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Global equity markets moved higher over the week ended April 24 with positive signals from Pakistan that the U.S. and Iran could continue peace talks. The news lifted optimism for a diplomatic outcome to the war in the Middle East. In the information technology sector, strong forecasts and earnings from chipmakers provided support. The U.S. Department of Justice also dropped its investigation into U.S. Federal Reserve Board (Fed) Chair Jerome Powell regarding cost overruns in the Fed’s office renovations. There will be an internal investigation by the Fed’s inspector general instead. In Canada, the S&P/TSX Composite Index declined, dragged down by the materials sector. U.S. equities moved higher over the week. Yields on 10-year government bonds in Canada and the U.S. gained. The price of oil climbed over the week, while the price of gold declined.
Higher energy costs push up Canada’s inflation rate
Canada’s annual inflation rate accelerated to 2.4% in March from 1.8% in the previous month. March’s rate did not increase as much as economists had expected.
The increase was largely in response to higher energy prices, brought on by the conflict in the Middle East. The price growth for shelter and recreation also accelerated in March.
Two key measures of core inflation – median and trim – were largely unchanged in March. This will likely ease the pressure on the Bank of Canada (BoC), which makes its next interest rate announcement on April 29.
Producer prices jumped by 2.4% in March, largely in response to a record 27.4% increase in energy and petroleum products prices.
There are clear signs of inflationary pressures building in Canada’s economy. The BoC appears set to hold its benchmark overnight interest rate steady at 2.25% at its upcoming meeting, but it will need to closely monitor the path of inflation, the labour market and economic activity as the year progresses.
U.S. consumers show their relative strength
March’s measure of U.S. retail sales showed the relative strength and resiliency of the U.S. consumer despite geopolitical tensions and falling confidence levels.
U.S. retail sales rose by 1.7% in March, which was the largest increase in 12 months, and topped economists’ expectations.
Sales at gasoline stations was the biggest upward contributor over the month, mainly due to higher gasoline prices. While a large increase came from gasoline, sales were relatively broad-based. Sales also climbed higher at motor vehicles and parts dealers and at electronics and appliance stores.
U.S. consumers also benefited from tax returns over the month.
There is some concern that sales could pull back over the upcoming months. There re signs that the conflict in the Middle East and higher prices are dragging down consumer confidence levels. Furthermore, a pullback in economic activity could weigh on the labour market.
Europe’s private business activity contracts
Escalating tensions in the Middle East and higher energy prices have shown signs of weighing on Europe’s economy in April.
According to a preliminary estimate, the S&P Global Eurozone Composite Purchasing Managers Index fell to 48.6 in April from 50.7 in the previous month. This marked the lowest reading of business activity in Europe since November 2024.
April’s business activity was hindered by softer activity in Europe’s critical services sector.
Manufacturing activity, on the other hand, improved in April in response to robust new orders growth and higher output. But it is important to consider that some of the increase was driven by companies placing orders before costs rise any further.
Europe’s economic activity is not immune from geopolitical tensions. The economy is feeling the impact on business activity and prices, which could weigh on overall growth.
International Energy Agency concerned over oil supply
The head of the International Energy Agency (IEA), Fatih Birol, said the world is facing its largest energy security threat ever. He also said there’s been a disruption in other critical commodities.
Birol said that we have lost 13 million barrels of oil per day during the conflict in the Middle East. The Strait of Hormuz remains effectively closed, cutting off a key waterway in the global distribution of oil.
He has urged governments to use alternative energy sources, given he believes it is “the largest energy crisis we have ever faced.”
Air Canada recently announced it was pausing daily flights from Toronto and Montreal to New York’s JFK Airport from June 1 to October 25 in response to jet fuel concerns. Meanwhile, Europe is facing a jet fuel shortage that could cause flight cancellations.
The U.S. and Iran are continuing to find reasons to meet again to discuss a peace deal.
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