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Markets brace for ‘no landing’ world economy. Plus, ETF picks and the no-hassle way to safely park cash and earn 4%

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Markets, bracing for a “no landing” scenario where global economic growth is resilient and inflation stays higher for longer, are dialing back appetite for both risk assets and government debt.

For months, investors have bet on global growth softening just enough to cool inflation and persuade hawkish central banks to pause their rate hikes.

The notion of the U.S. Federal Reserve and other central banks using monetary tightening to engineer a mild, soft landing before pivoting to avoid a deep recession has supported a cross-asset rally since October, depressed the dollar and sent capital flowing into emerging markets.

But recent data reflecting still tight jobs markets has traders entertaining a new scenario where economic growth holds up and inflation remains sticky.

That means rates could be pushed higher too – a negative for risk assets. World stocks hit one-month lows on Wednesday, while Wall Street had its worst day of the year so far on Tuesday.

“We’ve gone from softer landing to no landing – no landing being that (financing) conditions will remain tight,” said David Katimbo-Mugwanya, head of fixed income at EdenTree Asset Management.

U.S. jobs growth accelerated sharply in January, U.S. and German inflation remained high, while U.S. and European business activity rebounded in February.

Investors have now ditched expectations for rate cuts later this year and renewed their bets on higher rates, which in the U.S. are now seen peaking in July at about 5.3%, up from about 4.8% in early February.

Deutsche Bank said this week it expects European Central Bank rates to peak at 3.75% from 3.25% previously.

China’s reopening, an easing in Europe’s gas crisis and strong U.S. consumer spending “are probably more bearish than positive for markets,” said Richard Dias, founder of macro-economic research house Acorn Macro Consulting.

“We’re getting into a situation where good news is bad news,” he said.

For Paul Flood, head of mixed assets at Newton Investment Management, “if wage growth stays high and demand stays high, then the Fed will push up interest rates further and that’s not a good environment for equity or bond markets.”

Bond prices fall, and yields rise, when expectations of higher rates on cash make their fixed interest payments less appealing. Stocks typically move lower when bond yields rise to account for the extra risk of owning shares.

U.S. 10-year Treasury yields are near their highest since November at almost 4%, up from a January low of 3.3% . An index measuring the dollar against other major currencies is set for its first monthly gain in five as rate-hike bets lift the greenback.

In December, most economists expected the U.S. economy to contract slightly this year but the consensus now is for 0.7% growth. Fed officials have signaled that they will likely keep raising rates for longer than previously forecast.

Euro zone recession expectations mostly faded in mid January as energy prices tumbled. Economists polled by Reuters see inflation in the bloc remaining above its 2% target into 2025 as growth holds up.

“The road map was one of a shallow recession and declining inflation,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers. “That consensus is being challenged by the data.”

Many investors still believe inflation will subside, and see recent strong data as probably supported by one-time factors such as an unseasonably mild winter and the remainder of consumer savings accumulated during the COVID-19 pandemic.

“There should be more signs of a slowdown as the year unfolds and weather normalizes, and there’s just not another pent up savings to spend as we go into the second half of the year,” said Rhys Williams, chief strategist at Spouting Rock Asset Management.

Thomas Hayes, chairman and managing member of New York-based Great Hill Capital, said a soft landing is still likely as declining U.S. rental costs start weighing on inflation metrics and labor market participation increases as consumers run out of savings, helping contain wage growth.

“If oil doesn’t spike above $100 it is going be very hard for inflation to re-accelerate after the Fed pauses,” he said.

– Naomi Rovnick and Davide Barbuscia, Reuters

 

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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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