Today
Futures are up this morning as investors weigh the outlook for corporate earnings with earnings due from over 100 members of the S&P 500, while also remaining optimistic that the Fed will moderate the pace of rate increases as inflation slows. Despite January seeing some of the best returns for equities in months, signs of earnings pressure are complicating the picture as companies contend with a decline in consumer spending and economic uncertainty. On the economic front, the Fed is widely expected to raise rates by 25 bps tomorrow, slowing its pace for a second straight session. However, the market will be more interested in clues about further rate increases even as officials continue to push back against speculation that the central bank will cut rates later this year.
Canada’s economic output rose in November, with GDP rising 2.8% YoY in for the month. Despite the strong growth in November, preliminary data shows that the economy slowed down at the end of the year, growing at about half the pace of the previous quarter in Q4 2022. Increases in retail, utilities, and the public sector were offset by decreases in wholesale, finance, and oil and gas industries, showing that higher interest rates are starting to slow economic activity and weigh on consumption. Overall, the preliminary data for December point to annualized growth in Q4 of 1.6%, sharply down from a 2.9% pace in the third quarter, 3.2% during April to June, and 2.8% in the first three months of last year. The effects of the BoC’s aggressive tightening campaign are expected to drag growth to a halt this year, with economists seeing two quarters of small contractions in the first half of 2023.
Speaking of GDP, Eurostat figures just released showed the eurozone grew at an estimated annualized rate of 0.1% in the final quarter of 2022, better than the 0.1% forecasted contraction, but slower than Q3 growth rate of 0.3%. The WSJ noted this brings the Euro zone’s growth to 3.5% in 2022, higher than U.S. and China’s 2022 growth figures of 2.1% and 3% respectively, which is the first time since 1974 that the combined economies of the eurozone grew at a faster pace than China and the U.S. A closer look at the numbers saw a mixed picture; Germany and Italy GDP declined while France and Spain’s output grew. Outsized gains came from Ireland, home to many multinational corporations, which expanded 3.5% in Q4 alone. The mixed data comes ahead of the ECB’s interest rate decision on Thursday where markets have priced in a 50 bps hike.
China’s budget deficit jumped to a record 8.96 trillion yuan ($1.3 trillion USD) last year, larger than the previous record of 8.72 trillion yuan in 2020, when the economy was hit with the initial Covid outbreak. Finances quickly deteriorated last year due in part to the property slump, weakening global demand, and the Covid Zero policy, which severely damaged economic activity. Local governments were forced to pay hundreds of billions of yuan for the testing, quarantines, and lockdowns used to enforce the Covid Zero policy, only for the government to do a 180 a few months ago and scrap the program. The deficit puts local governments in China in an increasingly poor fiscal position and could make the central government reluctant to support the economy with fiscal spending after last year’s slump in growth.
Heigh-Ho Heigh-Ho, it’s back to the office we go. New data is showing that more than half of workers in major US cities went to the office last week, the first time that return-to-office rates crossed 50% of their pre-pandemic levels. An index of building occupancies in 10 major metro areas increased 0.9% to 50.4% in the week ended Jan. 25, a milestone for many companies who have pushed for more in-office attendance. It took longer than expected to cross this number as health concerns surrounding Covid-19 variants and workers’ reluctance to come back into the office continue to keep vacancy rates up. Call it the January effect for the return to the office too.
For royals fans and collectors, the Royal Canadian Mint has just released a $5 coin commemorating the late Queen Elizabeth’s 70-year reign, and is one of the first issued in a souvenir collection of precious metals that include silver, gold and platinum coins. They’re all meant to revisit seven decades of history by featuring “timeless emblems” of the Queen’s reign and more intimate portraits of the monarch “known to generations of Canadians,” according to the Mint. It’s made of 1/4 oz. pure silver and showcases a sparkling portrait of the Queen, in colour on what we’d call the “tails” side of the coin.
Diversion: This pilot deserves a raise.