Investment Commentary For the week ended November 4 From Our Partners

Global equity markets finished largely flat over the week ended November 4. Equity markets suffered losses early in the week before bouncing back as reports surfaced lockdown restrictions in China may ease, while a mixed jobs report in the U.S. had investors considering the size of the next rate hike by the U.S. Federal Reserve Board (“Fed”). The Fed raised rates and suggested its key interest rate would climb higher than originally expected. In the U.K., the Bank of England announced its largest policy interest rate hike since 1989, lifting it by 75 basis points (“bps”) to 3.00%. The yield on 10-year government bonds in Canada and the U.S. surged higher over the week. In equity markets, the S&P/TSX Composite Index posted a small decline, while in the U.S., the S&P 500 Index fell over 3%. Oil prices rose, as did the price of gold.

The Fed to keep pushing higher

1. As widely expected, the Fed raised the target range of its federal funds rate by 75 bps to 3.75%-4.00%.
2. The increase marked the fourth consecutive 75-bps rate hike and the sixth straight overall, which took the federal funds rate to its highest level since 2008.
3. The Fed’s accompanying statements included new language indicating that further rate increases are expected but would depend on the progress of the U.S. economy.
4. However, Fed Chair Jerome Powell suggested the federal funds rate might need to go higher than originally expected. The comment sent equity markets plummeting on Wednesday afternoon.

North American labour markets stay strong

1. Canada’s labour market appeared relatively robust in October as the economy added 108,300 jobs, well above the 10,000 job additions economists expected. Job additions were positive for full-time work, while part-time jobs fell during the month.
2. Canada’s unemployment rate stayed the same in October at 5.2%.
3. The story was much the same in the U.S. The American economy added 261,000 jobs in October. Despite being lower than the previous month, the job additions were above economists’ estimates and suggested the U.S. labour market remains relatively strong. The unemployment rate ticked higher to 3.7% from 3.5%, while the participation rate moved slightly lower.
4. In addition, ADP announced U.S. private businesses added 239,000 jobs in October, the 21st straight month of job additions. Meanwhile, job openings ticked higher in September, showing signs of a still tight U.S. labour market.
5. The relatively strong job labour market data likely keeps central banks on an aggressive path toward taming inflation.

Canada to return to balanced budget within five years

1. In its Fall Economic Statement, the Federal Government announced plans to increase spending to help students, workers and businesses amid an expected slowdown in Canada’s economic growth. The move will add approximately $30.6 billion in new spending over the next six years.
2. The government now expects a deficit of $36.4 billion in this fiscal year but expects a balanced budget within five years.
3. For students, the government will spend $2.7 billion to make Canada Student Loans and Canada Apprentic Loans interest-free as of April 1, 2023. Over the next six years, $4 billion is earmarked for quarterly payments to lower-income Canadians.
4. From a business perspective, the government will spend $6.7 billion in tax credits for clean technologies, equaling 30% of the capital investment costs in net-zero technologies.
5. A 2% tax on share buybacks was also announced.

Europe’s inflation rising, growth moderating

1. In Europe, inflation continues to push higher, putting pressure on overall economic conditions.
2. According to a flash estimate, Europe’s inflation rate rose to a record high of 10.7% in October, above the 10.3% rate economists expected.
3. Rising energy prices are pushing inflation to record highs and continue to increase partly due to the energy crisis stemming from Russia’s invasion of Ukraine.
4. A flash estimate also showed the European economy expanded by only 0.2% in the third quarter of 2022, its slowest pace of growth since a contraction in the first quarter of 2021.
5. The European economy is under immense pressure and is expected to fall into a recession.