By Bill Curry
Inflation Concerns Weighing on Investor Sentiment
U.S. inflation hit an important milestone early this week. Data released Monday showed the Commerce Department’s price index for personal-consumption expenditures was up 2% from a year earlier in March, the first time in more than a year it was on target. Despite the news, the Federal Reserve on Wednesday held interest rates steady, leaving it on track to raise borrowing costs in June. While the Fed’s latest announcement has eased some short-term concerns, the threat of higher rates moving forward remains in focus.
Also in focus this week were fears of a looming trade war with Europe (and Canada and Mexico) over U.S.-imposed steel tariffs. Concerns were eased somewhat when the U.S. administration extended its tariff exemptions until June 1.
Meanwhile, U.S.–China trade talks began this week in Beijing to negotiate a resolution of U.S. complaints over a variety of issues, including subsidies and limitations on foreign investment. In Canada, data showed that the economy surged in February. Statistics Canada reported that real GDP rose 0.4% month over month, the strongest one-month growth since last spring, following a decline of 0.1% in January.
Meanwhile, record-high household debt in Canada is keeping the BoC cautious about the timing of its next interest rate hike. The roughly $2-trillion of debt Canadian households are carrying has made the economy much more sensitive to higher interest rates than it has been in the past. Turning to Europe, the eurozone economy slowed in the first three months of this year, dampening hopes of another year of strong growth. Uncertainty about the economy is likely to weigh on the ECB’s next big decision over when and how to end its bond-buying stimulus program.
Investor fears over inflation weighed on North American benchmarks. For the four days covered in this report, the Dow dropped 381 points to close at 23,930, the S&P 500 was down 40 points to end at 2,630, and the Nasdaq declined 32 points to settle at 7,088. The TSX followed the downward trend, shedding 47 points to finish at 15,621.
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