Weekly Market Update – June 18, 2023

What happened last week?  

Markets moved ahead broadly last week, as North American and global equities positively interpreted two significant and related announcements on inflation and interest rates.

On Tuesday, the U.S. Bureau of Labor Statistics reported consumer inflation for May.  The Consumer Price Index (CPI) rose 0.1% during the month after increasing by 0.4% in April.  The year-over-year inflation rate dropped significantly to 4.0% after sitting at 4.9% at the end of April.  The annual rate of inflation fell for the 11^th consecutive month.  https://www.bls.gov/news.release/cpi.nr0.htm

On Wednesday the Federal Reserve released its latest monetary policy.  For the first time in the last 11 interest rate announcements rates were unchanged.  Since inflation remains well above the 2% target, nearly all of the Fed Governors believe that additional rate hikes will be necessary, suggesting that the pause on June 14^th is only temporary.  The Bank of Canada had increased rates at 8 consecutive meetings, then paused in March and April, and then raised rates by ¼% on June 7^th.  Domestic and international inflation and monetary policy guided the Canadian central bank’s return to rate increases.  Inflation and interest rates elsewhere are less influential for the Federal Reserve. Fed release  BoC release  NYTimes & Fed

Additionally, on Friday the Eurozone released year-over-year inflation information for May with the Consumer Price Index at 6.1%, down from 7% in April.  https://tradingeconomics.com/euro-area/inflation-cpi

This news positively affected American equities most with NASDAQ and S&P500 gaining 3¼ and 2½ percent, respectively.  The Dow topped a 1% gain for the week, while the TSX rose less than ½%.  The lowering of inflation and pausing of rate hikes, even if only temporary, supports the notion that recession may be avoided, and greater economic growth could soon be possible.

What’s ahead for this week and beyond?

In Canada, producer and raw materials prices and inflation, new housing price index, retail sales, federal government budget balance, and the Bank of Canada’s deliberations from its interest rate decision of June 7^th will be released.

In the U.S., after a busy week last week with an inflation and interest rate announcement, indicators will focus on housing with building permits, housing starts, existing home sales scheduled for release.

Globally, consumer and producer inflation data will be released for the U.K. just prior to a Bank of England interest rate announcement.  The European Central Bank will conduct a General Council Meeting.  Japan will report its industrial production and capacity utilization and release monetary policy meeting minutes from the Bank of Japan.