Global equity markets moved higher over the week ended August 16. Relatively robust economic data in the U.S. eased fears of weaker consumer spending and a potential recession. The S&P/TSX Composite Index posted a relatively solid gain, led by the Materials sector. U.S. equities also advanced. Yields on 10-year government bonds in Canada and the U.S. declined over the week. Gold prices increased, while the price of oil ticked lower.
Soft real estate activity in Canada
The Canadian Real Estate Association (“CREA”) reported that sales of existing homes in Canada declined by 0.7% in July.
This took a bite out of the 3.7% increase in June amid the Bank of Canada’s (“BoC”) first rate cut.
CREA also reported the benchmark home price in Canada rose by 0.1% in July, but was down by 0.2% over the same month in the previous year.
Despite the sluggish activity in July, CREA believes Canadian real estate market activity will pick up after the second rate cut from the BoC in July.
More expected rate cuts from the BoC may improve consumer confidence and demand for real estate.
U.S. inflation rate below expectations
TThe annual inflation rate in the U.S. ticked lower in July, keeping market expectations that the U.S. Federal Reserve Board (“Fed”) may begin lowering interest rates at its September meeting.
The U.S. inflation rate was 2.9% in July, just below the 3.0% rate economists had expected, and the lowest rate of inflation in the U.S. since March 2021.
Prices for shelter and transportation eased, contributing to July’s overall slowdown. Meanwhile, prices for new and used vehicles declined. However, energy costs, a major component of inflation, rose in July, contributing to inflation remaining above the Fed’s 2% target.
The core inflation rate, which excludes volatile items such as food and energy, also slowed in July, making it likely the Fed will reduce its policy interest rate at its September meeting.
Concerns about the U.S. consumer eased with retail sales growing by 1.0% in July, its largest increase since January 2023. Signs that the U.S. economy may avoid a hard landing could give equity markets a boost in the months ahead.
Retail sales in China rise
China saw a 2.7% year-over-year rise in retail sales in July, higher than their 2.0% annual increase in June.
July’s increase came amid a rise in sales for communication equipment, sporting goods and petroleum products.
Retail sales grew in 2024 by 3.5% to the end of July.
On the production side, output increased by 5.1% year-over-year in July, which was largely in line with expectations.
China’s government has implemented measures to help improve domestic demand and production. July’s increase in retail sales suggests those measures may be working, a positive for China’s overall economic growth.
U.K. gross domestic product posts another expansion
According to a preliminary estimate, the U.K. economy expanded for a second straight quarter in 2024, rising by 0.6%.
This follows a 0.7% expansion in the first quarter of 2024 after falling into a technical recession by the end of 2023.
Consumer spending rose over the quarter, albeit at a relatively slow pace with tight financial conditions continuing to weigh on U.K. households. Government spending also contributed to growth.
The U.K. inflation rate rose to 2.2% in July from 2.0% in June.
The rise in inflation was widely expected, suggesting it likely will not change the Bank of England’s plans to keep lowering interest rates.
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