By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: Nov. 29, 2024

Nov 29, 2024 | 4:36 PM

This week’s highlights

• Equity markets advance despite tariff threats and weaker-than-expected GDP
• Tariffs and weak GDP data rattle fixed income markets
• Canada’s economy grew by 1% in third quarter
• Fed’s preferred inflation measure remained elevated in October
• German business confidence declines as geopolitical pressures mount

Week in review

Equity markets advance despite tariff threats and weaker-than-expected GDP

The week was heavily defined by President-elect Donald Trump’s proposed tariffs on Mexico, Canada, and China which created an acute sense of uncertainty, particularly in North America, given their potential to disrupt trade flows and increase inflationary pressures. The U.S. economy showed resilience with a 2.8% GDP growth in Q3, though personal consumption and exports were revised lower. Additionally, U.S. durable goods orders fell short of expectations, and the labour market showed signs of cooling, contributing to a weaker U.S. dollar. Consumer confidence remained strong, driven by robust household finances and optimistic holiday spending forecasts. In Europe, concerns over France’s fiscal outlook and potential government collapse added to market volatility. In Canada, GDP growth for Q3 came in at 1.0%, below the Bank of Canada’s (BoC) forecast of 1.5%, driven by household and government spending but offset by lower business investments and exports. This weaker-than-expected growth likely influenced Canadian markets by increasing expectations for further monetary policy easing from the BoC.

Looking back

Year in Review: Red Deer County Mayor Jim Wood proud of community growth

2h ago

2024 reflection

Year in Review: Olds Mayor Judy Dahl thanks community following challenging year

20h ago

Bower Ponds

Newcomer learn to skate event returns January 2

22h ago

Highlights:

• U.S. markets were 1.43%¹ higher for the week, influenced by President-elect Trump’s proposed tariffs, resilient Q3 GDP growth, strong consumer confidence, weaker-than-expected durable goods orders, and signs of a cooling labor market which contributed to a weaker U.S. dollar.
• Canadian markets rose 0.87%² for the week despite proposed tariffs and weaker-than-expected Q3 GDP growth.
• European markets returned 1.76%³ for the week with concerns over France’s fiscal outlook and potential government collapse being offset by optimism that U.S. restrictions on chip equipment sales to China might be less stringent than initially feared.
• Emerging markets closed 1.51%⁴ lower as geopolitical tensions, a strong U.S. dollar and ongoing concerns about global economic slowdown and recession risks weighed on investors’ risk appetite.

Tariffs and weak GDP data rattle fixed income markets

Once again President-elect Donald Trump’s proposed tariffs on Mexico, Canada, and China heavily influenced fixed income markets. U.S. rates remained stable initially but moved lower following weaker-than-expected durable goods orders and a resilient Q3 GDP growth of 2.8%. Credit spreads tightened amid strong demand and limited new issuance, while high yield spreads reached three-year lows. In Europe, concerns over France’s fiscal outlook and potential government collapse widened the spread between French and German 10-year yields. Canadian rates also moved lower, driven by weaker-than-expected Q3 GDP growth and expectations of further monetary easing from the Bank of Canada.

Highlights:

• The 2- and 10-year U.S. Treasury yields were 12 and 16 basis point (bp) lower respectively. In Canada, the 2- and 10-year bond yields fell 20 bps and 24 bps respectively.
• The coming two weeks are expected to see the bulk of new issuance for December and would likely be the last period with reasonable liquidity in the secondary markets before the holidays.
• Fed Chair Powell’s speech on Wednesday could bring more clarity about future monetary policy, just before Fed members enter a blackout period leading up to the FOMC meeting on December 18.

Weekly dashboard

Canada’s economy grew by 1% in third quarter

According to Statistics Canada (StatCan), Canada’s economy grew as expected at an annualized rate of 1% in the third quarter, helped by household and government spending and partly offset by lower business investments and exports. On a monthly basis, however, the gross domestic product (GDP) came below expectations at 0.1%, and according to preliminary estimates, growth was likely to be 0.1% in October. StatCan revised the second quarter annualized growth to 2.2% from 2.1%.

Highlights:

• StatCan said household spending grew 0.9% and was one of the main drivers of the growth along with continued government expenditures.
• The third quarter growth fell short of the Bank of Canada’s own 1.5% projection and is the second time its third-quarter estimate from its last two monetary policy reports will be missed, as growth continued to be uninspiring after four rounds of rate cuts.
• On a per-person basis, the size of Canada’s GDP has shrunk 0.4% in the third quarter, its sixth consecutive quarterly decline.

Fed’s preferred inflation measure remained elevated in October

The core version of the U.S. Federal Reserve’s preferred 12-month inflation gauge ticked back up to 2.8% as expected last month, a sign that even though prices have decelerated, they are still rising. Economists had been expecting the 2.8% 12-month rise in core prices, a figure that is relatively straightforward to forecast because it draws directly on previous statistical releases.

Highlights:

• Prices, as measured by the personal consumption expenditures (PCE) price index, rose 0.2% in October, or 0.3% after excluding the food and energy categories. Looking back 12 months, the PCE price index is up 2.3%, or 2.8%, on a core basis.
• The persistence of core PCE inflation closer to 3% than 2% complicates upcoming Fed decisions. In September, the central bank made its first rate cut of the cycle as officials reacted to signs of a cooling economy.
• Progress on inflation has stalled in recent months, leaving open the possibility that the Fed could pause rate cuts at either of its next two meetings.

German business confidence declines as geopolitical pressures mount

Business confidence in Germany slipped in November amid mounting pressures on the country’s industrial base, alongside concerns raised by the fracture of its governing coalition and the threat of U.S. trade tariffs. Declining business sentiment reflects concerns around Germany’s industrial sector, the traditional driver of the eurozone’s largest economy. A handful of major manufacturers have recently announced they are shedding jobs in the country, including U.S. auto giant Ford and car-parts supplier Bosch.

Highlights:

• The Ifo Institute said that its business climate index fell to 85.7 in November from 86.5 last month, the fifth fall in six months. The reading also lagged economists’ expectations of 86.1.
• The collapse of Chancellor Olaf Scholz’s governing coalition highlighted the divergent responses to how to fix the country’s economic malaise, which could be compounded should President-elect Donald Trump raise trade tariffs.
• Weak growth in Germany, which accounts for around 30% of the eurozone’s gross domestic product, could prompt the European Central Bank to act faster on lowering interest rates.