Vikki Zhao and Olena Li
PUBLISHED Mon, April 22, 2024, 11:30 AM EST. 6 min read.

Last week, concerns over escalating tensions in the Middle East and rising inflation and interest rates led to a slight downturn in the stock market, with the yield on the US 10-year Treasury rising from 4.2% at the end of March to 4.69%. Additionally, Canada's Budget 2024 revealed forecasts for fiscal deficits, public debt costs, real GDP outlook, and revenue projections. Furthermore, economists warned that the Bank of Canada might lead the Federal Reserve in cutting interest rates, potentially causing the Canadian dollar to plummet below 70 cents.


This week, key focuses include the release of the US Personal Consumption Expenditures (PCE) Price Index, global PMI data, and the policy meeting of the Bank of Japan. Additionally, Canada will publish the preliminary estimate of GDP for the first quarter, along with a series of other economic data including new home sales and initial jobless claims.

Equities have experienced a slight downturn as we commence the second quarter. This pullback is attributed partly to rising tensions in the Middle East, but primarily to escalating inflation and interest rates. Notably, the yield on the US 10-year Treasury has surged to 4.69% from 4.2% since the end of March, driven by a series of high Consumer Price Index (CPI) reports and postponed expectations for Federal Reserve rate cuts.

“We believe this market behavior represents a normal pullback rather than a more severe downturn.”

Inflation, Federal Reserve, and Interest Rates

The market had prematurely anticipated Fed rate reductions and is currently adjusting. While inflation appears to be moving in the right direction, persistently high inflationary reports could pose a risk. The Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, is set to be reported on April 26, with a moderate month-over-month increase of 0.3% expected.



 The overall economic landscape looks robust. Retail sales in March were strong, potentially boosted by an early Easter, and industrial production showed improvement. The first quarter Gross Domestic Product (GDP) report is anticipated next week, with expectations set at a 2% quarterly growth rate, following a 3.4% increase in the previous quarter.


Middle East Situation

 Currently, the market seems to be minimally affected by Middle Eastern geopolitical issues. However, geopolitical dynamics remain unpredictable and could introduce volatility.


Earnings Reports:

Generally, expectations are low enough to allow for favorable earnings outcomes. Given the economic strength observed in the first quarter, prospects for a successful earnings season are high. Our focus will largely be on corporate forecasts and guidance for the remainder of the year. Early reports from various sectors, including consumer, banking, and industrial, have shown some caution.


Technical Analysis and Market Trends

The recent technical breakdown, coupled with the delay in Fed rate cuts, indicates that the market is likely in a pullback phase. The S&P 500’s drop below its 20- and 50-day moving averages suggests a deceleration in momentum. There have been five significant downside-volume days since the peak, indicating a readiness among investors to secure profits. In the short term, several indicators hint at an imminent relief bounce. Nonetheless, pullbacks typically unfold over time, and we suspect that the market lows have not yet been reached. We foresee a potential downside for the S&P 500 to around 4750, equating to a 10% decline from the peak and an additional 5% from current levels.


Without a prompt shift in inflation dynamics or Federal Reserve actions, equities are likely to become more range-bound. This stabilization is not necessarily negative, following a 28% rally from late October through March. Such pullbacks are standard in the market, allow for a healthy correction after periods of overbuying, and can provide new investment opportunities.


Good news for Morgan Stanley shareholders: Morgan Stanley (NYSE: MS) exceeds revenue and profit expectations in the first quarter, with its investment banking business breaking free from a two-year trading slump.

Good news for TSMC shareholders: TSMC (TW:2330) (NYSE: TSM) released its first-quarter financial report on Wednesday (April 18), which revealed that profits exceeded expectations due to the rapid growth of the artificial intelligence (AI) industry and the surge in related demand.

Good news for Truist Financial shareholders: Truist Financial rose 3.6% for one of the market's biggest gains after it reported better profit for the start of the year than analysts expected.

Good news for rate-cut champions: Canada’s consumer price index came in higher than expected at 2.9 per cent for March, but economists still expect that’s good enough for the Bank of Canada to start cutting rates at its meeting in June. “This result is likely just good enough to keep them on track for a potential trim in June,” says Douglas Porter, chief economist at the Bank of Montreal.

Good news for oil and gas company shareholders: Canadian energy producers say they are prepared for what could be another spring and summer of drought and wildfires, though leftover blazes — so-called zombie fires — from last year’s record wildfire season are threatening to knock out almost three per cent of the country’s natural gas production.


Bad news for Johnson & Johnson shareholders: Johnson & Johnson (NYSE: JNJ) disappoints with first-quarter revenue data, as sales of the psoriasis drug Stelara fall below expectations.

Bad News for Tesla Shareholders: Tesla (NASDAQ: TSLA) stock hit a 15-month low in pre-market trading, dropping as low as $152. Earlier, investment bank Deutsche Bank downgraded Tesla's rating, citing "significant risks" associated with the company.

Bad News for Netflix shareholders: Netflix (NASDAQ:NFLX) reported strong performance in the first quarter, with net additions of paid subscribers far exceeding expectations. However, concerns about future growth led to a significant decline in the company's stock price.

Bad news for those who believe pensions should be free of government interference: Former Bank of Canada governor Stephen Poloz has been asked by the federal government to find ways of getting Canadian pensions to put more of their capital into domestic opportunities, including housing development, venture capital and infrastructure such as airports.

Get key insights from Canada’s Budget 2024 in four charts

Federal Deficit Projection: Finance Minister Chrystia Freeland maintains the deficit at $40 billion for 2023-24, but expects deeper deficits in the future without immediate fiscal balance plans.

Public Debt Charges: Debt servicing costs are set to double to 1.6% of GDP by 2023-24, surpassing essential transfers like the Canada Health Transfer by 2028-29.

Real GDP Outlook: The budget eliminates the recession threat, with stronger-than-expected economic growth potentially leading to smaller deficits.

Revenue Projections: Tax increases are anticipated to raise $6.5 billion in 2024-25, despite concerns about their impact on innovation and entrepreneurship.

For more details, click here: News Link

Canadian Dollar May Face Pressure as Economists Warn Bank of Canada’s Faster Rate Cuts Could Lead Ahead of Fed’s

Economists suggest that the Canadian dollar could plummet to below 70 US cents this year if the Bank of Canada cuts interest rates more aggressively than the Federal Reserve. The loonie has faced a challenging year, already down over 4% and currently at its lowest level since November. National Bank economists forecast the loonie to drop to 71 US cents in the third quarter and 70 US cents in the fourth quarter. While the Bank of Canada may contemplate rate cuts, it risks importing inflation if it outpaces the Fed, potentially causing currency devaluation. Market expectations for a rate cut in June are currently at 50/50, with only two additional cuts expected this year outside of June.



The adjustment of capital gains tax in Canada may lead to talent outflow, threatening productivity.

The Canadian government’s plan to increase capital gains tax for corporations and wealthy individuals has faced criticism from business leaders in the tech industry. They argue that the policies outlined in Tuesday’s budget pose significant obstacles for innovative companies to establish themselves in Canada, potentially harming the country’s already lagging productivity. Finance Minister Chrystia Freeland proposed amendments to the Income Tax Act, aiming to raise the inclusion rate on all annual capital gains for corporations and trusts, as well as capital gains exceeding $250,000 for individuals, from one half to two-thirds. The plan is set to take effect on June 25, 2024.



Honda to Build Electric Vehicle Plant in Ontario Amid Growing EV Investment


Honda Canada is set to construct an electric vehicle battery plant alongside its auto manufacturing facility in Alliston, Ont., where it plans to manufacture fully electric vehicles. Sources indicate that the federal and Ontario governments will make the announcement this week, with the project estimated to be worth around $14 billion or $15 billion. The facility will be the third electric vehicle battery plant in Ontario, following Volkswagen and Stellantis LG plants, and is expected to involve capital commitments and tax credits. The project comes after years of discussions between Honda executives and the Ontario government, with negotiations intensifying last summer and culminating in a deal sealed in December. This initiative aligns with the government’s vision to establish an end-to-end electric vehicle supply chain in the province. Federal Finance Minister Chrystia Freeland’s recent budget introduced tax credits to incentivize investments in electric vehicle production, further supporting Honda’s venture.


Wall Street Warns of Growing
Bearish Signals in US Stock Market

Citigroup strategist Chris Montagu warns that as investors shed a large
number of long futures positions, any further weakness in the US stock market
could exacerbate; the S&P 500 index has $52 billion of long positions, with
88% in a loss state, a risk identified by the strategist. Morgan Stanley
strategist Mislav Matejka suggests that the stock market underestimates the
impact of rising inflation pressures on Fed policy and bond yields; he also
warns against expecting optimistic corporate earnings seasons to drive the US
stock market higher, as much of the optimism has been digested after this year’s
record rally. Morgan Stanley strategist Michael Wilson similarly issues a
warning about the impact of higher interest rates on stock valuations.


Japanese Finance Minister’s Warning
Sends Yen to 34-Year Low

Japanese Finance Minister Suzuki Toshii hinted at possible intervention
in the forex market, causing the yen to plummet to a 34-year low. However, his
remarks lacked the severity of previous statements, leading to the yen hovering
around 154.35. The US retail sales data’s positive performance further
exacerbated the yen’s decline to 154.45, underscoring the challenges faced by
Japanese forex officials amidst international agreements mandating
market-driven exchange rates. Despite Suzuki’s reassurances, market speculation
persists over potential intervention, with the US economic resilience casting
doubt on future Fed rate cuts and exacerbating the yen’s weakening against the

Tesla’s Senior Vice President Departs, Marking Second High-Level Exit in Eight Months for Musk

Drew Baglino, one of Tesla’s only four executives, responsible for engineering and technical development of batteries, motors, and energy products, has reportedly left the company after 18 years. Baglino, who has shared the stage with Musk at several events, including Tesla’s Investor Day a year ago, departs following the resignation of CFO Zachary Kirkhorn in August, another senior executive loss for Musk. Concerns about Tesla’s succession plan may intensify with Baglino’s departure, as Musk juggles leadership of six other companies, potentially diverting attention and resources away from Tesla.



Capital Gains Tax Hike Sparks Concerns of Brain Drain and Productivity Loss

Critics warn that the Liberal government’s proposed increase in capital gains tax for corporations and wealthier individuals, outlined in Tuesday’s budget, could have severe repercussions, potentially leading to a brain drain and harming productivity. Finance Minister Chrystia Freeland laid out plans for the inclusion rate on all annual capital gains for corporations and trusts — as well as capital gains above $250,000 for individuals — to rise to two-thirds from one half through amendments to the Income Tax Act, effective June 25, 2024.

“The very folks who drive productivity and innovation will leave the country and head to the U.S. to build their businesses there.”  ——JOHN RUFFOLO


Berkshire Hathaway Issues ¥263.3 Billion Bonds, Fuels Speculation of Buffett’s Return to Japanese Market

Buffett’s Berkshire Hathaway issued ¥263.3 billion in bonds, its largest issuance since 2019. The move, at a lower price than recent trading premiums, signals easing concerns over the Bank of Japan’s interest rate hike. Seen as a test of yen-denominated bond interest, it also fuels speculation of Buffett’s return to the Japanese stock market, where his past investments buoyed indices to record highs. The issuance, comprising various maturities, underscores Berkshire’s continued presence in the yen bond market, supporting its strategic investments in leading Japanese trading companies.


TikTok Defiant: Vows to Fight US Ban Amid National Security Concerns

TikTok vows to fight against ongoing attempts to ban the app in the US after the House of Representatives passed a bill requiring ByteDance to sell the platform within a year to avoid a nationwide ban. TikTok’s head of public policy criticized the legislation as a violation of First Amendment rights and pledged to continue the fight. The bill, expected to be signed into law by President Biden, cites national security concerns over data sharing with China and the potential for misinformation. TikTok argues against the ban, emphasizing its commitment to user privacy and free speech. Democratic Senator Mark Warner warns of TikTok’s potential use as a propaganda tool by China, while some Democrats advocate for stronger data privacy laws instead of a ban. The bill sets a nine-month deadline for ByteDance to divest US assets, extendable by three months if deemed necessary. TikTok faces bans in multiple countries, including India, with partial bans in other major markets like the European Union.


Tesla Cuts Prices in China and Germany

Tesla is back in the spotlight as it reduces prices in major overseas markets like China and Germany to address declining sales and intense price competition. CEO Elon Musk stated that Tesla’s prices must change frequently to meet demand. Reports indicate that Tesla has lowered the price of the Model 3 in China by approximately $2,000, with adjustments in other regions as well. Earlier, some models in the US market were also reduced by $2,000. The company announced its first global decline in car deliveries in nearly four years, resulting in layoffs of over 10%, affecting at least 14,000 jobs. There are reports suggesting that Musk is pushing for layoffs of up to 20%, potentially affecting over 20,000 people. Tesla is set to release its first-quarter financial results on Tuesday, with expected significant declines in operating profit and revenue. Tesla’s stock price has dropped by over 40% since the beginning of this year.

Railway earnings

The country’s two biggest railway companies will report their first-quarter results this week. Canadian National Railway Co. (TSX:CNR) will report its results after the close of financial markets on Tuesday, while Canadian Pacific Kansas City Ltd. (TSX:CP) will release its results before markets open Wednesday.


Bank of Canada deliberations

The Bank of Canada will release Wednesday its summary of monetary policy deliberations for its interest rate decision earlier this month. The central bank kept its key interest rate target on hold at five per cent, but governor Tiff Macklem said it was “within the realm of possibilities” that he could cut rates in June.


Metro results

Grocer Metro Inc. (TSX:MRU) will report its second-quarter results and hold a conference call with financial analysts on Wednesday morning. The results come as discussions toward a grocery code of conduct continue. The industry has been under scrutiny as food inflation has outpaced the overall increases in the cost of living.


Retail sales

Statistics Canada is set to report retail sales figures for February on Wednesday. The agency said last month that retail sales in January fell 0.3 per cent to $67.0 billion for the first month of the year, but its early estimate for February pointed to an increase of 0.1 per cent.


Resource sector results

Quarterly results from several of the big names in the Canadian resource sector are expected this week. First Quantum Minerals Ltd. will report after the close of trading on Tuesday and hold a conference call Wednesday. Teck Resources Ltd. (TSX:TECK.B) is expected to report its results before markets open on Thursday, while Agnico Eagle Mines Ltd. (TSX:AEM) is expected to report after markets close on Thursday. Imperial Oil Ltd. (TSX:IMO) will report its results and hold a conference call with financial analysts and investors Friday morning.


American PCE Price Index

On April 26th, the United States will release the Personal Consumption Expenditures (PCE) Price Index, the favored inflation gauge by the Federal Reserve. Analysts anticipate that March's data will remain elevated.


Big Tech Earnings Reports

This week will see four major tech giants reporting their earnings, starting with electric car manufacturer Tesla on Tuesday. Following closely, Facebook's parent company Meta will release its earnings on Wednesday, while Microsoft and Google's parent company Alphabet will announce their performance on Thursday.

Due to their significant weighting, these tech giants hold considerable influence over the S&P 500 index. The market needs to closely monitor their performance to assess their potential impact on the overall market trends.


Oil Prices

Last Friday saw a slight increase in oil prices; however, looking at the overall week, oil prices still fell due to the de-escalation of retaliatory attacks between Iran and Israel. The handling of the de-escalation reflects a potential avoidance of escalation in hostile actions in the Middle East. As a result, with the gradual dissipation of risk premiums, oil prices fell by approximately 3% last week, marking the largest weekly decline for both US and Brent crude since February.


PMI Data

Investors also need to closely watch the Purchasing Managers' Index (PMI) data for the Eurozone, the United States, and the United Kingdom to explore inflation signals, particularly whether service sector inflation will rebound.


Bank of Japan Meeting

The Bank of Japan is set to hold a policy meeting this Friday (26th), where it will release the latest quarterly economic growth and inflation forecasts. Investors need to watch for clues about the timing of the next interest rate hike.

Last Friday (19th), Bank of Japan Governor Haruhiko Kuroda stated that if the underlying inflation rate continues to rise, the central bank is "highly likely" to raise interest rates and reduce its massive bond-buying program at an appropriate time in the future. This statement reinforced market expectations that the Bank of Japan may raise the short-term interest rate target from the current range of 0-0.1% sometime this year.

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