Global equity markets finished largely flat over the week ended December 13. Investors digested mixed economic data and how it might impact the final rate decision by the U.S. Federal Reserve Board (“Fed”) on December 18. In Canada, the S&P/TSX Composite Index finished lower, dragged down by the Communication Services sector. U.S. equities also declined. Yields on 10-year government bonds in Canada and the U.S. increased. The price of oil and gold rose over the week.
BoC makes another 50-bps rate cut
- In a move widely expected by economists, the Bank of Canada (“BoC”) lowered its benchmark overnight interest rate by 50 basis points (“bps”) to 3.25%.
- This marked the BoC’s fifth straight rate cut, and its second straight at 50 bps, with inflation coming down and economic growth stalling.
- Canada’s central bank believes its aggressive rate cuts will help improve consumer strength, which should be good for the overall economy and help stabilize prices.
- The BoC noted that changes in Canada’s immigration policy and the threat of tariffs could weigh on economic conditions.
- The BoC’s key interest rate now stands within its neutral range. While further rate cuts are expected, the BoC said it might be more gradual and make each decision based on prevailing economic data.
Price pressures in the U.S. accelerater
- Consumer price pressures in the U.S. picked up in November, with the annual inflation rate rising to 2.7% from 2.6% in the previous month. November’s rate matched expectations.
- Energy costs fell at a slower pace than the previous month. The growth in food and shelter prices remained elevated in November.
- The annual core inflation rate held steady at 3.3% in November.
- Despite rising in November, inflation has trended downward over the past year. The Fed is expected to lower interest rates again on December 18.
- Resilient economic conditions point to a Fed that will likely take a gradual approach to cutting interest rates.
ECB lowers rates for a fourth time in 2024
- The European Central Bank (“ECB”) cut its three policy interest rates by 25 bps at its December meeting.
- This marks the fourth rate cut from the ECB this year in response to slowing inflation and relatively soft economic conditions.
- The ECB’s main refinancing rate now stands at 3.15%.
- At the meeting, the ECB downgraded its outlook for European growth to 0.7% in 2024 and 1.1% in 2025. The ECB expects inflation to slow to 2.1% next year.
- Europe’s central bank didn’t give specific direction on the path of interest rates, but it did note it would adjust policy based on incoming data. The ECB is expected to continue lowering interest rates in 2025.
China’s exports boosted before potential tariffs
- Exports from China rose by 6.7% year-over-year in November, adding to the 12.7% increase posted in October.
- Exports to the U.S. increased over the month. U.S. companies may be frontloading purchases from China ahead of the potential for increased tariffs from the U.S. on Chinese goods.
- Conversely, imports from China declined by 3.9% year-over-year in November, suggesting still-muted domestic demand.
- Given the economic landscape and the potential for tariffs to hinder growth, China’s government announced it would take a proactive approach to helping its economy through fiscal and monetary policy.
- The People’s Bank of China lowered key interest rates on several occasions in 2024, with more expected next year to increase liquidity and boost consumer and business activity.
