Global equity markets fell over the week ended September 6. Economic data was relatively soft, lifting concerns about the overall health of the global economy. In Canada, the S&P/TSX Composite Index finished lower, dragged down by the Information Technology sector. U.S. equities also declined. Yields on 10-year government bonds in Canada and the U.S. moved lower. The price of oil and gold dropped over the week.
BoC lowers rates at third straight meeting
At a third straight meeting, the Bank of Canada (“BoC”) reduced its benchmark overnight interest rate by 25 basis points, which now stands at 4.25%.
According to the BoC, another rate cut was warranted with inflation continuing to come down, while Canada’s labour market and economic activity have been slowing.
Canada’s central bank stated that it is closely monitoring the upside and downside risks to inflation. The BoC is hoping to avoid overshooting its inflation target to the downside, and stated its willingness to keep lowering interest rates if inflation keeps coming down.
Canada’s economy added 22,100 jobs in August, reversing two straight months of job losses. Still, the increase was below economists’ expectations of 25,000 job additions. Canada’s unemployment rate moved higher to 6.6%.
The conditions prevailing in Canada’s economy point to a strong likelihood of another rate cut in 2024.
U.S. unemployment rate edges lower
The U.S. economy added jobs in August, but not enough to quell concerns about the slowdown in labour market conditions.
The economy added 142,000 jobs in August, falling short of the 165,000 job additions economists had expected. It was, however, above the downwardly revised 89,000 job additions in the previous month.
A rise in jobs in the construction and health care industries was partially offset by a drop in jobs in the manufacturing sector.
The U.S. unemployment rate ticked lower to 4.2% in August from 4.3% in the previous month.
In a separate report, ADP said that private businesses in the U.S. added 99,000 jobs in August, which was the lowest amount since January 2021.
While the economy keeps adding jobs, growth has been relatively soft, suggesting the labour market is cooling off. The U.S. Federal Reserve Board looks poised to cut interest rates at its September meeting.
European retail sales post small increase
Retail spending in Europe rebounded slightly in July, rising by 0.1%, following a 0.4% decline in June. The increase was driven by a rise in sales for food, alcohol and tobacco.
Despite rising in three of the past four months, retail spending growth remains relatively muted, reflecting household weakness amid still tight financial conditions.
However, spending on services has helped to prop up Europe’s services sector, which expanded for a seventh consecutive month in August. The sector benefited from higher new orders and output over the month.
According to a final estimate, Europe’s economy grew by 0.2% in the second quarter of 2024.
The European Central Bank is highly expected to keep lowering interest rates. As lower rates take hold, weak economic conditions could persist, which could result in relatively volatile European financial markets.
China’s manufacturing sector worsens
Struggles persisted for China’s manufacturing sector in August, weighing on overall economic conditions.
The NBS Manufacturing Purchasing Managers Index fell to 49.1 in August from 49.4 in the previous month. August’s reading also missed the 49.5 economists were expecting. (A reading below 50 denotes contraction.)
Domestic and foreign new orders both dropped over the month. Despite the government’s support to increase production capabilities, relatively soft demand continues to hinder China’s manufacturing sector.
Meanwhile, services sector activity expanded in August at a faster pace than in July.
Overall, business activity expanded over the month but at a muted pace, suggesting China’s economy continues to struggle for traction amid tight financial conditions and economic uncertainty, both domestically and abroad.
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