On Wednesday, the three major U.S. indexes essentially gave up on Tuesday’s gains, as investors eagerly await Friday’s U.S. consumer price index data. Meanwhile, the Organization for Economic Co-operation and Development (OECD) has cut its outlook for global growth to 3% for 2022, down from a December forecast of 4.5%.
On Thursday, the European Central Bank laid out plans to hike interest rates for the first time in more than a decade as the central bank seeks to tackle rising inflation in Europe. In response to the announcement, North American indices opened lower and fell sharply late in the session. As of Thursday’s close, the Dow fell 638 points, while the S&P 500 and Nasdaq plunged 98 and 332 points, respectively. In Canada, the TSX lost 228 points, weighed down by healthcare and energy stocks.
Finally, according to a Reuters poll, economists surveyed expect inflation to have remained stable at 8.3% in May. The official CPI report is expected to be released on Friday morning.
Markets lose ground
For the four trading days covered in this report, the Dow Jones fell 627 points to close at 32,273, the S&P 500 fell 90 points to 4,018, while the tech-heavy Nasdaq lost 259 points to close at 11,754. In Canada, the TSX fell 227 points to close at 20,564.
US inflation hit a new 40-year high in May
US inflation hit a new 40-year high in May as widespread pressures continue to push prices higher. The CPI unexpectedly accelerated to 8.6% year on year in May, beating consensus expectations for an 8.3% gain and up from the April reading of 8.3%.
Record gasoline prices, coupled with relentless food and housing costs, are putting severe pressure on Americans’ cost of living, suggesting the US Federal Reserve is likely to continue its path of 50 basis point rate hikes. basis throughout the summer and possibly into the fall. Energy prices climbed 34.6% from a year earlier, the highest since 2005, including a nearly 49% rise in gasoline costs. So far, gasoline prices in June have hit new highs, signaling upward pressure in upcoming CPI reports and thus keeping the Fed on its current course.
Grocery prices rose 11.9% annually, the most since 1979, while electricity rose 12%, the most since August 2006. Rent for the primary residence rose 5.2 % over the previous year, the most since 1987. Air fares increased by 12.6%. in May, a slight moderation from the previous month, but still the highest on a yearly basis since 1980. Prices for hotel stays, meanwhile, rose 22.2% year-on-year ‘other. Used car prices, which had slowed in recent months, rose 1.8% in May, the highest this year. Prices for new vehicles rose 1%.
Next Wednesday’s policy decision is accompanied by new summary economic projections and a new Dot Plot. Growth may be revised down but the group’s inflation forecast will most likely be raised and we believe it is possible that the Dot Plot will show a higher terminal policy rate for this cycle. While a 75 basis point hike is possible, we believe it is unlikely given the number of indications issued by Fed members for 50 basis point hikes in June and July.
This report is provided to you for informational purposes only and is not intended to provide personal investment advice. This report does not include or constitute an investment recommendation and does not take into account the particular investment objectives, financial conditions or specific needs of individual clients. Any statements regarding future prospects may not be made. Before acting on this material, you should determine whether it is appropriate for your particular situation and speak with your investment advisor.
The author(s) of the report and the supervisors of the Global Portfolio Advisory Group may hold securities of the companies included herein.
Scotia Capital Inc. is referred to as an “integrated” investment firm because we offer a wide range of corporate finance, investment banking, institutional trading and retail services and products. Therefore, we recognize that there are inherent conflicts of interest in our business since we often represent both parties to a transaction, namely the buyer and the seller. Although we have policies and procedures in place to manage these conflicts, we also disclose certain conflicts to you so that you are aware of them. Please note that we may, from time to time, have relationships with the companies discussed in this report.
The Global Portfolio Advisory Group prepared this report by analyzing information from a variety of sources. Information obtained in the preparation of this report may have been obtained from the Equity Research and Fixed Income Research departments of Scotiabank’s Global Banking and Markets division. Information may also be obtained from the Currency Research and Scotia Economics departments of Scotiabank. In addition to information obtained from members of the Scotiabank Group, information may be obtained from the following third party sources: Standard & Poor’s, Morningstar, Bloomberg, Credit Suisse AG, Perimeter Markets Inc. and FactSet. The information and opinions contained in this report have been compiled or obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy or completeness.
While the information provided is believed to be accurate and reliable, neither Scotia Capital Inc., which includes the Global Portfolio Advisory Group, nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of this information. . Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any direct or indirect loss arising from the use of this report or its contents.
Nothing contained in this report is or should be taken as a promise or representation as to the future. The pro forma and estimated financial information contained in this report, if any, is based on certain assumptions and analyzes of information available at the time such information was prepared, which assumptions and analyzes may or may not be correct. There is no representation, warranty or other assurance that the projections contained in this report will be realized.
The opinions, estimates and projections contained herein are those of the Global Portfolio Advisory Group as of the date hereof and are subject to change without notice. For this reason, it cannot be guaranteed by The Bank of Nova Scotia or any of its subsidiaries, including Scotia Capital Inc. This report is not and should not be construed as: (i) an offer of sale or solicitation of an offer to buy securities and/or commodity futures; (ii) an offer to transact in any jurisdiction; or (iii) investment advice to any party. The products and services described here are only available where they can be lawfully provided. Scotia Capital Inc. and its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities and/or commodities and/or commodity futures referred to herein as counterparty or agent.
Trademarks are the property of their respective owners.
Copyright 2022 Scotia Capital Inc. All rights reserved.
This report is distributed by Scotia Capital Inc., a subsidiary of The Bank of Nova Scotia. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
® Registered trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management® is a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management LP; 1832 Asset Management US Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. Private banking services and international private banking services are provided in Canada by The Bank of Nova Scotia. Estate and trust services are provided by The Bank of Nova Scotia Trust Company. Portfolio management is provided by 1832 Asset Management LP and 1832 Asset Management US Inc. Insurance services are provided by Scotia Wealth Management Insurance Services Inc. Wealth management advisory and brokerage services are provided by ScotiaMcLeod, a division of Scotia Capital Inc. provided in Canada by Scotia Capital Inc. Financial planning services are provided by The Bank of Nova Scotia, 1832 Asset Management LP and ScotiaMcLeod, a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Scotia Wealth Insurance Services Inc. is the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank group of companies. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Insurance Agents (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc.
Scotia Wealth Management includes a range of financial services provided, in the Bahamas, by Scotiabank (Bahamas) Limited and The Bank of Nova Scotia Trust Company (Bahamas) Limited. International private banking services are provided in the Bahamas by Scotiabank (Bahamas) Limited, an entity registered with the Central Bank of the Bahamas. International investment advisory services are provided in the Bahamas by Scotiabank (Bahamas) Limited, an entity registered with the Bahamas Securities Commission. International wealth structuring solutions are provided in the Bahamas by The Bank of Nova Scotia Trust Company (Bahamas) Limited, an entity registered with the Central Bank of the Bahamas.
Scotia Wealth Management includes international investment advisory services provided in Barbados by Bank of Nova Scotia, Barbados Branch, an entity licensed by the Barbados Financial Services Commission.
Scotia Wealth Management is a range of financial services provided in the Cayman Islands by Scotiabank & Trust (Cayman) Ltd. (Cayman) Ltd., an entity licensed by the Cayman Islands Monetary Authority.
Scotia Wealth Management includes international private banking services provided, in Peru, by Scotiabank Peru SAA, an entity supervised by the Peruvian Superintendency of Banking and Insurance.