Global equities traded in record territory amid renewed enthusiasm over rapid advancements in artificial intelligence. Yields were little changed on the week, with the US 10-year Treasury note unchanged at 4.31%. The price of a barrel of West Texas Intermediate crude oil fell $0.60 to $76.90 from a week ago while volatility, as measured by the Cboe Volatility Index (VIX), edged down to 14 from 14.4.

CANADIAN ECONOMIC NEWS

This past week, our federal government posted a budgetary deficit of $23.6 billion for the first nine months of its current fiscal year. This is compared to a deficit of 5.5 billion a year earlier. Revenue increased to 318.1 billion.

As our public debt continues to soar, one of the biggest challenges for the federal government will be its ability to continue to fund services to Canadians without significant tax increases in the years ahead.

US ECONOMIC NEWS

Earnings News

With 90% of the constituents of the S&P 500 Index having reported for Q4 2023, blended earnings per share (which combines reported data with estimates for those that have yet to report) shows that earnings rose 3.8% compared with the same quarter a year ago. Sales growth is up 4.2% year over year.

Shares of graphic-processing-unit-maker, Nvidia, soared after the company beat extremely upbeat earnings estimates by a wide margin on Wednesday afternoon. The devices are critical components in the data centres that power artificial intelligence applications. Markets rallied broadly after the news. The S&P 500 and Nasdaq 100 indices reached record closes.

After pricing in aggressive rate cuts from the US Federal Reserve in late 2023 and early 2024, markets have moderated their outlook in the wake of a string of strong US economic data points and signs that inflation may fall more slowly than feared. Besides the solid growth trajectory, the strong rally in equities in recent months has kept monetary conditions looser than the Fed would like, easing any urgency for rate cuts. As a result, markets have trimmed the number of cuts in 2024 from nearly seven in mid-January to just over three currently, in line with the Fed’s own forecasts. We expect the first rate cut to happen in May 2024.

EUROPEAN ECONOMIC NEWS

German companies announced a record $15.7 billion of capital commitments in US projects last year, up from $8.2 billion a year earlier and dwarfing the $5.9 billion pledged in China. Executives said that the combination of pragmatic US government industrial policies, a strong long-term market outlook and an increased focus on supply chains was driving US investment. Others said Europe is increasingly suffering from overregulation, slow and bureaucratic approval procedures and high costs for most production factors. A recent report by the German Chamber of Industry and Commerce forecast the US would supplant China as the Germany’s top trade partner by 2025.

CHINA, EMERGING MARKETS and JAPAN ECONOMIC NEWS

Chinese Premier Li Qiang on Sunday called for “pragmatic and forceful” action to boost confidence in China’s economy, though he did not outline any specific steps during a meeting of the State Council. On Monday, the People’s Bank of China lowered its five-year loan prime rate—a key mortgage reference rate—0.25% to 3.95%. Early in the week, the China Securities Regulatory Commission said it will take heed of all suggestions, even criticism, from market participants and would address their concerns promptly in an effort to bolster market sentiment. The securities regulator also created a task force to monitor short selling and is said to be considering a ban on institutional stock sales during the first and last thirty minutes of each trading session.