Global equity markets fell over the week ended July 19, with weaker economic data concerning investors despite the potential for rate cuts in the upcoming months. The S&P/TSX Composite Index eked out a small gain, led by the Communication Services sector. U.S. equities fell over the week. Yields on 10-year government bonds in Canada ticked lower, while those in the U.S increased. Oil and gold prices moved lower.
Canada’s inflation rate ticks lower
Canada’s inflation rate moved lower in June, reinforcing bets the Bank of Canada (“BoC”) will cut interest rates again this year.
Canada’s inflation rate was 2.7% in June, down from 2.9% in May, and dropping more than economists’ expectations of 2.8%.
A drop in gasoline prices offset accelerating prices for food and shelter.
June’s reading is largely in line with the BoC’s expectations for the first half of 2024 at 3%. As a result, a July rate cut appears unlikely, but a September cut might be up for consideration by Canada’s central bank.
U.S. retail sales activity stalls in June
While retail sales growth in the U.S. stalled in June, underlying data shows U.S. consumer spending picked up, suggesting U.S. consumers remain relatively resilient despite still tight financial conditions.
There was no change in retail sales in June (0.0%). This surprised economists who were expecting a 0.3% decline.
Sales for building materials and clothing rose in June, but this was offset by a decline in sales at gasoline stations and for automobiles. The sharp drop in automobile sales was largely in response to a cyberattack that impacted software used by many dealerships.
Excluding automobiles, retail sales grew by 0.4%.
The resilient U.S. consumer has contributed to the U.S. Federal Reserve Board holding rates steady at current levels.
China sees slower economic growth
China’s gross domestic product expanded by 4.7% year-over-year in the second quarter of 2024.
This was down from the 5.3% pace of growth in the first quarter and was the slowest growth since the first quarter of 2023.
Relatively weak domestic demand and a still ailing property market continued to weigh on China’s economic growth.
Markets are hoping the government will step in and help stimulate domestic demand, as it has done with industrial production, which has shown signs of improving. This was evident in part due to a rise in exports over the quarter.
But with the possibility of tariffs from key trade partners, China’s government might have to look at improving consumer confidence and strength to meet its 2024 economic growth targets.
ECB holds steady in July
As widely expected, the European Central Bank (“ECB”) kept its policy interest rate unchanged at 4.25%. The ECB had lowered its policy interest rate by 25 basis points at its previous meeting.
The ECB acknowledged that inflationary pressures are coming down, as is wage growth, which has been a contributor to elevated inflation.
But Europe’s central bank stopped short of signalling a rate cut at its next meeting in September.
While markets currently expect another two rate cuts from the ECB this year, the central bank is hoping to see more progress on inflation back to its 2% target before lowering rates again.
June’s data did show some progress. A final reading showed Europe’s inflation rate fell to 2.5% in June from 2.6% in May.
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