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What happened last week?
It was another week of equity losses, as gold and bonds rose. A number of factors negatively affected equities last week. Inflation remains stubbornly high, and Interest rates will continue at an elevated level, and is increasingly expressed as “higher for longer”. Since July 2023, Bank of Canada and Federal Reserve policy rates have been held at their highest levels in more than two decades. It does not appear that rates will be lowered soon, especially in the U.S. Middle East tensions increased as Israel and Iran trade words and warheads. The governing Liberals released the latest Federal Budget showing new spending for housing, school lunches, carbon rebates, and a $40 Billion deficit for this year with a large increase on the interest charges for the national debt.
The new federal budget also proposes a change to the tax treatment of capital gains. Capital gains inside registered accounts (like TFSAs and RRSPs) and principal residences will not be affected. Outside of these accounts, gains below $250,000 will follow the current 50% inclusion rule, and above $250,000 two-thirds of the gain will be subject to taxation. Portfolio adjustments may be necessary for a small number of investors affected by this change. 2024 Budget Chapter 8 CBC and Cap Gains
On Tuesday, Federal Reserve Chair, Jerome Powell, echoed comments of his fellow Fed officials that rates will remain higher for longer. Referring to the response of inflation to higher rates, “We’ve said at the [Federal Open Market Committee] that we’ll need greater confidence that inflation is moving sustainably towards 2% before [it will be] appropriate to ease policy. The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.” CNBC and rates
Canadian Consumer Price Index (CPI) for March rose 0.1% from February and sits at 2.9% on a year-over-year basis. U.S. CPI for March came in higher last week at 3.5%. The rise in prices for shelter (rent and mortgage costs) and services was higher than goods, and in aggregate prices rose 0.6% in March. StatsCan CPI
What’s ahead for this week and beyond?
In Canada, more inflation data is scheduled with the Producer Price Index, Raw Materials Price Index, and the New Housing Price Index on the calendar. Retail sales will also be reported.
In the U.S., building permits, new and pending home sales, durable goods orders, and Gross Domestic Product will be reported. On Friday, the Federal Reserve’s preferred inflation indicator, the Personal Consumption Expenditures price index will provide insight into the timing of upcoming Fed moves.
Globally, the European Union’s consumer confidence and Japan’s consumer inflation are scheduled releases in a relatively quiet week for economic announcements.
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