Making sense of the markets this week: June 9, 2024

“The Big Cut”

While The Big Short film is a riveting watch, “The Big Cut” may be even more enthralling. 

The Bank of Canada (BoC) made the decision to cut its key interest rate to 4.75% on Wednesday. It’s the first rate cut since March 2020. With about $700 million worth of mortgages coming up for renewal in Canada this year, “The Big Cut” is going to affect a lot of Canadians.

“We’ve come a long way in the fight against inflation. And our confidence that inflation will continue to move closer to the 2% target has increased over recent months.”

– BoC Governor Tiff Macklem 

Macklem also said: “Total consumer price index inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing.”

However, in the tradition of central bankers the world over, Macklem was also careful to speak using neutral language, pointing out that the BoC was going to take things “one meeting at a time.” He added “We don’t want monetary policy to be more restrictive than it needs to be to get inflation back to target. But if we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made.”

While the BoC was the first G7 country to begin cutting interest rates, the European Central Bank followed suit on Thursday, cutting its key interest rate from 4% to 3.75%. Market experts are speculating that the BoC will cut interest rates three or four more times in 2024. (There are four announcements left on the BoC interest rate schedule).

The BoC (as well as many other central banks) have taken a lot of flak over the last couple of years. But if they manage to cut interest rates, get the economy growing again, and avoid resurgent interest rates, then they deserve a hand. Such a Goldilocks scenario would certainly qualify as a “soft landing” by most economists’ definitions.

If the BoC manages to slowly cut interest rates, while managing to get the economy growing again—all without supercharging inflation—that would certainly qualify as a “soft landing” by most economists’ definitions. 

Lululemon stops its share price slide, Nvidia skips past Apple

It was a relatively slow week for earnings news, but Canadian retailers Lululemon and the North West Company let investors know how they did last quarter. Note: Lululemon releases its earnings numbers in U.S. dollars, while the North West Company releases its earnings in CAD. You might remember the North West Company from your history textbooks, as the Winnipeg-based grocery chain is significantly older than Canada (1779 versus 1867).

Lulu shared a mostly positive earnings report and saw its share price rise 8% on Wednesday. This was welcome news for shareholders who have watched the stock go down over 36% year to date. Shares of the North West Company were flat the day after announcing earnings that were in line with expectations. (Read more about Lululemon’s earning report.)