Market Pulse

The Bank of Canada cut rates by 50bps during October in an attempt to spur growth by easing the pressure on Canadian consumers. Although a 50bps cut is not insignificant, the move was expected and resulted in little market movement upon the news. The BoC's attempt to stimulate growth came just before the announcement that Q3 annualized GDP growth was 1.0% which fell well below the expected growth rate of 1.5%. Elevated borrowing costs have put a strain on business investments, output, & consumer demand.

The United States economic trend of disinflation remains the same. The Federal Reserve's preferred measure of inflation, core PCE, met expectations of 0.3% month-over-month, and 2.7% year-over-year. In the Personal Income and Outlays report, US consumers showed solid consumption growth, although this was supported by declining savings rates. The Employment Cost Index which measures the cost of labour to businesses rose 0.8% in Q3, which was mild deceleration from the previous quarter. Other growth metrics showed relative strength as quarterly annualized GDP growth came in at 2.8%. The GDP report, which uses percentage contribution to GDP growth, was strong across the board in every category except for housing. These indicators support a possibility of a no-landing scenario, rather than a soft-landing which many believe is currently being priced into the market.

While global growth is expected to remain stable, it is not expected to be robust, as an upwards revised US economic projection is being offset by a downgraded outlook for other developed economies such as the larger European countries. In a similar sense, markets in the middle east have experienced downward revisions due to political unrest and difficulties with the production and shipping of oil. This is offset by strong growth in Asian emerging markets which are getting a boost from surging demand for semiconductors and electronics driven by investments in artificial intelligence. Overall, global growth should hit 3.1% five years from now.

As investors continue to see elevated valuations, the discussion around their impact on future returns has become more common. While valuations are not a cyclical or tactical tool for timing the market, they can be predictive of future returns. When using valuations as a way of projecting future returns, some analysts are anticipating non-US developed markets to outperform US markets by about 2%, as US markets have benefited the most from recent market growth, and therefore have the most inflated valuations. For context, the S&P500 has nearly doubled ex-US global index funds over the past year, leading analysts to believe a reversion could be coming.

Similar to the price of gold, silver has shone this year, following a multi-decade trend of poor performance. The run on silver indicates an interesting contrast where continued strength could suggest resilience in the global economy due to silver's heavy usage in industrial processes, while at the same time many other commodities are experiencing a downtrend. To summarize, a persistent rally in silver signals underlying economic strength even as other commodities face headwinds. Silver rose 4% in October and 37% YTD.

China's recent stimulus measures are falling well short of what emerging market strategists deem necessary to reflate the economy. News agencies have reported that China plans to do $10T in bond issuance over the next three years. The plan is for $6T to go to improving the balance sheets of local governments, and the remaining $4T to go to buying idle land and housing. While these measures will marginally enhance financial stability, it will not have a material impact on macroeconomic reflation. Currently, local governmental debt totals $70T so the $6T in stimulus directed to it, while necessary, will not aid the economy quickly. China's economy will likely remain depressed if they do not shift their focus to stimulating individual households, lifting property prices, and boosting private business confidence.

All data sourced from FACTSET and Bloomberg L.P.
All data is for the reported month and in local currency.