Monthly highlights of major events which drive financial markets, along with perspectives on what they mean and why they matter.
May In Review
April showers bring May flowers and the same held true for market performance, as stocks and bonds advanced in May to retrace declines seen in April. Both Canadian and U.S. equity markets were positive for the month, with the S&P/TSX Composite index up 2.77% and S&P 500 index up 4.96%, adding to their strong 7.58% and 11.30% year-to-date (YTD) performance, respectively. Stronger than expected earnings and economic data, particularly out of the U.S., contributed to these positive returns. At the same time, fixed income markets in Canada and the U.S. pushed higher, with the Canadian Overall Bond index up 1.77% month-over-month (MoM) and the Barclays U.S. Aggregate Bond index up 1.70%, respectively. Anticipation of rate cuts on the horizon, especially from the Bank of Canada, helped bonds advance for the month.
Here are some of May's most notable macroeconomic headlines:
Central banks begin to diverge on monetary policy. As anticipated, the Federal Reserve maintained its federal funds rate at 5.25%–5.50%, the sixth consecutive hold, citing persistent inflation above the 2% target. It also plans to slow the maturity of U.S. Treasuries on its balance sheet, a more accommodative monetary move. Canada's April inflation rate was 2.7%, a significant factor that would contribute to the Bank of Canada’s decision to cut its policy rate in June, the first time since the onset of COVID.
Consumer confidence rebounds in Canada despite mixed economic data. The Bloomberg Nanos Canadian Confidence Index rose to 51.7 by May 17 from 50.9 the prior week, rebounding from recent declines attributed to tight financial conditions and economic concerns. Despite declining retail sales, with March seeing a 0.2% drop, confidence in personal finances and employment improved. Looking forward, Statistics Canada projected retail sales growth of 0.7% in April, potentially the fastest since April 2023. Additionally, an early estimate showed wholesale sales surged by 2.8% in April, hinting at the strongest growth rate since August 2023.
| Index† | Change (%) | Index Level | ||
|---|---|---|---|---|
| 1 Mth | YTD | 1 Yr | ||
| Treasury Bill (FTSE Canada 60 Day T-Bill) | 0.43 | 2.14 | 5.51 | 181 |
| Bonds (FTSE Canada Universe Bond) | 1.77 | -1.49 | 0.84 | 1,105 |
| Canadian Equities (S&P/TSX Composite) | 2.77 | 7.58 | 11.81 | 22,269 |
| U.S. Equities (S&P 500, US$) | 4.96 | 11.30 | 28.73 | 5,278 |
| Global Equities (MSCI World, US$) | 4.53 | 9.77 | 24.37 | 3,445 |
| Emerging Marketings (MSCI Emerging Markets, US$) | 0.59 | 3.50 | 10.89 | 1,049 |
| Currencies† | Change (%) | Exchange Rate | ||
|---|---|---|---|---|
| 1 Mth | YTD | 1 Yr | ||
| C$/US$ | 1.10 | -2.82 | -0.56 | 0.73 |
| C$/Euro | -0.60 | -1.10 | -0.93 | 0.68 |
| C$/Pound | -0.88 | -2.85 | -1.96 | 0.58 |
| C$/Yen | 0.79 | 8.58 | 14.77 | 115.44 |
| Commodities (US$)† | Change (%) | Price | ||
|---|---|---|---|---|
| 1 Mth | YTD | 1 Yr | ||
| Gold Spot ($/oz) | 0.91 | 10.21 | 10.83 | 2,346 |
| Oil WTI ($/barrel) | -5.28 | 6.98 | 7.62 | 76.99 |
| Natural Gas ($/MMBtu) | 11.56 | 2.45 | -25.66 | 2.59 |
†Total Return, as at May 31, 2024. Indices are quoted in their local currency.
Source: Bloomberg
Indices are not managed, and it is not possible to invest directly in an index.
Manufacturing contraction persists in Canada, while U.S. shows signs of stabilization. In April, Canada's manufacturing sector contracted for the 12th straight month, with the S&P Global Canada Manufacturing Purchasing Managers Index dropping to 49.4 from 49.8. Weak demand led to reduced new orders, exports, and output, despite employment growth, which slowed compared to March. In the U.S., industrial production stagnated in April, missing expectations, as manufacturing and mining output declined, partially offset by increased utilities production. However, a preliminary estimate for May showed an uptick in manufacturing activity, surprising economists with the S&P Global U.S. Manufacturing Purchasing Managers Index rising to 50.9, signaling a milder decline in new orders and expansion in employment and output.
Did you know?
Canada's terms of trade continue to show weakness. Terms of trade (ToT) refers to the ratio between a country's export prices and import prices. The terms of trade measure the relative price of exports to imports, reflecting a country's export revenue and import purchasing power. For example, if Canadian export prices rise relative to Canadian import prices, Canada’s ToT improves (ratio >100). This indicates that Canada can afford to import more goods and services for the same quantity of exports, increasing national income and living standards. It is an important indicator of trade competitiveness and national welfare. Canada’s 2024 Q1 ToT fell 1.2% and has only risen once over the past seven quarters.
