Global equity markets experienced heavy volatility and ended the week lower. Sentiment soured based on relatively weak economic results and investor concerns that the U.S. Federal Reserve Board (“Fed”) may be waiting too long before lowering interest rates. The S&P/TSX Composite Index declined, seeing weakness in the Information Technology sector. U.S. equities posted a loss over the week. Yields on 10-year government bonds in Canada and the U.S. declined. Oil prices fell, while the price of gold advanced.
Central banks in the spotlight
Several central banks came into the spotlight, going in divergent directions amid different economic conditions in each respective economy.
The Fed held its federal funds rate steady at a target range of 5.25%-5.50%. The Fed believes a restrictive rate is still needed but signalled its intention to begin lowering interest rates, which markets expect will be in September.
In the U.K., the Bank of England lowered its key interest rate by 25 basis points to 5.25%, largely in response to slowing inflation and soft economic growth.
The Bank of Japan (“BoJ”) went in the opposite direction, raising interest rates from a range of 0.00%-0.10% to 0.25%. This was the BoJ’s second rate increase in 2024 amid elevated inflationary pressures.
By the end of the year, monetary policy in the U.S. and U.K. will be looser than at the beginning of the year, which could ease some pressure and help lift consumer and business activity.
Canada’s economy expands in May
Statistics Canada (“StatsCan”) reported that Canada’s gross domestic product (“GDP”) grew by 0.2% in May, outpacing the 0.1% growth economists had expected.
This marked the third straight month of growth, benefiting from an uptick in utilities and construction sectors.
Conversely, household spending pulled back in May with consumers grappling with tight financial conditions. Weaker consumer spending activity helped the Bank of Canada (“BoC”) decide to lower rates in June and July.
StatsCan estimated that Canada’s economy grew by 0.1% in June, which points to an annualized growth of 2.2% over the second quarter.
Still, the data points to an economy running below potential, which could keep the BoC on a path of cutting interest rates.
U.S. labour market losing steam
The U.S. economy added 114,000 jobs in July, well below the 179,00 job additions in June and economists’ expectations of 175,000 job additions.
Job gains in the health care and transportation industries were partially offset by a decline in jobs in the educational services industry.
The U.S. unemployment rate moved higher to 4.3% in July from 4.1% in June. This marked the highest jobless rate in the U.S. since October 2021.
The weaker U.S. labour market report raised expectations of a potential rate cut from the Fed this year, perhaps as early as September.
Europe GDP grows modestly
A flash estimate showed Europe’s economy expanded by 0.3% in the second quarter of 2024, matching the rate of growth from the first quarter.
Second quarter growth diverged among Europe’s largest economies. While the economies of France, Italy and Spain expanded, Germany’s contracted. Europe’s largest economy was hindered by a weak industrial sector brought on by soft demand.
A flash estimate on the consumer price index in Europe provided some discouraging news, with the region’s inflation rate ticking higher to 2.6% in July from 2.5% in June.
July’s increase was driven by a rise in energy costs.
The European Central Bank (“ECB”) held steady at its July meeting, but another rate hike this year seems possible. Given weak domestic and foreign demand, the economy remains relatively shaky. Despite the uptick in July, inflation has been on a downward trajectory.
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