Investment Commentary For The Week Ended October 28 From Our Partners

Global equity markets advanced over the week ended October 28 as relatively strong earnings results and higher-than-expected third-quarter gross domestic product in the U.S. eased recession fears. The S&P/TSX Composite Index finished higher, benefiting from the strong performance of the Information Technology sector. In the U.S., the S&P 500 Index was pushed higher by the Industrials sector. Oil prices advanced, while the price of gold dropped over the week. Yields on the benchmark 10-year government bonds in Canada and the U.S. fell.

Rate hikes keep coming

1. The Bank of Canada’s (“BoC”) rate-hike pace slowed at its meeting last week as the central bank raised its benchmark overnight interest rate by 50 basis points (“bps) to 3.75%.
2. The BoC also noted interest rates might need to rise further amid still elevated broad‑based price pressures.
3. In October’s Monetary Policy Report, the BoC lowered its outlook for inflation and economic growth, primarily due to weakening demand and lower oil prices.
4. The European Central Bank raised rates at a third consecutive meeting, increasing its policy interest rate by 75 bps to 2.00%, the highest level since 2009.
5. Meanwhile, the Bank of Japan held its key interest rate steady at 0.00%.

Canadian GDP ticks higher in August

1. The Canadian economy expanded by 0.1% in August, ahead of the zero-growth Statistics Canada (“StatsCan”) had estimated.
2. An increase in the service-producing sector was partly offset by a decline in the goods‑producing sector.
3. In an early estimate, StatsCan reported the Canadian economy may have grown by 0.1% in September, which would translate to a quarterly return of 0.4% in the third quarter.
4. If the growth rate holds, it would be a slowdown from the 0.8% quarterly increase posted in the previous two quarters.

U.S. economy expands in third quarter

1. Based on a preliminary estimate, the U.S. economy expanded in the third quarter at an annualized pace of 2.6%, after two straight quarters of falling growth.
2. The jump was higher than the 2.4% increase economists expected.
3. The U.S. economy benefitted from higher net trade, with exports rising by 14.4%.
4. The U.S. consumer remained relatively resilient during the quarter, with consumer spending growing by 1.4%. However, the increase was down from the 2.0% rise last quarter, suggesting tighter financial conditions are having a slight impact on U.S. consumers.
5. The result will likely keep the U.S. Federal Reserve Board on a monetary tightening path.

Highest mortgage rate since 2001

1. The Mortgage Bankers Association of America (“MBA”) reported that the 30-year fixed‑rate mortgage rate in the U.S. rose to 7.16% from 6.94% during the week ended October 21.
2. It marked its highest rate since 2001.
3. The rising mortgage rates and already elevated home prices are weighing on housing demand. According to MBA, mortgage applications dropped by 1.7% over the same week, the tenth decline over the last 11 weeks.
4. Pending home sales fell for a fourth straight month in September, declining by 10.2% and marking its biggest drop since April 2020.

Slower trade weighs on China’s growth

1. Despite expanding faster in the third quarter of 2022 compared to the second quarter, signs indicate weakening economic conditions in China.
2. China’s economy expanded by 3.9% year-over-year in the third quarter, outpacing the 0.4% growth in the second quarter. The economy benefited from easing lockdown restrictions, which helped stimulate economic activity.
3. In addition, infrastructure investment was a key contributor to growth over the quarter.
4. Still, the economy was weighed down by reduced trade activity, partly due to slower global demand.
5. Domestic demand remains relatively muted. Year-over-year growth in retail sales slowed to 2.5% in September from 5.4% in the previous month. China’s weak property market continues to encumber economic growth.