as GST holiday ends

Canada’s annual inflation rate showed a surprise jump to 2.6% in February, surpassing expectations as a sales tax break that ended mid-February, pushed prices higher amid an already broad-based price increase, Statistics Canada (StatCan) reported. This was the first time in seven months that the rate of increase of consumer prices has crossed the 2% mark, the mid-point of the Bank of Canada’s 1% to 3% target range. In January, inflation was at 1.9%. Without the tax break, inflation in February would have been 3% StatCan said.

Highlights:

While the prices increased across almost the entire CPI basket, the major jump was noticed in food purchased at restaurants, some clothing items and alcohol after the tax reprieve was lifted.
Food prices increased 1.3% year over year, while clothing and footwear increased 1.4% yearly. Other items that added to price pressures in the CPI basket were transportation, which jumped by 3 %, and usually elevated shelter costs, which were up 4.2%.
When arranged in order of increasing prices, CPI-median, or the centremost component of the CPI basket, rose to 2.9% in February. CPI-trim, which excludes the most extreme price changes, was also up to 2.9%. Both were at 2.7% in January.

U.S. Federal Reserve extends pause on rates, cuts outlook for growth

The U.S. Federal Reserve (Fed) extended its wait-and-see posture on interest rates while marking up its forecasts for inflation and revising down its outlook for growth this year. The central bank held steady its benchmark federal-funds rate at around 4.3% at its policy meeting as it assesses how policy changes by the Trump administration could reshape the economic outlook. Consumer sentiment has slumped amid headlines on federal cutbacks and higher tariffs in recent weeks. “We think it’s a good time for us to wait for further clarity,” said Fed Chair Jerome Powell.

Highlights:

Officials indicated they expected inflation to rise this year to 2.7%, up from 2.5% in January, with tariffs on imported goods and materials accounting for much of that revision.
New economic projections showed 11 of 19 policymakers expect the Fed to cut rates at least twice this year, a narrower majority than the 15 officials who had pencilled in at least two cuts in December.
Fed officials also said they expect gross domestic product growth of 1.7% in 2025, down from their December projections of 2.1%.

Eurozone inflation cooler than thought, underscoring sluggish economy

Eurozone inflation was less rapid than estimated last month, adding to signs of coolness in the economy as policymakers mull how much further to ease interest rates. According to updated figures from statistics agency Eurostat, prices rose 2.3% on year in February across the 20 nations that use the euro. That was a lesser rate than the 2.4% initially estimated and means annual inflation slowed more sharply from 2.5% at the start of the year.

Highlights:

A rate of inflation closer to the European Central Bank’s (ECB) 2% target comes amid sluggishness in the eurozone economy. At the bank’s recent meeting, ECB President Christine Lagarde warned that Washington’s threats to impose steep tariffs on European goods are causing “phenomenal uncertainty.”
The central bank has repeatedly downgraded its forecasts for growth in eurozone gross domestic product and now expects the economy to expand just 0.9% this year.
With the weak economy overtaking inflation as the ECB’s primary focus, the bank has lowered its key interest rate to 2.5% from 4% last summer. The deteriorating trade backdrop could mean rate setters opt for further cuts to borrowing costs.

^{1 S&P 500 Index CAD}
^{2 S&P/TSX Composite Index CAD}
^{3 Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index CAD}
^{4 Bloomberg EM Large & Mid Cap Price Return Index CAD}

by Scotia Wealth Management

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Market Watch: March 21

Week in review

Equity markets snap weeks long losing streak

Bond yield mixed as Fed holds rates steady, readjusts growth and inflation projections

Weekly dashboard

Canada’s annual inflation rate jumps to 2.6% in February as GST holiday ends

U.S. Federal Reserve extends pause on rates, cuts outlook for growth

Eurozone inflation cooler than thought, underscoring sluggish economy

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