The recent inflation surge is generating two challenges to the global expansion. The immediate one comes from a squeeze in household purchasing power, concentrated in Europe and low-income commodity importing nations. If growth stalls in the second half of the year, it will likely have negative repercussions for both growth and inflation. If growth proves resilient, then risks rise that the inflation surge passes through to price and wage setting, requiring tight monetary stances. In April, we updated our current outlook to three months of inflation followed by nine months of stagnation for the U.S. economy.

The Chinese economy expanded 4.8% year over year in Q1 of 2022.1 China policymakers are dealing with a significant weakening amid lockdowns to bring the Omicron wave under control. China’s surveyed urban unemployment increased to 5.8% in March 2022 from 5.5% in the previous month. The latest figure marked the highest jobless rate since May 2020, amid re-imposing COVID-19 restrictions following widespread outbreaks.2 The annual inflation rate in the Euro Area surged to an all-time high of 7.5% in March, compared to 5.9% in February, as the war in Ukraine and sanctions on Russia pushed fuel and natural gas prices to record high levels. Energy recorded the highest annual rate, with prices of other items, including food rising also.3 The unemployment rate in the Euro Area fell to a record low of 6.8% in February of 2022. Among the biggest economies in the Eurozone, declines in the jobless rate were seen in Spain, Italy, and France.4

The American economy expanded an annualized 6.9% annualized in the last three months of 2021.5 The U.S. unemployment rate declined to 3.6% in March from 3.8% in the previous month.6 The annual inflation rate in the U.S. accelerated to 8.5% in March of 2022, the highest since December of 1981. Energy prices increased 32%, as gasoline and fuel oil were impacted by Russia’s invasion of Ukraine. Food prices jumped 8.8%, the most since May 1981.7 The trade deficit in the U.S. remained near record levels of $89.18 billion in February, as imports continue to rise amid robust demand and rising oil prices. Imports were up 1.3%, on higher shipments of crude oil, other chemicals and petroleum products, fuel oil, and capital goods. Trade deficits were recorded with China, the EU, Mexico, and Canada. The goods gap with Russia widened to $2.1 from $1.6 billion.8

The unemployment rate in Canada fell to 5.3% in March from 5.5% in February. It was the lowest rate on record since comparable data became available in 1976, marking a robust recovery for the labor market from the Covid-19 pandemic.9 Canada posted a trade surplus in February, narrowing from an upwardly revised 13-year high surplus in the previous month. Imports rose by 3.9%, due to uncertainty about the future supply of metals from Russia. Exports rose by 2.8% to a record-high, led by sales of energy products (up 7.8%), largely due to soaring prices because of the war in Ukraine.10

The U.S. S&P Large Cap 500 faced a turbulent quarter, down 4.6%. Smaller caps underperformed, with the S&P MidCap 400 and S&P SmallCap 600 down 4.9% and 5.6% for the quarter, respectively.  An inverted yield curve signaled concerns of an impending recession. U.S. fixed income performance was weak across the board. Gains in commodities continued, driven by Energy’s outperformance. Canadian equities outperformed the U.S. in Q1, with the S&P/TSX Composite up 3.8%. Energy posted a 29% gain. The S&P Europe 350 rebounded from losses suffered in the first two months of the year, resulting in a negative 4.9% in the first quarter. Most sectors and countries represented in the benchmark declined in Q1 2022. Energy was the best performing sector, up 18%. The United Kingdom and Norway contributed positively to the region’s returns in the quarter, while German equities were the most negative. The S&P Pan Asia BMI posted three consecutive months of declines, down 6.2% for the quarter. Amongst local market gauges, the S&P China 500 sank 14.3% in the first three months of 2022.

We have maintained our asset allocation across all models in April. Last month’s move to reduce exposure to the 3-to-7-year U.S. Treasury bond and add to Gold and Canadian Equities has had a positive impact on the portfolio. We continue to rely on the safe haven status of gold in times of uncertainty, including war and inflation. Canadian oil and liquid natural gas directed through the U.S. pipeline system for export to Europe along with their higher prices will benefit Canada. We are monitoring large cap U.S. equity exposure.

The Russian-Ukraine conflict, surging inflation, and concerns about the Fed’s rate hike plan have led to the S&P 500’s worst quarter in two years. Real interest rates remain low and private sector balance sheets are healthy. Our outlook reflects these developments. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China GDP Growth. April 18, 2022.

2 Trading Economics. China Unemployment. April 18, 2022.

3 Trading Economics. Europe Inflation. April 1, 2022.

4 Trading Economics. Europe Unemployment Rate: Eurostat. March 31, 2022.

5 Trading Economics. U.S. GDP Growth. March 30, 2022.

6 Trading Economics. U.S. Unemployment: U.S. Bureau of Labor Statistics. April 1, 2022.

7 Trading Economics. U.S. Inflation. April 12, 2022.

8 Trading Economics. U.S. Trade Gap: Bureau of Economic Analysis. April 5, 2022.

9 Trading Economics. Canada Unemployment: Statistics Canada. April 8, 2022.

10 Trading Economics. Canada Trade Surplus. April 5, 2022.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. March 31, 2022. Index performance is based on total returns and expressed in the local currency of the index.