Global equity markets finished largely flat over the week ended August 30. While economic data pointed to more rate cuts from global central banks, uncertainty about the progress of artificial intelligence by technology heavyweights weighed on sentiment. In Canada, the S&P/TSX Composite Index ticked higher, led by the Financials sector. U.S. equities also advanced over the week. Yields on 10-year government bonds in Canada and the U.S. increased. The price of oil and gold declined.
Canada’s inflation rate drops in July
Gross domestic product in Canada expanded at an annualized pace of 2.1% in the second quarter of 2024.
Second quarter growth picked up from the 1.8% increase in the first quarter, the strongest pace of growth since the first quarter of 2023.
Government and business spending drove the second quarter increase. Consumer spending also advanced, but at a slower 0.2% pace, reflecting diminishing consumer strength amid tight financial conditions.
Conversely, real estate investment dropped over the quarter. Still-high borrowing costs and elevated home prices softened demand. However, real estate activity is expected to pick up as the Bank of Canada (“BoC”) keeps lowering interest rates.
Despite the stronger-than-expected growth in the quarter, the BoC still looks poised to lower interest rates again this year. There are pockets of weakness in the economy and Canadian households are feeling the pinch from tight financial conditions.
U.S. PCE unchanged in July
The U.S. personal consumption expenditure price index (“PCE”) was unchanged at 2.5% in July, which matched expectations.
The PCE, which is the preferred inflation gauge of the U.S. Federal Reserve Board (“Fed”), has trended downward over the past year, providing support for a potential rate cut from the Fed.
Personal spending grew by 0.5% in July, led by increased spending on housing and motor vehicles and parts.
Sentiment grew the Fed might be able to navigate the U.S. economy through a soft-landing. A second estimate showed the U.S. economy grew by 3.0%, annualized, in the second quarter of 2024, which was up from the 1.4% expansion in the first quarter.
With inflationary pressures moderating, economic growth losing some momentum and a cooling labour market, the Fed could be preparing to lower interest rates in September.
Higher tariffs could hurt China’s automotive sector
From January to July 2024, China’s industrial profits grew by 3.6% compared to the same period last year. This was slightly above the 3.5% year-over-year increase from January to June.
Contributing to the period’s increase was a rise in profits in the agriculture, computers and automotive industries.
China’s government has implemented measures to help boost domestic demand and industrial production.
Looking ahead, the automotive industry in China could come under some pressure which could hurt overall economic conditions. Last week, Canada announced it would follow the U.S. and increase tariffs on Chinese-made electric vehicles.
European consumer confidence waned in August
For the first time since January, consumer confidence in Europe declined in August.
The European Commission Consumer Confidence Index dropped from -13.0 in July to -13.5 in August.
Consumers expressed concern over their present and future financial situation amid tight financial conditions. However, this was partially offset by rising confidence in Europe’s current economic situation.
A flash estimate showed the European inflation rate dropped to 2.2% in August, its lowest rate since July 2021.
The European Central Bank has already lowered its policy interest rate this year, with at least one more rate cut expected before the end of 2024. Lower interest rates could help alleviate some of the financial pressure on European households.
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