It was a mildly positive week on the markets with both equity and bond markets gaining ground on better inflation news and rate cuts in Canada & Europe. Oil has softened a bit while Bitcoin traded over $70,000 again this week.
| Index | Close May 30th 2024 | Close June 6th 2024 |
| S&P500 | 5,232 | 5,353 |
| TSX60 | 22,072 | 22,229 |
| Canada 10 yr. Bond Yield | 3.74% | 3.42% |
| US 10 yr. Treasury Yield | 4.55% | 4.29% |
| USD/CAD | $1.36650 | $1.36698 |
| Brent Crude | $81.90 | $79.83 |
| Gold | $2,342 | $2,373 |
| Bitcoin | $68,179 | $70,957 |
Source: Trading Economics & Factset
The big news this week is a 0.25% drop in the Bank of Canada overnight interest rate. In their press release the Bank noted a continued decline in inflation and a slower than forecast growth in GDP. Also helping was a gradual softening of the labour market. Companies are hiring at a slower rate and wage pressures are moderating. The question now is whether this is a one and wait and see or the start of a series of cuts. The Bank will, as always, remain opaque and data dependent.
The European Central Bank (ECB) also dropped rates by 0.25% as inflation continues to moderate. The ECB expects inflation to fall in the Euro area to 1.9% by 2026. The ECB will also reduce its balance sheet and not re-invest proceeds from maturing bonds acquired under the PEPP programme.
With a growing number of central banks now in the early stages of easing, all eyes are laser focused on the US Federal Reserve. A softer labour market (see next para) has raised expectations of a September rate cut. Traders now give the chance of a 0.25% rate cut a 69% probability.
This week saw a continued softening of the US labour market. There are now 1.2 jobs available for every job seeker. In 2021 there were 2 jobs for every person looking for work. While the number of people quitting their job has ticked up slightly the trend is down as job openings also continue to decline. The chart below shows how the labour market dynamics have changed since the pandemic started.
India and Mexico finished their elections this week. The surprise was from India where Prime Minster Narendra Modi’s BJP failed to hold on to its majority in parliament. Before the election, the BJP was widely expected to secure a third majority government. PM Modi will now need to work with a collection of smaller parties to form a government. Perhaps the winner was the Congress Party led by Rahul Gandhi which has new life after a decade+ in the political wilderness.
Mexico elected Claudia Sheinbaum as its new president. The former mayor of Mexico City will be the first woman and the first Jewish person to be elected to the Presidency. It is expected that her policies will be a continuation of her predecessor Andres Obrador (they are from the same party). Aside from her stint as mayor of Mexico City, she is a climate scientist with a PhD. in energy engineering.
TC Energy (TransCanada Pipelines) shareholders have voted to spin off the North American oil pipeline business. The new entity holding the oil business will be South Bow Corp, which will be listed on both the New York and Toronto exchanges. The transaction will also shift C$7.9 billion of debt from TRP’s balance sheet to South Bow’s. A large part of that debt is related to the Keystone pipeline that moves crude to the US Gulf Coast.
This week’s rate cut by the Bank of Canada may provide some relief to the sluggish Toronto housing market. House prices declined in May as listings increased by 21.1% over last year and sales declined by 21.7%. I suspect it will take more than one rate cut to get buyers off the sidelines.
A recent story out of Ontario illustrates the need for sound financial/tax advice before making a major decision. In this instance, an Ontario woman decided to gift 2 parcels of land to her children. The property in question was part of the family farm and had been owned for 58 years. The gift to non-arms length persons is considered to be a disposition at fair market value and in this case triggered a capital gain with a $40,000 tax bill. This tax treatment is not new, so be aware if you are gifting any capital property to a family member. I hope the kid’s covered Mom’s tax bill.
June 6th marks the 80th anniversary of the D-Day landings on the Normandy beaches. My father-in-law commanded a Canadian warship at the landings providing protection to the armada from u-boats. With that – we will close of with the theme song from the “Longest Day” and raise a glass to those brave souls that stormed the beaches that day….
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
