Weekly Market Commentary July 15th, 2022

The Markets

Central banks are laser focused on calming inflation. At a June press conference, Fed Chair Jerome Powell said, “We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses. The economy and the country have been through a lot over the past two and a half years and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.”

To calm inflation, the Fed has tightened monetary policy aggressively, taking steps that include raising the federal funds target rate by 1.5 percent from March through June of this year. Similarly, the Bank of Canada also raised rates by 1.25 percent over the same period, and just announced an additional 1 percent increase. Typically, raising rates pushes interest rates higher so borrowing costs go up, and consumer and business spending fall. Lower spending slows economic growth and prices fall.

According to data released last week, the economy is slowing but remains quite strong. The data showed:

• Service industries and manufacturing continue to grow. The Purchasing Manager’s Indices (PMIs) for manufacturing and services showed continued growth in June, both in Canada and south of the border, although the pace of growth slowed.  
• U.S. jobs growth was stronger than expected in June, Canada faltered. While the Canadian economy lost 43.2 thousand jobs last month, more new jobs were created in June in the U.S. than had been expected, but the topline number may not tell the whole story. Ben Levisohn of Barron’s explained: 

“…the jobs report, in particular, might not have been as good as it looked. While the establishment number was very strong, the household survey showed a loss of 300,000 jobs, while the unemployment rate remained unchanged at 3.6% only because the workforce shrank. At the same time, average hourly earnings increased by a mere 0.3% in June from May’s level, lower than the rate of inflation.”

• The middle of the yield curve flattened. At the end of last week, the yield on the two-year U.S. Treasury was 3.12 percent, slightly above the yield on the benchmark 10-year Treasury. The yield on the three-month Treasury finished the week at 1.98 percent. Similarly, the 2-year Government of Canada bond yielded a fraction of a percent more than the 3-year, 5-year, and 7-year variants. As of last Friday, the 10-year Government of Canada still yielded slightly more than the 2-year bond, but the difference was small enough as to be insignificant.

A flattening yield curve suggests that investors are concerned about what may be ahead for the economy. When the yield curve inverts, it’s a sign recession may be ahead.

Last week, major North American stock indices moved higher while U.S. Treasury and Government of Canada bonds lost value as yields moved higher across the yield curve

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Thinking of retiring outside of North America?

There are lots of amazing places to retire in Canada and the United States but retiring elsewhere can be an attractive alternative. Some countries offer incentives to foreigners who retire abroad, reported Laura Kiniry of Condé Nast Traveler (CNT).

“Small towns in countries like France, Spain, and Italy, for example, sell off fixer-upper homes for one euro to attract foreign investments; other places are more directly trying to tempt retirees and pensioners looking to relocate, with visas that promise tax cuts, and steep-discount programs that make dollars go a long way.”

Every year, the International Living Retirement Index identifies “locations where retirees can spend less money, live happily and healthily, and experience a new country without straying too far from all that is familiar,” reported Caitlin Morton of CNT. For 2022, top destinations include Panama, Costa Rica, Mexico, Portugal and Columbia.

If you’re considering retiring overseas, plan carefully. In addition to visiting and researching your retirement destination, make sure you work with experts who understand:

• Banking options. Anti-money laundering laws can make banking in foreign countries tricky. “It can take several months to open the account and you might still have to explain to the bank each time you transfer money” reported a source cited by Greg Bartalos of Barron’s.
• International taxes. Depending on where you retire, the tax implications could be significant, reported Sarah Ovaska in the Journal of Accountancy. Americans and Canadians have to report – and pay taxes on – the income they earn, no matter where they live. You may also owe taxes in the country where you retire.

If you retired overseas, where would you settle?

Weekly Focus – Think About It

“History is not everything, but it is a starting point. History is a clock that people use to tell their political and cultural time of day. It is a compass they use to find themselves on the map of human geography. It tells them where they are but, more importantly, what they must be.”

—John Henrik Clarke, writer and historian

Best regards,

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