We can’t make too much of one day’s results, but central bankers must have been ghoulishly pleased with Thursday’s equity market action. Weak U.S. economic data, lower commodity prices and falling bond yields are not widely considered positive because they highlight growing risks of a North American recession, but they also signal a potential easing in inflation pressure and a change in sector leadership.
Copper and oil prices were down sharply on the day, a reflection of growing fears of an economic slowdown. The copper price, considered an effective gauge of global economic growth by many, is now more than 20 per cent lower than the March 2022 peak. Bond yields are also pricing lower growth. The government of Canada five year bond yield – an important determinant of domestic mortgage rates - fell from 3.33 to 3.18 per cent Thursday and is now 42 basis points off the June 14th high. .
None of this is to suggest that the battle against inflation has been won. Labour markets remain strong and food and energy costs continue to stretch household budgets. For investors, however, we may be reaching an inflection point whereby economic growth supersedes inflation as the primary concern.