Global economic momentum continues to improve with mixed results among the G7. The U.S. FOMC met in early June, focusing on inflation that has remained higher than target, supporting the position to leave rates unchanged. The Bank of Canada and European Central Bank, however, began rate-cut cycles in June; the first G7 central banks to do so. While the Canadian economy will benefit from interest rate relief, overall economic momentum is forecast to remain subdued as indebted consumers continue to adjust. In June we maintained our U.S. twelve -month forward looking outlook to reflect our view for Stagnation (U.S. Real GDP growth between 0 and 2.5%) over the entire period. Stagnation will put downward pressure on rates, as moderating inflation will lead to less restrictive monetary policy.

The Consumer Price Index in China decreased 0.10% in May of 2024 over the previous month to 0.3%.1 China’s surveyed unemployment rate stood at 5%, unchanged from April’s five-month low.2 China’s trade surplus widened to USD 82.62 billion in May. Exports advanced 7.6% from a year earlier, while imports increased by 1.8%.3 The Eurozone economy expanded 0.3% on quarter in the first three months of 2024, recovering from a 0.1% contraction in each of the previous two quarters.4 Annual inflation in the Euro Area increased to 2.6% in May 2024 from 2.4% in each of the previous two months. Prices rebounded for energy (0.3% vs -0.6%) and rose faster for services (4.1% vs 3%).5 The unemployment rate in the Euro Area was 6.4% in April 2024, down from 6.5% in each of the prior five months. Across the major Euro Area economies, Spain continues to grapple with the highest unemployment rate, standing at 11.7%, followed by France at 7.3% and Italy at 6.9%. In contrast, Germany recorded the lowest rate at 3.2%.6

It was confirmed that the U.S. economy expanded an annualized 1.3% in Q1 2024, mainly due to a downward revision in consumer spending.7 The annual inflation rate in the U.S. slowed to 3.3% in May, the lowest in three months.8 The unemployment rate in the United States rose to 4%.9 The trade deficit in the U.S. widened to $74.6 billion in April 2024. Imports increased 8.7% to $338.2 billion while exports edged up 0.8% to $263.7 billion.10 The Canadian economy was confirmed to have expanded by 0.4% in the first quarter of 2024.11 Canada’s annual core inflation rate accelerated to 1.8% in May from April’s three-year low of 1.6%.12 The unemployment rate in Canada rose to 6.2% in May from 6.1% in the earlier month, the highest since October of 2021.13 

U.S. Large Cap equities posted their best performance since February, up 5.0% in May. Mid- Caps and Small- Caps were up 4.4% and 5.0% respectively. Canadian equities finished the month on the upside. The S&P/TSX Composite increased 2.8%. The S&P Europe 350 was up 3.5% in May to extend its YTD gain to 10.9%. All 16 countries contributed positively to the pan-European equity return, with Switzerland the biggest positive contributor, up +0.9%. Pan Asia equities rebounded along with global equities, with the S&P Pan Asia BMI rising 1.6% in May. Emerging market regions of the S&P Pan Asia BMI continued to outperform their developed counterparts, widening their year-to-date return differential to 5%.

In June we maintained the asset allocation from May. Due to an underperforming Canadian economy, we continue to avoid Canadian exposure as we expect the BoC to cut interest rates earlier and more than the Fed this year. We continue to focus on short duration U.S. fixed income exposure across all models. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models during stagnation.

 Fiscal policy and electoral cycles will continue to dominate our outlook. Our twelve- month forward outlook focuses on the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. We will continue to monitor this as we move through 2024. 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

Drew Millard, Portfolio Manager

1 Trading Economics. China Inflation. June 12, 2024.

2 Trading Economics. China Unemployment. June 17, 2024.

3 Trading Economics. China Trade. June 7, 2024.

4 Trading Economics. EU GDP. June 7, 2024.

5 Trading Economics. EU Inflation. June 18, 2024.

6 Trading Economics. EU Unemployment. May 30, 2024.

7 Trading Economics. U.S. GDP. May 30, 2024.

8 Trading Economics. U.S. Inflation. June 12, 2024.

9 Trading Economics. U.S. Unemployment. June 7, 2024.

10 Trading Economics. U.S. Trade. June 6, 2024.

11 Trading Economics. Canada GDP. May 31, 2024.

12 Trading Economics. Canada Inflation. June 25, 2024.

13 Trading Economics. Canada Unemployment. June 7, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. May 31, 2024. Index performance is based on total returns and expressed in the local currency of the index.