Weekly commentary – For the week ended October 25

Global equity markets finished lower over the week ended October 25. Investors took a bit of a breather ahead of key earnings announcements and the next move from global central banks. The S&P/TSX Composite Index declined, seeing weakness in the Consumer Staples and Information Technology sectors. U.S. equities also dropped. Yields on 10-year government bonds in Canada and the U.S. increased. Oil and gold prices?increased.

BoC makes jumbo rate cut

• The Bank of Canada (“BoC”) lowered its benchmark overnight interest rate by 50 basis points (“bps”) to 3.75% at its October meeting. The BoC has lowered its policy interest rate at four straight?meetings.
• The BoC believes the jumbo rate cut was warranted amid below-target inflation along with slowing economic activity and a weakening labour?market.
• Canada’s central bank believes we have now entered a low inflationary environment. The BoC will seek to maintain price stability while navigating the economy through a soft?landing.
• In its quarterly outlook, the BoC said it believes inflation will remain close to 2.0% next year, while economic growth should pick up. More rate cuts are likely but will continue to be data dependent.
• Lower rates appear to be helping prop up domestic demand. Retail sales rose by 0.4% in August, adding to the 0.9% in?September.

U.S. real estate market remains troubled

• Data is pointing to ongoing troubles in the U.S. real estate market. Activity has weakened amid increased borrowing costs and high home prices. Sales of existing homes dropped by 1.0% to 3.84 million in September, which was the lowest number of home sales in a month since?2010.
• The number of home sales increased over the month. However, demand failed to keep up with tight financial conditions weighing on purchasing?activity.
• In a separate report, the Mortgage Bankers Association of America (“MBA”) reported that mortgage applications dropped for a fourth straight week, declining by 6.7% over the week ended October?18.
• MBA also reported that the rate on a 30-year fixed-rate mortgage was unchanged at 6.52% over the same week. After dropping sharply since July, mortgage rates have ticked higher with expectations growing the U.S. Federal Reserve Board (“Fed”) will only slowly cut interest?rates.
• The ongoing troubles in the U.S. real estate market could keep the Fed on a path of cutting interest rates. The Fed hopes that real estate demand will eventually pick up if it keeps lowering rates and consumer confidence?grows.

PBOC seeks to support China’s economy

• Earlier in October, the People’s Bank of China (“PBOC”) and China’s government announced plans to enact extensive measures to help support China’s struggling economy. The PBOC implemented one of these measures at its October?fixing.
• The PBOC lowered its one- and five-year loan prime rates by 25 bps to 3.10% and 3.60%, respectively.
• China’s central bank hopes these measures will help improve loan activity for households and businesses, while also improving property market transactions. Domestic demand and the property market have been particularly troublesome for China’s economy.
• The PBOC and government are likely to keep considering and implementing stimulus measures to help China’s economy. These measures could help consumer confidence and raise optimism towards Chinese equity markets.

IMF downgrades 2025 global growth projection

• In its most recent World Economic Outlook, the International Monetary Fund (“IMF”) downgraded its projection for global economic growth next year, citing several risks to the global economy.
• The IMF now projects the global economy will grow by 3.2% next year, down from its earlier projection of 3.3%. It still expects growth of 3.2% this year.
• The IMF is encouraged by central banks cutting rates amid lower inflationary pressures, which could help global economic activity.
• However, persistent geopolitical tensions and trade protectionism could hinder global economic growth, according to the IMF.
• Projections and recent data point to ongoing growth in the global economy, albeit at a relatively soft pace. The good news is that a major recession appears unlikely, but several risks continue to weigh on the outlook.