A relatively quiet week on the markets. The only exception was Bitcoin which breached $60,000 this week. Economic news has been relatively benign and earnings coming in a bit above consensus.
| Index | Close Feb. 22nd 2024 | Close Feb. 29nd 2024 |
| S&P500 | 5,087 | 5,093 |
| TSX60 | 21,318 | 21,371 |
| Canada 10 yr. Bond Yield | 3.54% | 3.49% |
| US 10 yr. Treasury Yield | 4.38% | 4.25% |
| USD/CAD | $1.34810 | $1.35710 |
| Brent Crude | $82.70 | $82.01 |
| Gold | $2,024 | $2,044 |
| Bitcoin | $51,645 | $60,936 |
Source: Trading Economics & S&P Cap IQ
Canada’s GDP for Q4 of 2023 came in higher than expected, fending off a recession. Our trade deficit shrank as well thanks to higher exports of crude oil and a drop in imports. Q3 numbers were revised upwards from a 1.2% decline to a 0.5% decline. January saw a 0.4% growth in GDP. The resilience in the economy will keep the Bank of Canada on the sidelines, with no rate cut before June.
In the US the latest inflation came in as expected with core inflation sitting at 2.8%. While still above the Federal Reserve’s 2% target, traders are becoming more confident of rate cuts starting in June. Not to be left out of the party, the EU also saw inflation inch down. Inflation declined in Germany, France and Spain and unemployment ticked up in Germany. Core inflation is still a bit sticky; a June date is still the most likely for the first drop in rates.
Japan, which has flirted with deflation for over 3 decades may be close to ending its negative interest rate policy. Inflation has climbed to the Bank of Japan’s (BOJ) 2% goal, leading to investors betting on a change to policy as early as April. The change in policy should lead to a stronger yen.
Lynx Air, a Canadian ultra-low-cost airline, folded its wings last Friday. The airline had accumulated over $600 million of liabilities (mostly aircraft leases) with only $400 million in assets. The company had tried to do a last-minute deal with competitor Flair, but time and money had run out. The Canadian marketplace might not be able to support the ultra-low-cost model, thanks to high airport and regulatory fees, which are the same for every airline and/or passenger (i.e. high fixed costs). Other jurisdictions subsidize their airports through taxes rather than having a user-pay model. You can read more about how the system is stacked against the discounters here.
Speaking of oligopolies, Canada’s banks reported Q1 earnings this week with most coming in ahead of expectations. The only bank that disappointed was BMO. The banks managed to beat expectations despite taking materially higher loan loss provisions.
Sweden is one step closer to becoming a full member of NATO. Hungary’s parliament voted to accept Sweden as a NATO member this week. Hungary and Turkey had both dragged their heels in approving Sweden’s membership. The move ends 200 years of neutrality for Sweden.
On the subject of NATO, and defence, Canada’s annual defence budget is about 1.38% of our GDP, well below the NATO target of 2% but above the 1% in 2014. To get to the 2%-mark, defence spending would need to increase by $20 billion per year over the next 3 years. The question for government and voters is, how do you want to get there? Cut other programs? Increase taxes? Borrow and increase the debt/deficit? These are necessary and hard choices. Two years into Russia’s invasion of Ukraine and growing unease over the commitment of the US (Trump) to its allies, there is no peace dividend.
Several times a year we host classical musician who come to Victoria to perform. This year we had the pleasure of hosting a classical & baroque harpist Antoine Malette-Chenier who was here to perform in the Pacific Baroque festival. Mom always told us to share, so here is a sample of what we got to listen to as he practised in the house…. Enjoy
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
Tel 250.999.3329.
www.ncpdfo.com