Gold & Bitcoin At All-Time Highs, Tons of Economic Data out this Week

The Week in Review

As is always the case, there was lots to watch during the week, with some new economic numbers, Jerome Powell’s testimony before Congress, and gold and Bitcoin breaking to record highs. At the end of the day, the major U.S. markets all slid slightly, with the Nasdaq sliding 1½%, the Dow down a percent, and the S&P 500 finishing ever-so-slightly into negative territory. The top dog for the week was our TSX, gaining almost 1%.

As expected, the Bank of Canada left the interest rate at 5%. I’ve highlighted the Bank’s reasoning below.

When we take a closer look at the economic datapoints that were announced this week, there are a few early signs that the Canadian and U.S. labour markets may be showing some early signs of fatigue.

This week’s jobs report was the inspiration for this week’s Poll question. In Canada, our unemployment rate ticked up to 5.8% in February, and the hourly wage rate came in below expectations, at 4.9%. (Consensus was 5.1%). Be sure to participate in the poll and weigh in with your opinion on where our domestic unemployment rate is headed.

In the U.S., the number of nonfarm jobs added in February came in quite a bit above expectations at 275,000 (consensus was 200,000), but last month’s figure were revised lower, unemployment was higher at 3.9% and average hourly earnings went from 4.5% to 4.3% year over year.

Similarly, in Canada, the unemployment rate for the month of February ticked higher to 5.8%, while the hourly wage rate fell to 4.9% year-over-year, below the expected 5.1% increase.

Obviously both the Bank of Canada and the Federal Reserve will welcome this labour market softening, with the affect they will have on lowering inflationary pressures.

And how about that gold? The price of gold was up more than 6% for the week, ending just shy of $2,200 an ounce to set a new record high.

To me, the biggest takeaway from Fed Chair Jerome Powell’s testimony was that it was essentially more of the same, with him reiterating previous Fed talking points. He did say that policymakers were ‘not far’ from having confidence in the taming of inflation that would enable them to start cutting rates.

The results of last week’s poll were that 54% of voters feel comfortable with their portfolios today, and don’t plan to make any near-term changes to their investments to fend off a possible correction from the recent market records.

In this Edition of The Pulse:

• Bank of Canada Holds Overnight Rate

• Debt Starts to Hit Hard

• Fake Websites On the Rise

• Gold and Bitcoin at All-Time Highs

• Canada’s Surprise Suplus

• Market Movers | Winners & Losers

THIS WEEK’S POLL QUESTION
(Results in Next Week’s Newsletter)

LAST WEEK’S POLL RESULTS

With the key indices now at all-time highs, do you plan to make any changes to your portfolio within the next 60 days?

S&P 500 Weekly Overview

S&P TSX Weekly Overview

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Oversold

A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

THE ECONOMY
Bank of Canada Holds at 5%

As has been the story of late, to no-one’s surprise the Bank of Canada decided to keep its key interest rate steady at 5%, maintaining a cautious stance due to ongoing concerns regarding persistent inflation and global economic risks.

Governor Tiff Macklem emphasized the importance of allowing higher interest rates more time to have an impact on the economy, despite mounting pressure for rate cuts.

While the Canadian economy experienced modest growth in 2023, inflation remains a significant concern, expected to gradually ease in the coming months.

Macklem reiterated the need for prudence, as the central bank's decisions aim to strike a balance between controlling inflation and fostering economic stability.

Overall, the Bank of Canada's decision to maintain its current interest rate reflects a cautious approach aimed at navigating the complex economic landscape. By carefully assessing domestic and global economic conditions, the central bank aims to make informed decisions that support long-term economic stability and mitigate the impact of inflationary pressures on households and businesses alike.

Here are some of the highlights from the Bank’s statement.

THE ECONOMY

• The Bank noted that Global economic growth slowed in the fourth quarter

• In Canada, the economy grew in the fourth quarter by more than expected, although the pace remained weak and below potential

• Real GDP expanded by 1% after contracting 0.5% in the third quarter

• Consumption was up a modest 1%, and final domestic demand contracted with a large decline in business investment

• Canada also saw a strong increase in exports, which helped boost growth

• In the US, GDP growth also slowed but remained surprisingly robust and broad-based, with solid contributions from consumption and exports

• Over in the Euro area, economic growth was flat at the end of the year after contracting in the third quarter

• Employment continues to grow more slowly than the population, and there are now some signs that wage pressures may be easing

• Overall, the data point to an economy in modest excess supply

INFLATION

• January Canadian CPI inflation eased to 2.9%, as goods price inflation moderated further

• Shelter price inflation remains elevated and is the biggest contributor to inflation

• Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3% to 3.5% range, and the share of CPI components growing above 3% declined but is still above the historical average

• Inflation in the United States and the euro area continued to ease. The Bank continues to expect inflation to remain close to 3% during the first half of this year before gradually easing

• The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation

So, after factoring all of this in, the Bank Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet.

Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.

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This content is intended for information purposes only. Beavis Wealth is compensated under this arrangement by BMO Exchange Traded Funds. The views expressed herein are subject to change without notice. The content contained herein is not, and should not be construed as, investment advice to any party. Any securities described herein must be evaluated relative to the individual’s investment objectives and risk tolerance, and professional advice should be obtained with respect to the individual’s particular circumstances.

The views expressed herein regarding a particular company, security, industry, or market sector should not be considered as an indication of trading intent of any investment funds managed by BMO Global Asset Management. Any reference to a particular company is for illustrative purposes only and should not be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by BMO Global Asset Management is or will be invested. This social media network is an independent organization and is not affiliated with BMO Global Asset Management.

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THE CONSUMER
Equifax Debt

According to Equifax Canada, we saw a concerning trend in the fourth quarter of 2023, especially in Ontario and British Columbia. Mortgage-holders and credit card users in these provinces increasingly missed payments, which reflects the ongoing impact of higher interest rates and inflation.

Rebecca Oakes, vice-president of advanced analytics at Equifax Canada, says that this strain is particularly visible during mortgage renewals, and especially in regions with expensive housing markets.

Mortgage delinquency rates in Ontario were up by 135 percent compared to the previous year, while in B.C., the rate rose by 62 percent. In both of these cases, we’ve now surpassed pre-pandemic levels.

This financial stress also extends to credit card payments, especially among homeowners aged 36 and younger, who often have higher mortgage amounts owing and fewer savings.

Outside of BC and Ontario, where mortgage amounts are lower, delinquency rates are rising at a slower pace and remain below pre-pandemic levels.

What we’re seeing is that as interest rates rise, homeowners who locked in historically low rates in 2020 may struggle with increased monthly mortgage payments. In the fourth quarter alone, average monthly mortgage payments rose by $457, and more than $680 in B.C. and Ontario.

Total consumer debt reached $2.45 trillion in the fourth quarter, with non-mortgage debt increasing by 4.1%, mainly driven by rising credit card debt.

Another concerning issue is that the number of consumers missing payments on credit products has surpassed 2019 levels, and this also raises concerns about consumer insolvencies.

And while still below pre-pandemic levels, the sharp increase in mortgage holders filing for bankruptcy, particularly in Ontario and B.C., is alarming.

The way I see this, the escalating trend of missed payments on mortgages and credit cards in Ontario and British Columbia underscores the financial strain many Canadians, all across the country, are facing. As interest rates continue to rise, it's going to continue to be crucial for homeowners to carefully assess their financial situation and prepare for potential increases in monthly payments to avoid falling into financial distress.

TECHNOLOGY AND THE CONSUMER
Fake Companies

Scamming Canadian consumers and businesses through fake websites that mimic legitimate companies is a growing concern.

A rising number of fraudulent websites that trick unsuspecting users into making purchases or providing personal information, which then leads to financial losses, is on the rise.

What’s most alarming about these fake sites is how quickly they are growing, with fraudulent listings appearing in search engine results, which then redirect users to fake websites.

Flight Centre, a travel agent chain, has faced more than its share of troublemakers, with fake phone numbers leading customers to unknown call centers instead of legitimate branches.

One British Columbia resident lost over $2,000 after calling a fraudulent Flight Centre listing to book a flight.

Even though efforts are made to take down these fraudulent listings, they often reappear quickly, which poses a challenge for companies like Flight Centre, requiring significant resources to monitor and address.

Cybersecurity experts emphasize the importance of awareness and reporting to combat these scams. Consumers and businesses are encouraged to report fraudulent websites and listings to search engines or payment processing companies, as well as utilize government resources such as the Canadian Anti-Fraud Centre and Get Cyber Safe website.

I know this has been said a million times, but it’s worth repeating.  The rise of fake websites targeting Canadian consumers and businesses is another example of the need for increased vigilance and proactive measures to protect against online scams.

It’s crucial for both individuals and businesses to stay informed, report suspicious activity promptly, and utilize available resources to safeguard against fraud.

COMMODITIES
Gold and Bitcoin At All-Time Highs

Gold has struck gold again on Wall Street, reaching a record high this week, with its price soaring to almost $2,200 a troy ounce.

A lot of the surge is driven by investors' anticipation that the Federal Reserve might lower interest rates later in the year, which then shifts investors to value the appeal of gold over income-generating assets like bonds. Gold's reputation as a safe and resilient investment, especially during economic uncertainties, is once again in the spotlight.

Interestingly, it's not just seasoned traders and investors who are jumping on the gold bandwagon. Retail giants like Costco have tapped into the frenzy, selling gold bars and reporting sales exceeding $100 million in the first fiscal quarter of 2024.

Meanwhile, bitcoin, which is often heralded as the digital counterpart to gold, has also experienced a superb rally, breaking its previous record high. This resurgence has been partly fueled by the introduction of spot bitcoin ETFs, drawing parallels between the two assets as havens during economic uncertainty.

As a former investment advisor, I see gold's resurgence not just as a reaction to immediate economic conditions but as a throw back to its long-perceived value as a hedge against inflation and uncertainty. While gold and digital currencies like bitcoin both offer alternative investment avenues, gold's physical tangibility and historical reliability probably put it higher up the choice ladder or more seasoned investors, but for the younger crowed, bitcoin offers a similar appeal, potentially making them both attractive options for those seeking a hedge.

OUR ECONOMY
Canada’s Surplus Surprise

Canada reported a surprising trade surplus of $496 million in January, blowing away the expectation of $100 million, thanks to imports dropping to an almost two-year low while exports decreased less sharply.

A reduction in Canadian spending on foreign goods, especially consumer goods and motor vehicles, attributed to high interest rates.

The decline in imports by 3.8% and exports by 1.7% reflects broader economic pressures, including a strong Canadian dollar making exports less competitive abroad.

This report was pretty much in line with the Bank of Canada’s expectations, and the thesis is that the higher borrowing costs we’re seeing will continue to dampen consumer spending in the near term.

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This content is intended for information purposes only. This content has been prepared by Beavis Wealth and represents its assessment at the time of publication. Beavis Wealth is compensated under this arrangement by BMO Exchange Traded Funds. The content contained herein does not necessarily represent the views of BMO Global Asset Management. The views expressed herein by Beavis Wealth are subject to change without notice. The content contained herein is not, and should not be construed as, investment advice to any party. Any securities described herein must be evaluated relative to the individual’s investment objectives and risk tolerance, and professional advice should be obtained with respect to the individual’s particular circumstances.

The views expressed herein by Beavis Wealth regarding a particular company, security, industry, or market sector should not be considered as an indication of trading intent of any investment funds managed by BMO Global Asset Management. Any reference to a particular company is for illustrative purposes only and should not be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by BMO Global Asset Management is or will be invested. This social media network is an independent organization and is not affiliated with BMO Global Asset Management.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.