The global economy has avoided a recession in the face of supply-chain disruptions in the aftermath of the pandemic, a Russian-initiated war on Ukraine that triggered a global energy and food crisis, and a surge in inflation, followed by a globally synchronized monetary policy tightening. It remains resilient, with growth holding steady as inflation returns to target. On a year-over-year basis, global growth bottomed out at the end of 2022, shortly after median headline inflation peaked. According to projections from the International Monetary Fund, growth for 2024 and 2025 will hold steady around 3.2%, with median headline inflation declining from 2.8% at the end of 2024 to 2.4% at the end of 2025.1 Most indicators point to a soft landing. In May 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.

China’s trade surplus in US dollars decreased to 72.35 billion in April from 86.46 billion in the same period a year earlier, as exports grew much less than imports.2 China’s annual inflation rate rose to 0.3% in April 2024.3 The Eurozone economy expanded 0.3% on quarter in the first three months of 2024, with German GDP rebounding (0.2% vs -0.5%) and France (0.2% vs 0.1%) and Italy (0.3% vs 0.1%) expanding at a faster pace.4 Annual inflation in the Euro Area was confirmed at 2.4% in April, nearing the 2% target.5 The unemployment rate in the Euro Area stood at a record low of 6.5% in March. Across the major Euro Area economies, Spain continues to report the highest jobless rate at 11.7%, followed by France at 7.3% and Italy at 7.2%.6 The Eurozone posted a trade surplus in March. Among major trading partners, imports fell from China, the U.S., the U.K., Russia, and Norway. Exports fell 9.2%, declining to the U.S., the U.K., Switzerland, and Russia.7

Annual inflation in the US eased to 3.4% in April from 3.5% in March.8 The unemployment rate edged up to 3.9% in April from 3.8% in the previous month.9 The annual inflation rate in Canada eased to 2.7% in April from 2.9% in the earlier month.10 The unemployment rate was at 6.1% in April.11 Canada reported a trade deficit of CAD 2.3 billion in March.12

As growing concerns surrounding rising inflation and the resulting hawkish sentiment from the Fed led to market jitters, U.S. equities declined in April, with the S&P 500 down 4.1%. Mid- and small caps fared worse, down 6.0% and 5.6% respectively. The S&P/TSX Composite declined 1.8%. The S&P Europe 350 slipped 0.7% in April, its first monthly loss since October 2023, trimming its year- to -date gain to 7.2%. Seven of 16 countries contributed positively to the pan-European equity returns, with the United Kingdom the biggest positive contributor with +0.7%. At the opposite end of the spectrum, Switzerland subtracted 0.5% from the S&P Europe 350’s return. The S&P Pan Asia BMI lost 1.2% in April. 

In May we maintained the asset allocation from April. We do not anticipate the commencement of rate reductions in the U.S. in June due to current strong economic factors and recent comments made by the Fed. Alternatively, due to an underperforming Canadian economy, we expect the BoC to cut interest rates earlier and more than the Fed this year. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models during stagnation.

The nature of economic cycles is changing. Medium-term growth prospects remain historically weak in line with lower total factor productivity growth. A significant part of the decline comes from increased misallocation of capital and labor within sectors and countries. 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 International Monetary Fund. April 2024.

2 Trading Economics. China Trade. May 9, 2024.

3 Trading Economics. China Inflation. May 11, 2024.

4 Trading Economics. EU GDP. May 15, 2024.

5 Trading Economics. EU Inflation. May 17, 2024.

6 Trading Economics. EU Unemployment. May 3, 2024.

7 Trading Economics. EU Trade. May 21, 2024.

8 Trading Economics. U.S. Inflation. May 15, 2024.

9 Trading Economics. U.S. Unemployment. May 3, 2024.

10 Trading Economics. Canada Inflation. May 21, 2024.

11 Trading Economics. Canada Unemployment. May 10, 2024.

12 Trading Economics. Canada Trade. May 2, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. April 30, 2024. Index performance is based on total returns and expressed in the local currency of the index.