It was a relatively quiet week on the markets. Canada had a short week for the Victoria Day long weekend. Next weekend will be the US’ turn with a long weekend for Memorial Day. The underlying drivers of the market have not changed, with inflation, interest rates, and tech earnings all top of mind for investors.
| Index | Close May 16th 2024 | Close May 24th 2024 |
| S&P500 | 5,290 | 5,268 |
| TSX60 | 22,300 | 22,201 |
| Canada 10 yr. Bond Yield | 3.59% | 3.65% |
| US 10 yr. Treasury Yield | 4.38% | 4.48% |
| USD/CAD | $1.36152 | $1.36949 |
| Brent Crude | $83.43 | $81.31 |
| Gold | $2,379 | $2,328 |
| Bitcoin | $65,347 | $67.561 |
Source: Trading Economics & Factset
There was good news on the inflation (CPI) front in Canada. The headline rate dropping to 2.7% in April from March’s reading of 2.9% as expected. Food inflation slowed to 1.4% but this was offset by higher gas prices which rose 6.1%. The outlier was rent. Nationally the increase was 8.2% (year over year). Alberta’s increase in rents was an eye popping 16.2% year over year. The drop in the headline rate gives the Bank of Canada more room to cut rates next month. Some economists are still on the fence, and it is certainly not a done deal. Let’s give it a 75% probability.
Overseas, the UK reported lower inflation but still above consensus and the Bank of England’s 2% target. This has bond traders paring back bets on a June rate cut. The pound did strengthen on the news with currency traders betting on a June cut by the European Central Bank. The differential in interest rates would make the pound more attractive. There is a tension between not delaying a rate cut so the local economy does not suffer and cutting too soon and having the currency depreciate. Nobody said a central bank’s job was easy.
In the world of arcane but important financial news, the term structure of Brent oil futures has moved from backwardation to contango. Backwardation is when sport or near-term prices are higher than longer date futures contracts. Contango is when the price for later delivery is higher. Markets that are in backwardation are bullish for the price of the underlying commodity, in this case Brent crude oil. The change is an indication of both lower current demand and a likely decline in oil prices.
India is in the final few days of its parliamentary (Lo Sabha) elections. Incumbent Prime Minister Narendra Modi and his BJP party is widely expected to be returned to power again. This is the worlds largest election with 970 million eligible voters casting ballots over a 44-day period. Just as the Indian election is ending, UK Prime Minister Rishi Sunak has called a snap election to take place on July 4th. In this case the incumbent PM and Conservative Party is expected to lose to Keir Starmer and the Labour Party after 14 years in power. Incumbency can only carry you so far before it becomes a millstone.
Both Microsoft and Dell have announced new personal computers that will run with artificial intelligence chips. The new chips, supplied by Qualcomm and Nvidia respectively, will optimize the use of AI powered software. Microsoft’s Co-pilot is becoming ubiquitous. The loser here is Intel which is being squeezed by leaders in the new technology.
Swiss banking giant UBS publishes a report on Family Offices and the ultra-wealthy every year. This year’s report is interesting in that it points to where the rich see risks. Perhaps unsurprisingly, geo-political risks are seen as the biggest near-term threat. In the medium-term, climate change and debt levels are seen as the primary risks. Despite the political noise around ESG investing, the wealthy see climate change as a real threat (with opportunities as well). Maybe it is a multi-generational mindset. Climate change has featured in the UBS reports for several years.
We are off to the beautiful Comox Valley this weekend, where in addition to some client meetings, I will be participating in the Comox Tri-K triathlon. It is my first event of this type and am looking forward to it after 3+ months of training. Hil will be there as my official cheering section. With that in mind, we’ll sign of with the theme from Chariots of Fire….
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
