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November Market Minute

Review and Outlook

US GDP expanded at a robust 4.9% pace for Q3. Household consumption accounted for 2.7% of the increase. However, consumers could be running out of steam as savings declined and credit card debt is rising. Consumers are also being squeezed by falling real incomes as inflation eats into spending power.

Americans’ after-tax, inflation-adjusted income decreased 1.0% in July through September, after a sizeable increase during the first half of the year. Their savings as a share of income fell to 3.8% in the third quarter, from 5.2% in the second. Consumers will have less of a buffer for purchases if they continue to draw down their savings stockpiles. A slowdown in consumer spending would weigh on overall growth because it accounts for most of U.S. economic output. Higher long-term interest rates could cause a cooling in several parts of the economy (WSJ, 10/26).

We still think that recession next year cannot be ruled out as the full effect of higher rates works through the economy. Growth already looks to have stalled and Canada has slipped into a mild recession. The Eurozone is also already facing contraction in growth for Q3 and Q4. And China’s economy continues to face hurdles. S&P Global manufacturing PMI fell to 49.5 in October, indicating contraction in the sector. Weakness in China is also being felt in the manufacturing sectors of other countries, such as Japan and South Korea, who are reliant on demand from China.

Inflation pressures continue to ease but are unlikely to return to central banks 2% targets before 2025. However, even with inflation above target levels the BoC, ECB and Fed are likely to hold target rates until yearend and then start to lower rates next year to combat slowing economic growth.

Critical Minerals

The demand for critical minerals has surged in conjunction with changing energy demand and governments clean energy initiatives. From 2017 to 2022, demand from the energy sector was the main factor behind a tripling in overall demand for lithium, a 70% jump in demand for cobalt, and a 40% rise in demand for nickel. In 2022, the share of clean energy applications in total demand reached 56% for lithium, 40% for cobalt and 16% for nickel, up from 30% for lithium, 17% for cobalt and 6% for nickel five years ago (IEA; Critical Market Review 2023).

According to IEA's estimates demand for critical minerals will grow in all three of their scenarios. The Stated Policies Scenario (STEPS), which reflects current policy settings estimates that demand will double by 2050. Under the Announced Pledges Scenario (APS), which assumes all long-term announced targets will be met in full and on time, projects that demand will double over the next seven years (by 2030). Under the most aggressive scenario Net Zero Emissions by 2050 (NZE), which as the name entails, sets out a pathway for the global energy sector to achieve net zero CO2 emissions by 2050, demand for critical minerals are projected to increase by 3.5 times in 2030 and 2050. Figure 1 from the IEA shows the amount of minerals required to meet demand under the three scenarios, both by the technology driving the demand, and by key minerals required.

Gold Price

The gold price appears to have lost some geopolitically-induced safe-haven demand this past week – which typically happens after a geopolitical crisis spikes gold higher. We would not rule out a sharp widening of the war in the Middle East. Despite gold pulling back on reduced fears of a widening war in the Middle east, we are nervous that the war will indeed widen.

Canada - Outlook Dashboard

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