Most major central banks held interest rates steady in the first quarter. Still, statements and comments point to a strong likelihood of interest rate cuts this year, fuelling a rise in equity markets. Read on for our view of the economy and financial markets.


  • Central banks on hold for now
    • Several major central banks took a largely cautious approach in the first quarter, holding policy interest rates steady. Elevated inflationary pressures persisted.
    • The Bank of Canada (“BoC”) held its policy interest rate steady at 5.00%. The U.S. Federal Reserve Board (“Fed”) kept the target range for its federal funds rate at 5.25%–5.50%.
    • Central banks in Europe and the U.K. also held steady over the quarter.
  • New record for U.S. equity markets 
    • U.S. equity markets climbed over the quarter, reaching new record highs along the way. The gains were largely in response to the possibility of the Fed lowering interest rates sometime in 2024.
    • The S&P 500 Index reached a record high of 5,254 on March 28. The Dow Jones Industrial Average and the technology-led NASDAQ Composite Index also reached new records.
    • In Canada, the S&P/TSX Composite Index reached a new record high of 22,167 on March 28.
  • China targeting 5% growth in 2024
    • At the National People’s Congress in March, the Chinese government announced its economic growth target of 5% in 2024. This was largely unchanged from 2023. China’s economy expanded by 5.2% year-over-year in the fourth quarter of 2023.
    • China’s economy has seen some pockets of weakness. The property market continues to struggle under the weight of high debt. The People’s Bank of China (“PBOC”) reduced its five-year loan-prime rate (“LPR”) to help spur real estate activity.
    • The government announced it will seek out additional measures to help support domestic demand. 
    • China’s equity markets have lagged global equity markets thus far in 2024. A strong Chinese economy might boost global equity markets.

Interest rates on path to head south

The BoC, Fed, European Central Bank and Bank of England all held interest rates steady over the quarter. These central banks believed their interest rates were at levels that were helping to bring inflationary pressures down.

At the Fed’s last meeting, officials predicted the possibility of three interest rate cuts this year.

The BoC is searching for more proof inflation will sustainably reach its 2% target. However, it believes interest rate cuts are possible in 2024. Lower interest rates and inflation could ease financial pressures on Canadian households. Expectations are helping to push Canadian equity markets higher. Markets are expecting interest rates to fall to approximately 4.25% by the end of 2024, per Bloomberg estimates. 

Central banks are carefully trying to loosen financial conditions without reversing their progress on inflation.

Conversely, the Bank of Japan raised its policy interest rate over the quarter with inflation above its 2% target.

How are significant economies doing?

  • The U.S. economy grew at an annualized pace of 3.4% (as reported in the first quarter).
  • China’s economy expanded by 5.2% year-over-year.
  • Europe’s economy stalled in the fourth quarter (0.0%).
  • Gross domestic product in the U.K. fell by 0.3%, falling into a technical recession.
  • Japan’s economy expanded by 0.4%, annualized.

Global financial markets finish higher

  • Global equity markets advanced.
  • Equities in Canada, the U.S., Europe, Japan, the U.K., China, EAFE and emerging markets finished higher.
  • Major indices in the U.S. advanced (S&P 500 Index, NASDAQ Composite Index and Dow Jones Industrial Average). They reached new record highs on growing expectations that the Fed will cut interest rates in 2024.
A chart showing the performance of the S&P 500 Index over the first quarter of 2024, the federal funds rate for the same quarter, and market expectations for the federal funds rate by the end of 2024.

Data from Bloomberg Finance L.P.

  • Global bond prices declined as yields increased. 
  • Investors are expecting central banks to begin lowering interest rates later this year.
  • Canadian bond yields increased, while prices declined.
  • Oil prices rose, due in part to the Organization of the Petroleum Exporting Countries and allies (“OPEC+”) agreeing to maintain voluntary production cuts through the second quarter.
  • Gold prices advanced.

Global inflation continues to soften

  • Global inflationary pressures are moderating. This could be giving central banks an opening to consider lowering interest rates, which could help boost global consumer demand.
  • The inflation rate in Canada was 2.8% in February, while it was 3.2% in the U.S.
  • Europe’s inflation rate was 2.6% in February. Inflation in the U.K. was 3.4%. 
  • Inflation in Japan was 2.8% in February.
  • After four straight months of deflation, China had an inflation rate of 0.7% in February.

How is the Canadian economy doing?

Canada’s economic growth has been lacklustre but has shown its relative resiliency

  • Canada’s economy expanded at an annualized pace of 1.0% over the fourth quarter of 2023. This follows a revised 0.5% contraction in the third quarter. The Canadian economy avoided a technical recession in 2023.
  • The fourth-quarter expansion was driven by a rise in exports and slightly stronger household spending, despite tight financial conditions.
  • Canada’s manufacturing sector continued to contract, hindered by weak new orders and output. 
  • Canada’s inflation rate was 2.8% in February, slowing from 3.4% in December. Food prices continued to ease, while prices for cellular and internet services fell sharply.
  • Conversely, mortgage costs continued to keep inflation at elevated levels. Energy prices rose in February amid higher oil prices.
  • The Canadian economy continued to add jobs over the quarter. Wage growth slowed but remained elevated, adding to overall inflationary pressures. Canada’s unemployment rate was 5.8% in February 2024. 
  • Canadian equities delivered a positive return, reaching a new record closing price in the first quarter. The top-performing sectors were Health Care and Energy. Communication Services and Utilities posted negative returns and were the weakest performers.
  • Canadian bond prices declined while yields moved higher. 
  • The yield on the benchmark 10-year Government of Canada bond rose.

What can investors expect in the future?

Factor Outlook
Canadian consumer spending Canadian consumer spending was muted to start 2024. This could continue as tight financial conditions persist, which could hinder Canada’s overall economic growth.
Canadian interest rates The BoC has reiterated its resolve to keep interest rates at current levels amid still elevated inflation. However, inflationary pressures are moderating while economic growth has waned. The BoC might be able to begin lowering interest rates in 2024.
Canadian labour market Canada’s labour market has shown signs of slowing, which could weigh on consumer strength. Despite the economy adding jobs, those gains have not kept up with population growth. In response, Canada’s unemployment rate is ticking higher.
U.S. interest rates At its March meeting, the Fed indicated the potential of lowering its key interest rate three times by the end of 2024.
China’s property market China’s economy has been hindered by weakness in its property market. The PBOC lowered its five-year LPR to help spur real estate activity.
Oil prices Oil prices could remain elevated, particularly over the summer months, and hinder the progress of central banks in bringing down inflation. OPEC+ agreed to extend its voluntary production cuts through the second quarter of 2024.

This article is intended to provide general information only. Sun Life Assurance Company of Canada and its Affiliates (Sun Life) do not provide legal, accounting or taxation advice to advisors or clients. Before acting on any of the information contained in this article, seek advice from a qualified professional, including a thorough examination of the specific legal, accounting and tax situation. Unless specifically stated, the values and rates presented are not guaranteed.