(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)

What happened last week?

• Equities, the Canadian dollar, gold, and oil all had a difficult week as economic indicators and negative news continued. The market performance was dominated by three elements: inflation, interest rates, and fear of recession. The continued rise of inflation demanded a response from the U.S. Federal Reserve to raise interest rates. Concern is that the delayed maneuver is an over-correction.

  • U.S. consumer inflation, announced on June 10th, rose 1% in May, and sits at 8.6% year-over-year. The strong jobs market focuses monetary policy on inflation-fighting. (Source)

  • Inflation is not a North American problem. In 16 of 44 advanced economies, the rate of inflation in the first quarter of 2022 has quadrupled compared to Q1 2020. (Source) 

  • The Federal Reserve raised the federal funds rate by three-quarters of a percent (75 basis points) on Wednesday. An increase of this magnitude has not occurred since 1994, signifying the severity of the situation. The rate now lies in a range from 1.5% to 1.75%. At the press conference to announce the increase, Federal Reserve Chair, Jerome Powell, stated that the Fed, “anticipates that on-going increases in that rate will be appropriate.”  To-date in 2022 the Fed has increased the rate by 1½%.  The median projection by Fed Governors predicts that the federal funds rate could be 3.4% by the end of this year. The first 80 seconds of the hour-long press conference provides a succinct summary. (Source)

  • According to the Financial Post, the S&P 500 has priced-in an 85% likelihood that a recession will occur with interest rates rising and expected to rise further (Source)

What’s ahead for this week?

• In Canada, monthly manufacturing, wholesale, and retail sales figures for last month will be released. On Wednesday, the consumer inflation data (Consumer Price Index and Core) will be announced for May.

• In the U.S., markets will be closed on Monday for the observance of the federal holiday, Juneteenth National Independence Day.  Starting on Tuesday, housing information for May will be released, which includes new home sales, existing home sales, and mortgage applications.

• Globally, the U.K. and Japan will release their consumer inflation data for the month of May. Purchasing Manager Indexes (PMIs), which represents the optimism of professionals who buy for corporations, across most of Europe will be announced.

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