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The week in the markets –
October 18, 2024
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Encouraging inflation data suggests larger rate cuts
- Canadian inflation dipped well below the Bank of Canada’s target.
- The European Central Bank cut its policy rate as eurozone inflation fell.
- U.S. retail sales data revealed resilient consumers.
In September, Canadian consumer prices increased at the slowest pace in over three years, creating a strong case for a 50-basis-point (half-percentage-point) cut by the Bank of Canada in its upcoming meeting. The Canadian Consumer Price Index (CPI) recorded a year-over-year increase of just 1.6%.
A significant factor contributing to the decline in inflation was the drop in gasoline prices, which fell by 10.7% annually. If we exclude gasoline prices, the all-items inflation rate remained steady at 2.2%, the same as in August.
This latest inflation report served as the final key data point before the Bank of Canada’s interest rate decision on October 23. Given the prevailing economic softness, we believe it’s clear that a 50-basis-point rate cut is not only warranted but necessary. Current market expectations are also pricing in a larger rate cut.
The European Central Bank (the ECB) cut interest rates by 25 basis points (a quarter percentage point) this week, as widely expected. At odds with the rate cut, the ECB stated that it plans to keep rates sufficiently restrictive for as long as necessary and that the disinflationary process is “well on track”. Inflation in the eurozone came in at 1.7% year-over-year at the end of September (similar to that in Canada). Due to base effects from energy prices, the ECB expects inflation to rise slightly before reaching its target range of 2% in the coming months. Nevertheless, given the weakening economic situation in Europe, we believe further rate cuts by the ECB are forthcoming.
U.S. retail sales surged in September, climbing 0.4% and showcasing strong consumer spending, particularly in categories like miscellaneous retailers and apparel. This encouraging performance indicated ongoing economic growth while simultaneously lowering expectations of how much the U.S. Federal Reserve will reduce its policy rates at its next meeting in November.
We look forward to the Bank of Canada’s decision next week, especially in light of the differing data coming from the U.S. and Europe.
Listen to this week’s podcast for further insights.
This week's market closing value - week ending October 18, 2024
(As of 4:00 PM ET.*)
| EQUITY INDICES | Level | Change | WTD | YTD | 1-year | 5-year |
| CAD | CAD | CAD | CAD | |||
| S&P/TSX | 24,813.82 | 344.80 | 1.41% | 18.39% | 27.57% | 8.67% |
| S&P 500 | 5,861.88 | 44.66 | 1.10% | 27.96% | 36.76% | 15.60% |
| DJIA | 43,275.91 | 412.05 | 1.29% | 19.61% | 29.40% | 11.20% |
| FTSE 100 | 8,358.25 | 104.60 | 1.42% | 15.22% | 19.12% | 4.31% |
| CAC 40 | 7,613.05 | 35.16 | 0.15% | 3.48% | 13.44% | 6.68% |
| DAX | 19,657.37 | 283.54 | 1.14% | 20.31% | 35.17% | 9.74% |
| Nikkei | 38,981.75 | -624.05 | -1.50% | 14.46% | 22.78% | 5.74% |
| Hang Seng | 20,804.11 | -447.87 | -1.78% | 27.76% | 19.00% | -3.74% |
| CURRENCY RETURNS |
CAD | Change | WTD | YTD | 1-year | 5-year |
| US$ | 1.3807 | 0.0045 | 0.33% | 4.17% | 0.66% | 1.02% |
| Euro | 1.5000 | -0.0048 | -0.32% | 2.53% | 3.80% | 0.46% |
| Yen | 0.0092 | 0.0000 | 0.08% | -1.74% | 0.92% | -5.27% |
| CANADIAN TREASURIES | Yield | Change | COMMODITIES | USD | Change |
|---|---|---|---|---|---|
| 3-month | 3.68 | -0.16 | Oil | $69.47 | -$6.12 |
| 5-year | 2.90 | -0.08 | Gold | $2,719.67 | $63.36 |
| 10-year | 3.13 | -0.09 | Natural Gas | $2.27 | -$0.36 |
| CANADIAN PRIME RATE |
|---|
| 6.45% |
*The data contained in the charts above is provided by Bloomberg as of 4:00 PM ET. Please note that the final closing market values may vary due to data delays and market settlement.
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