Global equity markets ticked lower over the week ended October 4. Rising tensions in the Middle East combined with economic uncertainty weighed on sentiment. The S&P/TSX Composite Index inched higher, led by the Energy sector. U.S. equities finished slightly higher. Yields on 10-year government bonds in Canada and the U.S. increased. Oil prices moved higher over the week amid supply concerns. Gold prices were largely unchanged.
Canada’s manufacturing sector expands
• For the first time since April 2023, Canada’s manufacturing sector activity expanded, offering a glimmer of hope for this critical sector of Canada’s economy.
The S&P Global Canada Manufacturing Purchasing Managers Index rose to 50.4 in September from 49.5 in the previous month. (A reading above 50 denotes expansionary conditions).
September’s expansion came amid a strong increase in new orders. Domestic demand picked up, helped by the Bank of Canada’s recent rate cuts. Employment growth also increased over the month.
While the expansion was encouraging, there were some signs of underlying weakness. Foreign orders contracted for the 13th straight month.
Still, the improvement in this critical sector of Canada’s economy is encouraging for the overall health of Canada’s economy. The sector could continue to expand as financial conditions and spending improve here in Canada and elsewhere around the world.
U.S. job additions top expectations
• The U.S. economy added 254,000 jobs in September, well above the 150,000 job additions economists had expected.
This marked the highest number of job additions since March 2024. Employment increased sharply in the food services and health care industries.
For the second straight month, the U.S. unemployment rate declined, falling to 4.1%.
A separate report showed that announced job cuts rose by 53.4% year-over-year in September, suggesting the labour market remains a bit wobbly.
Despite better-than-expected job growth in September, the U.S. Federal Reserve Board appears likely to cut interest rates again this year. However, another jumbo-sized rate cut seems unlikely.
European inflationary pressures soften further
• A flash estimate showed that Europe’s annual inflation rate continued to decline in September, falling to 1.8%, the lowest rate since April 2021.
September’s slowdown was driven by a 6% decline in energy prices. Prices for services moderated.
Europe’s unemployment rate remained at 6.4%, a record low.
Home prices in the euro area increased by 1.3% year-over-year in the second quarter of 2024. This marked the first increase in home prices since the first quarter of 2023.
All signs point to more rate cuts from the European Central Bank. Real estate market activity could get a boost in the quarters to come as lower mortgage rates should help boost demand.
Japanese retail sales rise again
•. Rising wages in Japan have helped keep domestic demand growing. Retail sales rose by 2.8% year-over-year in August, topping the 2.6% increase in the previous month.
This was the 29th consecutive month of rising retail sales in Japan. August’s increase was fuelled by increases in sales of clothing and automobiles. Ongoing strength in domestic demand has helped push prices up, resulting in two interest rate increases from the Bank of Japan this year.
While expenditure data has been positive, data on production has been shaky. Industrial production fell by 3.3% in August over the previous month. Japan’s manufacturing sector shrank for a third straight month in September.
The performance of these critical components of Japan’s economy reinforces the notion that Japan’s economic health is on relatively shaky ground.
Japan has not been able to sustain positive economic growth over the past few quarters. The outlook remains uncertain with interest rates going higher and global demand remaining relatively muted.
Comments