Global equity markets fell over the week ended February 28. Talks of tariffs and concerns about a potential slowdown in artificial intelligence spending weighed on markets. The S&P/TSX Composite Index ticked higher, led by the Consumer Staples sector. U.S. equities posted a loss on the week. Yields on 10-year government bonds in Canada and the U.S. declined. Oil and gold prices finished lower over the week.
Canada posts better-than-expected growth
- Canada’s gross domestic product expanded by 2.6%, annualized, in the fourth quarter of 2024.
- This topped economists’ expectations and was the fastest pace of growth since January 2023 as looser financial conditions helped increase consumer and business spending.
- Looking ahead, the outlook is a bit murky. The threat of extensive tariffs from the U.S. could derail the recent progress in economic conditions.
- Measures of both consumer and business confidence fell in their most recent reports, with concerns over the future health of the economy heightened given that tariffs look set to be implemented.
- The Bank of Canada said it expects Canada’s growth to moderate if these tariffs are put into place.
Inflationary pressures soften in the U.S.
- In the U.S., the personal consumption expenditures price index (“PCE”) rose by 2.5% year-over-year in January, down from the 2.6% increase in December.
- The core PCE eased to 2.6% in January, matching expectations.
- Personal spending declined by 0.2% over the month, its first decline since March 2023.
- A second estimate showed the U.S. economy grew at an annualized pace of 2.3% in the fourth quarter.
- The decline in the U.S. Federal Reserve Board’s (“Fed”) preferred inflation gauge gives hope of a rate cut this year. However, economic conditions remain relatively solid, which could keep the Fed on the sidelines until later in the year. The wildcard, of course, would be the impact from tariffs, which could hurt economic conditions.
Japan’s retail sales growth accelerates
- Retail sales in Japan grew by 3.9% year-over-year in January, marking the fastest pace of growth since February 2024.
- Consumers have been helped by higher wages, which resulted in a pick-up in spending. Retail sales growth was relatively broad-based, with particularly strong increases for fuel and at non-store retailers.
- As higher wages boosted spending, inflationary pressures also increased.
- The Bank of Japan has already raised interest rates three times. Japan’s central bank said more monetary tightening may be needed to bring down inflation.
- Meanwhile, Japan’s industrial production fell by 1.1% in January, its third straight decline.
Global trade activity drops in Q4
- The Organisation for Economic Co-operation and Development (“OECD”) reported that merchandise trade activity among G20 countries dropped in the fourth quarter of 2024.
- This marked the first quarterly decline in merchandise trade activity in 2024. The OECD says exports fell by 0.6% over the quarter, driven by a 2.2% decline in shipments from the U.S. Imports declined by 1.0%.
- Looking at the services sector, exports rose by 1.5% in the fourth quarter, while imports were largely unchanged. The services sector continues to be a key driver of global economic growth.
- Trade activity has come under an immense spotlight amid escalating trade tensions between the U.S. and many economies around the world.
- Last week, U.S. President Donald Trump confirmed that a 25% tariff against Canada and Mexico will go ahead on March 4, pending ongoing negotiations. Extensive tariffs are expected to weigh on economic growth.
