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Stock markets struggled this week, as a continuing tight job market in the U.S. along with persistent high inflation raised investor anxieties about even more aggressive Federal Reserve Board monetary tightening when the rate-setting Open Market Committee meets on June 14-15 and again on July 26-27. Many analysts expect the Fed to increase its federal funds rate by 50 basis points at each meeting.
U.S. non-farm payrolls rose by 390,000 in May, while the unemployment rate remained unchanged from April at an ultra-low 3.6%. The U.S. consumer price index stood at an annual rate of 8.3% in April.
In Canada, the Bank of Canada announced 50 basis point increase to the overnight bank lending rate, to 1.5%, with inflationary concerns expected to drive the Bank’s ever-tighter monetary policy over the next few months, with the potential for another 50 basis-point hike in July. Canada’s gross domestic product great at an annual rate of 3.1% in the first quarter of the year, an impressive performance, but down considerably from consensus expectations of a strong 5.2% expansion. The headline Canadian inflation rate edged up to an annual 6.8% in April from 6.7% in May.
With rate concerns again at the forefront of investor thinking, the S&P 500 Composite Index slipped 1.2% on the week, after turning in a flat performance for all of May. The Nasdaq Composite Index dropped 1.0% on the week, continuing the overall 2.0% decline in May. Meanwhile, the S&P/TSX Composite Index stayed relatively flat on the week, edging up a marginal 0.2%, while ticking down 0.2% in May. The Toronto benchmark was handily supported by the energy sector in both the week and the month, as crude oil jumped 4.5% on the week, continuing a 10.2% gain for all of May. Gold edged down marginally on the week, after posting a 2.6% loss in May.
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