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Global equity markets were largely unchanged over the week ended May 1. The end of conflict in the Middle East remains uncertain, weighing on investor sentiment. Signs point to the Strait of Hormuz remaining closed, with the U.S. and Iran unable to reach an agreement to remove the U.S. naval blockade. The price of oil increased over the week. In Canada, the S&P/TSX Composite Index finished slightly higher. Gains in the energy sector were partially offset by a decline in the materials sector. U.S. equities moved higher. Yields on 10-year government bonds in Canada and the U.S. rose over the week.
Central banks stay put as they monitor geopolitical tensions
Several major central banks held their April meetings last week, with each electing to hold steady as they monitor the impact of geopolitical tensions on their respective economies.
Starting in Canada, the Bank of Canada (BoC) held its benchmark overnight interest rate steady at 2.25% at a fourth consecutive meeting. The BoC sees upside risks to inflation but believes its policy interest rate is at an appropriate level. Canada’s central bank said policy changes may be small if the economy progresses as expected. However, there are upside risks to inflation that could result in an interest rate hike.
The U.S. Federal Reserve Board (Fed) kept the target range of its federal funds rate unchanged at 3.50%–3.75%. The Fed also said it is willing to shift its policy interest rate depending on the path of the economy amid the conflict in the Middle East.
The Bank of Japan and Bank of England both held their policy interest rates steady, as did the European Central Bank (ECB). The ECB did note that a rate hike was considered at its April meeting and is a possibility at its next meeting in June.
Strong manufacturing boosts Canada’s economy
Canada’s economy expanded by 0.2% in February over the previous month, matching economists’ expectations.
An increase in manufacturing and transportation helped offset a drop in retail trade over the month.
Looking ahead, Statistics Canada estimated that Canada’s economic growth stalled in March amid rising geopolitical tensions and higher oil prices.
Data points to Canada’s gross domestic product (GDP) expanding over the first quarter of 2026. However, economic activity could be choppy in the months ahead in response to higher inflation, lower consumer and business confidence and ongoing trade tensions.
Canada’s energy sector may have gotten some positive news this week. U.S. President Donald Trump signed a presidential permit authorizing the Bridger Pipeline expansion project. This will allow Bridger to construct and operate a pipeline at the Canada-U.S. border, taking Canadian crude oil to Wyoming.
U.S. economy grows less than expected in Q1
According to an advanced estimate, U.S. GDP grew by 2.0%, annualized, over the first quarter of 2026. While up from the previous quarter, it did miss the 2.3% annualized growth economists were expecting.
Strong contributions came from a jump in government spending, which rebounded from a decline in the previous quarter amid the U.S. government shutdown. Conversely, net exports detracted from growth over the quarter.
Inflationary pressures picked up at the end of the quarter. The personal consumption expenditure price index (PCE) was 3.5% on a year-over-year basis in March, which was its highest level in three years. Upward pressure came from energy prices. Meanwhile, the annual core PCE picked up to 3.2% in March.
Personal spending in the U.S. increased by 0.9% in March, which was its largest increase since December 2024. Personal income rose by 0.6% in the same month.
Europe’s inflation rate accelerates again in April
According to a flash estimate, Europe’s annual inflation rate accelerated to 3.0% in April from 2.6% in the previous month. This is up markedly from the 1.9% rate in February, before the conflict in the Middle East began.
Contributing to higher inflationary pressures was rising energy costs, which increased by 10.9% in April. Costs also accelerated for food, alcohol and tobacco.
The annual core inflation rate did edge lower in April from 2.3% to 2.2%.
Looking at economic growth, a flash estimate showed Europe’s economy expanded by 0.1% over the first quarter of 2026. This was its softest pace of growth since the second quarter of 2025.
Europe’s economy is feeling strained amid geopolitical tensions in the Middle East, which have pushed up oil prices. The ECB will have to carefully navigate any interest rate changes through higher inflation but meagre economic growth.
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