mai 2024 – CC&L Financial Group Ltd.

The MPC’s forecast in November was that annual CPI inflation would average 3.5% in Q2 2024 (November 2023 Monetary Policy Report (MPR), modal forecast assuming unchanged 5.25% rates). April’s drop to 2.3%, therefore, might be considered cause for celebration.

The negative market response reflected stronger-than-expected services price inflation, with the Bank of England’s “supercore” index rising by an annual 5.7%, a disappointingly small drop from 5.8% in March. This measure strips out “volatile and idiosyncratic” components, namely rents, package holidays, education and air fares.

The MPC has encouraged a focus on services inflation, citing it as one of three key gauges of “domestic inflationary persistence”, along with labour market tightness and wage growth. This prioritisation, however, is questionable, as there is no evidence that supercore leads other inflation components, whereas those components appear to contain leading information for supercore.

Chart 1 shows annual rates of change of three CPI sub-indices: supercore services (34% weight); other components of the core CPI index, i.e. core goods and non-supercore services (43%); and energy, food, alcohol and tobacco (22%).

Chart 1

Correlation analysis of this history suggests that supercore follows the other two series: correlation coefficients are maximised by applying a five-month lag on the other core components measure and a four-month lag on energy / food inflation.

Granger-causality tests show that inflation rates of the other core components sub-index and energy / food are individually significant for forecasting supercore. By contrast, supercore terms are insignificant in forecasting equations for the other two sub-indices*.

These results admittedly are strongly influenced by post-2019 data: supercore lagged the inflation upswing and peaked later than the other components.

A notable finding is that supercore inflation has been more sensitive to changes in energy / food prices that the rest of the core index, conflicting with the notion that it is a purer gauge of domestic inflationary pressure. This is partly explained by the one-third weight of catering services in the supercore basket: the associated price index is strongly correlated with food prices.

A forecasting equation for supercore including both other sub-indices predicts a fall in annual inflation to 4.7% in July.

The latest MPR claims that monetary trends are of limited use for inflation forecasting over policy-relevant horizons. Lagged terms in broad money growth, however, are significant when added to the above forecasting equation. The July prediction is lowered to 4.5% with this addition.

A fall in annual supercore inflation to 4.7% in July would imply a dramatic slowdown in the three-month annualised rate of change (own seasonal adjustment), from over 6% in April to below 3%.

A “monetarist” view is that aggregate inflation trends reflect prior monetary conditions, with the distribution among components determined by relative demand / supply considerations. From this perspective, supercore strength is partly the counterpart of weakness in the other sub-indices. Headline CPI momentum continues to track the profile of broad money growth two years ago, a relationship suggesting a further easing of aggregate inflationary pressure into H1 2025 – chart 2.

Chart 2

*The regressions are based on 12-month rates of change and include lags 3, 6, 9 and 12 of the dependent and independent variables.

It’s springtime and, although most Global Alpha employees are close to putting Q1 earnings season behind them, some of us are getting ready to start dealing with allergy season. Trying to make the most of our situation, we tried to see if we could profit from this annual annoyance.

What’s the problem with allergies?

For most people who suffer from allergies, this only implies a runny nose and watery eyes, but it also impacts millions of people more significantly through sleepless nights, shortness of breath and asthma. A recent European survey found that 80% of respondents suffering from allergies mentioned the condition affecting their daily activities considerably. Additionally, untreated or poorly treated allergies can lead to serious health complications.

The ramifications of allergies are amplified by the fact that it affects children disproportionately, impacting sleep schedules and consequently school performance. Multiple studies have found that children who are allergic to pollen can see their grades drop an entire level if their condition strikes during exams. There is also a clear, although not properly explained, positive correlation between higher GDP per capita and the proportion of population with some form of allergy. This suggests that its effects on society are likely to get worse over time if nothing is done to address it.

Allergies as an investment opportunity

Given all this, it makes sense why allergy treatment is getting more attention and resources from pharmaceutical companies. The global allergy treatment market was $20.8 billion in 2022, with expectations to reach $38.9 billion in 2032. The Asia-Pacific region is expected to experience the fastest growth given its quickly growing middle class and increasing awareness of treatment options.

According to the WHO, allergies are now the fourth-largest pathological condition after cancer, AIDS and cardiovascular diseases. Over 500 million people globally have some form of allergy, with the majority self-treating with over-the-counter medicine without seeing a medical professional. This has driven massive investments in allergy treatments among virtually every major pharma company.

Curing allergies with a simple tablet?

In comes one of our holdings: ALK-Abello (ALKB DC). It is the world’s largest provider of allergy immunotherapy solutions with more than 35% market share. It provides its products in three different formats: injections, sublingual drops and tablets (the latest addition to the product line and largest opportunity). Most of its revenue is from Europe, with the rest coming more or less evenly from North America and APAC. Its market share in Japan is 97%, but adoption has yet to catchup to Europe standards.

Immunotherapy is one of the most exciting treatment methods for allergies, as it attempts to rebalance the immune system to avoid triggering the undesired reaction and thus provides a more permanent solution than alternatives. ALK’s products treat the five most common respiratory allergies (dust mites, grass, trees, ragweed, Japanese cedar), which together account for close to 80% of allergy cases in the world. The company differentiates itself from peers with its unique clinical data sets that not only assist in developing new products, but also help increase penetration by providing evidence-based insights to prospects and customers.

Where will the growth come from?

Obtaining full approvals for its tablet portfolio for young patients, especially the pediatric segment.
An ongoing trial for peanut allergy treatment opens the opportunity for a new business segment.
Increasing awareness of treatments for allergies in various geographies.
New partnerships for distribution.

Notre rapport annuel sur l’investissement responsable (IR) décrit l’engagement continu de nos sociétés affiliées à l’égard des pratiques de placement durable et les efforts déployés pour avoir une incidence positive sur les gens et la planète grâce à la façon dont nous gérons nos propres activités.

Principales réalisations et initiatives en 2023

Propriétaires actifs : Encourager les sociétés à gérer efficacement les occasions et les risques importants liés aux facteurs ESG grâce à nos efforts d’intendance et de mobilisation.
Collaboration sectorielle : Participation active à des initiatives comme la Coalition canadienne pour une bonne gouvernance et Engagement climatique Canada, qui soutiennent l’efficacité des opérations sur les marchés financiers et favorisent une voix unifiée au sein du secteur.
Devoir de responsabilité sociale de l’entreprise : Solide engagement quant à l’impact sociétal grâce aux politiques de RSE qui accordent la priorité au milieu de travail, à la santé et au bien-être des employés et à l’intendance environnementale.
Réalisations des sociétés affiliées : Parmi les succès notables, mentionnons la certification Crestpoint carbone zéro d’Arthur Erickson Place, la stratégie de transition énergétique de CC&L Infrastructure et les efforts continus de nos sociétés affiliées pour améliorer leur approche visant à intégrer les occasions et les risques liés aux facteurs ESG dans le processus de placement.

Accédez au rapport complet sur l’investissement responsable 2023

Pour en savoir plus sur la façon dont nos sociétés affiliées mettent en œuvre leur approche d’investissement responsable, veuillez consulter leur site Web.

Un billet de dix dollars canadiens sur un fond de billets

Le présent résumé jette un éclairage sur l’évolution du taux de change du dollar canadien par rapport au dollar américain à l’ère moderne. La figure 1 montre le niveau des taux de change de fin de mois de 1953 au 31 mars 2024.

Figure 1 : Historique du taux de change du dollar canadien par rapport au dollar américain

1953-1960	Pendant la plus grande partie de la période allant de 1953 à 1960, le dollar canadien a oscillé entre 1,02 $ US et 1,06 $ US. Son point culminant a été 1,0614 $, atteint le 20 août 1957. Jusqu’en 2007, on considérait que c’était là le niveau le plus élevé atteint par le dollar canadien par rapport au dollar américain à l’ère moderne. Le dollar canadien valait 2,78 $ US en 1864, au moment de la guerre civile américaine, mais, à l’époque, il était indexé sur l’or, une pratique que les États-Unis avaient déjà abandonnée.
1961-1969	Au début des années 1960, le gouverneur de la Banque du Canada, James Coyne, et le premier ministre de l’époque, John Diefenbaker avaient des vues différentes sur le sujet de l’économie. Le gouvernement était partisan d’une politique expansionniste, alors que Coyne souhaitait maintenir une politique de l’argent rare. Coyne en vint à remettre sa démission, et, en mai 1962, le gouvernement adopta un taux de change fixe, attribuant au dollar canadien une valeur de 92,5 cents US, susceptible de varier de 1 % à la hausse ou à la baisse.
1970-1972	En mai 1970, devant la montée de l’inflation et la flambée des salaires, le gouvernement Trudeau décida de laisser flotter le dollar canadien. Ce dernier s’orienta à la hausse, pour atteindre la parité avec le dollar américain en 1972.
1974	Le 24 avril 1974, le dollar canadien se hissait à 1,0443 $ US. Il s’agissait du niveau le plus élevé atteint depuis le début de la plus récente période de flottement, et il allait s’écouler 30 ans avant que le dollar canadien regagne un tel niveau.
1976- 1986	En novembre 1976, René Lévesque fut élu premier ministre du Québec avec un programme qui comportait le projet de faire l’indépendance du Québec. Il s’ensuivit un repli du dollar canadien qui se poursuivit pendant le reste des années 1970 et pendant la première moitié des années 1980. Cette période fut marquée par une montée de l’inflation et des taux d’intérêt. Le taux directeur de la Banque du Canada a atteint 21,2 % en 1981 et le dollar canadien a plongé vers un creux historique de 69,13 cents américains le 4 février 1986.
1987- 1997	Le dollar canadien s’apprécia pendant la dernière partie des années 1980 et au début des années 1990; le 4 novembre 1991, il atteignit 89,34 cents US. Ce fut son niveau le plus élevé de la décennie 1990.
1998-2002	Les déficits budgétaires, le recul des prix des matières premières et les conséquences de la crise internationale de 1998 dans les pays émergents de la Russie et de l’Amérique latine entraînèrent le dollar à la baisse. Le 21 janvier 2002, le dollar canadien chuta au plus bas niveau de son histoire face au dollar américain, à 61,79 cents US. À ce niveau, il fallait débourser 1,62 $ CA pour obtenir 1 $ US.
2003- 2006	De 2003 à 2006, le dollar canadien se redressa fortement à la faveur d’une bonne conjoncture économique mondiale qui fit grimper les prix des exportations canadiennes de matières premières et il franchit la barre des 90 cents US.
2007	Le 20 septembre 2007, le dollar canadien atteignit la parité avec le dollar américain pour la première fois depuis 31 ans; il avait progressé de 62 % en moins de six ans, en partie grâce aux prix élevés du pétrole et d’autres matières premières. Le dollar canadien fut désigné « personnalité canadienne de l’année 2007 » par l’édition canadienne du magazine Time.
2008- 2009	Le dollar canadien se maintint au voisinage de la parité au premier semestre 2008, avant de s’infléchir à la baisse, pour finalement glisser sous la barre des 80 cents US.
2010	Après un vif rebond, le dollar canadien atteignit de nouveau la parité pour la première fois en 20 mois en avril 2010.
2011	Au plus fort du boom des matières premières, le dollar canadien a atteint 1,06 $ US le 21 juillet 2011. Il amorça alors sa chute la plus rapide de l’ère moderne sur fond de brutal décrochage des matières premières.
2016	Le dollar canadien chuta à 68,68 cents US le 19 janvier 2016, à 7 cents US environ de son creux record, avant de repartir à la hausse face au billet vert pour finir l’année à 74,57 cents US.
2017- 2024	Les fluctuations de change ont été quelque peu modérées depuis 2016, bien que le dollar canadien soit redescendu pour atteindre la barre des 70 cents US en mars 2020 au début de la pandémie de COVID-19. Le dollar canadien s’est par la suite raffermi et s’est établi à 73,90 cents américains à la fin de mars 2024.

La figure 2 montre la variation des taux de change depuis 1970 et illustre donc le contexte associé aux fluctuations du dollar canadien par rapport au dollar américain à l’ère moderne.

Figure 2 : Taux de change $ CA/$ US

Les trois baisses du dollar canadien à partir d’un sommet jusqu’à un creux ont toutes été d’un peu plus de 30 %. Les deux premières baisses ont duré environ 10 ans, tandis que la plus récente a été la baisse la plus rapide, en raison en partie de l’effondrement brutal des prix du pétrole.

Depuis le dernier creux de 2016, le dollar canadien continue de fluctuer dans une fourchette relativement étroite, et ce, malgré l’incertitude associée à la pandémie de COVID-19 et les niveaux élevés actuels de l’inflation. Le dollar canadien devrait descendre sous la barre des 68,68 cents américains pour atteindre ce qui était considéré comme le creux de la dernière baisse.

Sources : Banque du Canada, CBC, Globe & Mail.

Given the trend towards increasing deglobalization, friend-shoring, diversity and the acceleration of these themes post-pandemic, the focus on efficient and robust supply chains has intensified. Moving manufacturing plants to reduce risk, India is one of the main beneficiaries of the China+1 strategy.

The bottleneck of logistics infrastructure

India’s main issues are its logistic infrastructure and overall spending as a percentage of GDP. Currently, India spends approximately US$400 billion, 15% of GDP, compared to around 10% for the US/Europe and 9% for China. The logistics sector has a major impact on India’s cost, efficiency and manufacturing and exporting capacity. India is a major exporter of agricultural products, pharmaceuticals and textiles.

Government interventions

One of the major steps was the introduction of the Goods and Service Tax (GST) across India in July 2017. This moved the unorganized market to the organized market (an ongoing process), helping to reduce tax evasion and increase the traceability of merchandise from origin to destination. Today, a GST-registered operator cannot transport goods in a vehicle whose value exceeds Rs.50,000 without an eWay bill.

Revolutionizing toll payments with FASTag

Wait times between states were a major bottleneck due to the collection of taxes, verification and bribes. To solve the problem, the National Highway Authority of India (NHAI) implemented an electronic toll system called FASTag that enables drivers to pass through toll plazas without stopping for transactions. Using RFID technology, toll payments are made directly from the prepaid account linked to the toll owner. In 2016, 70% of tolls had the technology implemented; however, only 4.8% of total payments were collected via FASTag. To increase adoption, NHAI increased the non FASTag cost to 200%, which pushed users to adopt it to reduce costs. As of 2022, 96% of total payments were made through FASTag, increasing efficiency across the logistics industry.

Multi-modal transportation meeting diverse needs

The demand for logistics services in India is witnessing growth across various modes of transportation, including rail, road, air and sea. Rail freight, facilitated by initiatives like Dedicated Freight Corridors (DFC), is gaining traction due to its cost-effectiveness and reliability. Similarly, trucking remains a dominant mode for last-mile connectivity, driven by the e-commerce boom and expanding retail networks. Furthermore, the emergence of e-commerce giants has propelled demand for air and sea freight, necessitating efficient cargo handling and multimodal connectivity.

Several industries in India are heavily reliant on efficient logistics operations to sustain their growth momentum. E-commerce, retail, FMCG, automotive and pharmaceutical sectors are among the key beneficiaries, leveraging logistics to streamline supply chains, reduce lead times and enhance customer satisfaction. Additionally, the rapid expansion of cold chain logistics is enabling the seamless distribution of perishable goods, catering to evolving consumer preferences and market dynamics.

Ambitious growth plans for national infrastructure pipeline

In 2020, the Union Minister for Finance & Corporate Affairs released the Task Force’s Final Report on National Infrastructure Pipeline (NIP) for FY 20-25, with a target investment of US$1.4 trillion. Infrastructure projects are expected to be completed by 2025, with 21% from the private sector. Given that most transportation is done on the surface, India’s roads and highways have been a main focus, increasing from 6,061 kms in 2016 to 10,457 kms constructed in 2022.

With all these investments, the government estimates that India’s transportation and logistics sector is poised to grow at a compounded annual growth rate (CAGR) of around 4.5% from 2022 to 2050.

Major plans for Indian transport infrastructure

Source: Building the future: Infrastructure investment opportunities in India by EY Parthenon.

TCI Express: A logistic player benefiting from government spending

TCI Express provides delivery solutions in India and internationally. Most of the transportation is surface-related, although the company does offer air express. TCIEXP is one of the few companies that can deliver to every pin code in India due to its extensive network of sorting/delivery centres.

Capitalizing on the express segment boom

TCIEXP is part of the express segment of logistics, which has a CAGR of 12% and 18% for air and ground, respectively, during the last 10 years (Source: B&K Securities). The industry is dominated by the unorganized space, which represents 80%, where individuals own one to five trucks in their fleet, offering highly competitive services.

The organized space represents 20% of the industry and within it, 75% is owned by large competitors and 25% by SMEs. TCIEXP benefits from government interventions by being the lowest-cost producer within express logistics, allowing it to capture market share from those moving from unorganized to organized.

Asset-light model driving high returns

Operating as an asset-light business, the company doesn’t own its fleet; it outsources distribution to a third party, resulting in over 20+% ROIC. It retains loyalty by offering favourable terms such as return loads, creating loyalty amongst drivers. The company launched its first automated centre in India in 2023 and plans to open another four within the next two years, resulting in lower trucking wait times and increased inventory turnover for clients.

Is India’s logistics revolution a global turning point?

As the country invests heavily in infrastructure and embraces technology, it stands on the brink of transforming its supply chain capabilities. For businesses and policymakers alike, the challenge and opportunity lie in navigating these changes to foster growth and efficiency. How will India leverage this chance to become a leading hub for global trade? The world is watching, and the stakes are high.

USD sales by monetary authorities in Japan, China and other Far East economies have probably topped $100 billion since April, exceeding intervention around the October 2022 dollar peak.

Market estimates are that JPY purchases / USD sales by the Bank of Japan on behalf of the Ministry of Finance on 29 April and 1 May totalled about ¥9 trillion / $ 57 billion. Official numbers covering the period from 26 April will be released next week.

Previous record monthly JPY purchases of ¥6.35 trn in October 2022 were associated with a USDJPY decline of 11.5% from October through January 2023 (month average data) – see chart 1.

Chart 1

Chinese intervention is best measured by the sum of net foreign exchange settlement by banks and the change in their net forward position, since currency support operations are often conducted via state-owned financial institutions rather than by the PBoC using official reserves (h/t Brad Setser).

This series suggests USD sales of $53 billion in April, the largest since December 2016. Increased pressure for currency support had been signalled by a blow-out in the forward discount on the offshore RMB – chart 2.

Chart 2

The Bank of Korea may have sold about $5 billion in April, judging from the change in value of reserves. With other Far East authorities also intervening, total USD sales may have exceeded $115 billion.

Intervention is more likely to be effective when supported by shifts in “fundamentals”.

The Bank of Japan’s real effective rate index, based on consumer prices, is at its lowest level since the late 1960s – chart 3*.

Chart 3

The USDJPY exchange rate has been tracking the 10-year US / Japan government yield spread but there was a negative divergence at the most recent dollar high – chart 4.

Chart 4

Major USDJPY turning points historically were usually preceded by a reversal in the US / Japan relative trade position, which peaked around a year ago – chart 5.

Chart 5

Trade deficits have narrowed in both countries but Japan’s improvement has been sharper, reflecting greater sensitivity to lower energy costs.

US futures data show that speculators (i.e. non-commercials) have been (correctly) long the dollar since March 2021, i.e. for three years and two months. The record unbroken long position occurred between 2012 and 2016, lasting three years and three months before a major reversal – chart 6.

Chart 6

The Fed’s real dollar index against advanced foreign economies peaked in October 2022 at a 29% deviation from its long-run average, within the range at secular tops in August 1969, March 1985 and February 2002 – chart 7**. Those peaks occurred six to seven years before lows in the 18-year (average length) housing cycle. The dollar trended lower into and beyond those cycle troughs. Assuming a normal cycle length, another such low is scheduled for the late 2020s.

Chart 7

*The BoJ index starts in 1970; earlier numbers were estimated using data on the nominal effective rate and Japanese / G7 consumer prices.

**The Fed index starts in 1973; earlier numbers were estimated using data on the nominal effective rate and US / G7 consumer prices.

Morrisson a fait part de sa plus grande réussite professionnelle de l’année dernière et de son objectif pour l’année à venir dans le dernier numéro du magazine Middle Market Growth.

Profiting as an investor occurs in the delta between expectations and reality. One example is the boom in enthusiasm for AI stocks being fuelled by blockbuster earnings of industry monopolies such as Nvidia consistently outpacing consensus forecasts.

In emerging markets, India’s bull market stands out as the obvious example of this. India has long appeared perpetually expensive to investors relying on mean reversion tables. The problem with this approach is that expectations may be out of kilter with reality when there is structural change occurring – much like in the new AI frontier – and the domain of the economy is expanding. The chart from Jefferies below illustrates this structural shift.

India is climbing the development ladder – on track to be the 3rd-largest economy globally

Source: Jefferies, Q1 2024.

A succession of reforms in Modi’s India is unlocking a virtuous circle of development, including:

Sanitation in every village empowering women in rural areas to become economic agents.
Establishing a nationwide digital payments network accessed through biometric identification, allowing even the illiterate to transact and access welfare payments.
That network allows the government to accurately calculate what taxes citizens owe, which has seen the state tax take double in around five years.
Higher government revenues alongside private investment are helping to fuel a new capex cycle, targeting electrification, ports, freight and telecommunications infrastructure.

The self-reinforcing nature of these reforms fuels the growth of what will become an enormous Indian middle class, whose consumption habits will evolve as they become wealthier. This surge in new wealth is also fuelling the rise of domestic pension funds, which are biased to equities given India’s young population and long investment horizon.

Careful relying on mean reversion when there is structural change

Source: Jefferies, Q1 2024.

Local allocators are more incentivised than foreigners to drive Indian corporates to improve corporate governance and returns for minority shareholders. This feeds into improving domestic liquidity, where it is increasingly local allocators that set the price in Indian equities, not fund managers in London or New York.

As investment strategist Keith Woolcock pointed out a few months ago commenting on the AI boom, there are times when valuation is the “alpha and omega of investing but most often it is not.” The same applies to India, where simple mean reversion can mean that investors miss the potential for upside surprise when positive structural change is occurring.

Is the bear market over in China?

China presents us with the flipside of the above – 1) longer-run structural risks as institutional quality deteriorates under Xi Jinping, which risks the country getting stuck in the middle-income trap; 2) this deterioration depressing the animal spirits of consumers and entrepreneurs who are less confident about the future; and 3) the rigid commitment of authorities to fiscal and monetary orthodoxy even at the risk of a deflationary bust.

This gloomy backdrop has seen foreign investors abandon the market, with Chinese equities halving since 2021. At 10x CAPE, China now trades at a record discount to the rest of EM, pricing in a dire economic outlook.

China now trades at a record discount to the rest of EM

Source: NS Partners, LSEG Datastream.

However, prices being driven to such depressed levels eventually exhausts the sellers to the point that a market can rebound even before a recovery in the economy or corporate earnings gain real steam.

Are we starting to see this in China?

Chinese equities have outpaced even the S&P500 this year

Source: NS Partners, LSEG Datastream.

Chinese equities have so far outpaced even the US, including an S&P500 Index dominated by the Magnificent-7 tech giants.

We have been writing to our investors for some time about the gradual economic recovery taking place in China, the steady improvement in earnings growth among corporates, and ratcheting up of fiscal and monetary support (but without the stimulus bazooka). Animal spirits remain broadly depressed, and risks lurk within property and the banks. However, with much of this pain priced in and with positioning in China at such depressed levels, all it takes is for a slight pick up ahead of expectations to ignite a rally.

Short positioning in Chinese equities has begun to unwind (falling by a third in China A-shares over the period), while GEM managers tentatively reduce underweight positioning. Indeed, April was a record month for foreign flows into Chinese equities.

Foreign buying of China stocks tops record

Source: Bloomberg.

There are a number of reasons to think that the rally can be sustained:

Positioning across GEM and global equity portfolios remains light, leaving plenty of headroom for allocators to add exposure and chase the positive momentum (forming a virtuous circle).
Policymakers, and most importantly Xi Jinping, have acknowledged the severity of the economic malaise and have pledged more aggressive measures to avoid a bust.
Company earnings are strengthening across several industries including travel, exporters and names aligned with key policy aims such as energy security, automation and import substitution.
The market is (finally) beginning to reward earnings beats.

This rally could carry on for some time. However, in contrast to India where we are more willing to run winners given the positive structural tailwinds driving the market, our bias is to be more conservative in China as the longer-term structural story remains negative.

China risks getting stuck in the middle-income trap so long as Xi continues to favour greater state control over rekindling the animal spirits and creative dynamism of entrepreneurs. However, much like in Japan’s lost decades, there were opportunities to take advantage of that delta between reality and depressed expectations, which precipitated sharp trading rallies. Also much like Japan, China’s deep universe of companies will offer up a rich opportunity set for active managers to generate alpha, even when running structurally lower exposure to the market.

“Gangbusters” UK GDP growth of 0.6% in Q1 may partly reflect inadequate adjustments for the leap year and early timing of Easter. In any case, the bigger story in recent national accounts data is nominal deceleration.

Nominal GDP rose at an annualised rate of 2.1% in Q4 and Q1 combined, down from 6.3% in the prior two quarters. With output momentum recovering slightly, the slowdown reflected a sharp fall in the rate of increase of the GDP deflator, from 6.6% annualised to 1.5% – see chart 1.

Chart 1

The drop in two-quarter nominal GDP momentum was signalled roughly a year ahead by falls in six-month broad and narrow money momentum into negative territory – chart 2. Money momentum has recovered since Q3 2023 but on both measures remains weaker than during the 2010s, when the GDP deflator rose at an average 1.8% pace.

Chart 2

As an aside, the latest Monetary Policy Report contains a lengthy discussion of monetary developments and their relevance for policy. The strategy, as usual, is to damn with faint praise. While “broad money growth and inflation appear to have moved together over long cycles … it is harder to take an unambiguous signal about inflationary pressures from growth in the aggregate money data in isolation over shorter, policy-relevant, horizons.”

Really? Study chart 2. A directional leading relationship in rates of change is obvious. Except around the initial Covid lockdown, there are no examples of money momentum giving a seriously misleading message about future nominal GDP developments. As well as signalling the 2021-22 inflation surge, money trends warned of economic weakness / falling price pressures in 2008-09 and 2011-12, while contradicting recession forecasts following the Brexit referendum result. “Monetarists” were on the right side of the policy debate on all these occasions.

The income analysis of GDP allows movements in the GDP deflator to be attributed to changes in labour costs and broadly defined profits per unit of output. How has the recent sharp slowdown been achieved given supposedly sticky wage pressures?

According to the national accounts numbers, employee compensation per unit of output rose at an annualised rate of 1.8% in Q4 / Q1, down from 6.9% in the prior two quarters – chart 3. This slowdown is consistent with official earnings data and reflects a combination of 1) a moderation in regular earnings momentum, 2) a fall in bonus payments and 3) a pick-up in productivity (i.e. output per worker) as employment fell.

Chart 3

Profits and other “entrepreneurial” income per unit of output, meanwhile rose by only 1.1% annualised in the latest two quarters, versus 6.3% in Q2 / Q3 2023.

Domestic cost developments, therefore, are compatible with the inflation target while money growth, although recovering, remains too low. The “monetarist” view is that the MPC is behind the curve – again.

Crestpoint Real Estate Investments Ltd., in partnership with the Trinity Retail Fund, is pleased to announce the completion of two new retail investments: Town Centre and the Cornerstone Retail Portfolio, both situated in and around Calgary, Alberta. These investments are strategically located, host a premium roster of well-known national tenants and are nestled near residential areas that attract substantial consumer traffic.

Town Centre, a newly constructed shopping centre spanning approximately 138,000 sq. ft. in the master-planned community of Trinity Hills near Canada Olympic Park, is anchored by Save-on-Foods and includes a variety of well-known national tenants, such as Dollarama, PetSmart, Bulk Barn and Sleep Country. Located near the Trans-Canada Highway and Sarcee Trail SW, the centre provides tenants with exposure to over 60,000 vehicles daily and is adjacent to a community projected to reach around 4,000 residential units.

The Cornerstone Retail Portfolio consists of two open-format, grocery-anchored retail properties in Olds and Okotoks, Alberta, measuring approximately 113,000 sq. ft. and 157,000 sq. ft., respectively. Combined, the two-asset portfolio covers 33 acres with a leasable area of approximately 270,000 sq. ft. About 98% of the space is leased to a premium roster of national tenants offering high-quality everyday essentials, including Sobeys, Canadian Tire, Staples, Dollarama, Mark’s and several leading banks. Both locations also benefit from their proximity to Walmart “Superstores.”

Crestpoint, on behalf of the Crestpoint Core Plus Real Estate Strategy (its open-end fund), has a 75% interest in Town Centre and the Cornerstone Retail Portfolio, with Trinity Retail Fund holding the remaining 25%. These acquisitions enhance the fund’s diversity and increase Crestpoint’s total assets under management to over $10 billion.