Global equity markets finished largely flat over the week ended June 21. With some equity markets close to all-time highs, investors treaded cautiously amid still shaky economic conditions. In Canada, the S&P/TSX Composite Index declined, dragged down by the Utilities sector. U.S. equities advanced in a shortened trading week. Yields on 10-year government bonds in Canada advanced. Yields on 10-year government bonds in Canada advanced. Oil prices increased, while the price of gold declined.
Canadian retail sales shaky in 2024
Canadian retail sales increased by 0.7% in April, rebounding from three consecutive monthly declines to start 2024.
Sales for sporting goods and groceries, and at gasoline stations, moved higher over the month.
However, the outlook for May dragged down the positive sentiment towards April’s result. Statistics Canada estimated that retail sales fell by 0.6% in May.
The Bank of Canada’s Summary of Deliberations from its last meeting, where it began cutting interest rates, showed it could keep lowering rates this year, but likely at a gradual pace, with inflation still presenting a risk.
Given another drop in retail sales in May, more rate cuts might be necessary to help support Canadian consumers struggling with tight financial conditions. More rate cuts could help stimulate consumer activity, benefiting Canada’s overall economic health.
U.S. retail sales edge higher
Retail sales in the U.S. ticked slightly higher in May after falling in April, suggesting U.S. consumers might be feeling the pinch from tight financial conditions.
Retail sales rose by 0.1% in May, which was below the 0.3% increase economists had expected.
Sales for motor vehicles and sporting goods increased over the month, offsetting a decline in sales at gasoline stations.
Data is beginning to suggest that U.S. consumer strength may be softening, which could impact overall economic growth.
Along with moderating inflation, this could fuel the U.S. Federal Reserve Board to begin lowering interest rates in the third quarter.
BoE elects to hold at 5.25%
At its June meeting, the Bank of England (“BoE”) held its policy interest rate steady at 5.25%. The BoE believes its restrictive policy is still warranted given the risks still posed by elevated inflationary pressures.
While the U.K. inflation rate reached 2% in May, the BoE believes there are risks inflation could move higher.
Still, the BoE appears to be inching closer to a rate cut. Two of nine officials voted to begin cutting rates at this meeting.
The BoE acknowledged that inflation has come down, while the labour market and economy have been relatively soft, suggesting the central bank could be preparing to cut rates in the third quarter, potentially as early as July.
Global services sector activity stabilizing
Global business activity, as measured by manufacturing and services sector activity, has shown signs of picking up in recent months, benefiting the global economy. The main driver has come from an improvement in the services sector, suggesting a shift in spending patterns, with the manufacturing sector in most regions and countries still struggling for traction.
In the U.S., business activity improved in June, expanding at its fastest pace since 2022. The improvement was mostly due to higher growth in the services sector, which benefited from stronger new orders and output.
Business activity in Europe slipped in June compared to May but still expanded. It was brought down by another drop in manufacturing sector activity, but a strong services sector kept a floor on business activity. Business activity also expanded in Japan.
Improving business activity could be a good indicator of improving global economic conditions. Fitch Ratings released its most recent Global Economic Outlook, in which it revised its projection for global economic growth up to 2.6% this year from its earlier projection of 2.4%.
Fitch believes better economic conditions in Europe, stronger demand in emerging markets, except for China, and loosening monetary policy globally should benefit economic activity in 2024.
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