balanced fund quarterly report
March 31, 2023
Economic Commentary
Headline inflation has moderated over the past several months following the peak levels that were reached last summer. Global central banks have been aggressively raising interest rates in order to combat the extremely high levels of inflation that have existed for almost two years. Core inflation, however, has not declined to the same extent and remains at elevated levels. Headline inflation in Canada now sits at 5.2%, with core inflation at 4.9%. Inflation in the U.S. and Europe remains at higher levels, with headline readings of 6.0% and 6.9%, respectively. Despite the encouraging downward trend, these levels are still a concern for central bankers as inflation remains considerably higher than their 2% target. As a result, most central banks will need to continue to raise administered rates over the near-term.
Financial markets took a hit in mid-March following the news of the failure of some U.S. regional banks, led by the Silicone Valley Bank. Fears of a contagion in the banking sector, reminiscent of the 2008 Financial Crisis, spooked investors and raised further concerns regarding the stability of the banking system. This was quickly followed by the collapse of Credit Suisse, which escalated banking fears in Europe. Before the banking concerns developed, the debate in financial markets had been about the battle against high inflation vs. the prospect of a recession, given the significant move higher in interest rates by global central banks. The emphasis quickly shifted to combating the current levels of inflation vs. the stability of the overall financial system. Stability and confidence in the financial system is paramount and global central banks moved in quickly to provide the necessary liquidity to help stabilize markets.
