Global equity markets moved higher over the week ended September 13. Technology heavyweights drove gains over the week with the U.S. Federal Reserve Board (“Fed”) appearing set to begin lowering interest rates on September 18. In Canada, the S&P/TSX Composite Index posted a gain, led by the Materials sector. U.S. equities also advanced over the week. Yields on 10-year government bonds in Canada and the U.S. finished slightly lower. Oil and gold prices increased.
Canadian building permits rebound in July
Amid a push to increase the supply of homes in Canada, building permits rose by 22.1% in July. This marked a relatively strong rebound from the 13.0% decline in the previous month.
July’s increase came amid a 30% increase in multi-unit residential permits. Conversely, permits for single-unit homes inched lower over the month.
Real estate activity has weakened in 2024, largely in response to high mortgage rates and elevated home prices.
The drop in real estate activity has weighed on household wealth. Statistics Canada reported that the value of residential real estate as part of household wealth fell by 0.1% in the second quarter, which was its third drop in the past four quarters.
The Canadian government is seeking to increase the supply of homes, which might help balance the market and improve affordability. Recent rate cuts from the Bank of Canada might help raise demand.
U.S. inflation rate inches lower
Inflationary pressures in the U.S. eased in August, likely opening the door for a Fed rate cut this month.
The annual inflation rate in the U.S. dropped to 2.5% in August from 2.9% in the previous month. August’s reading matched expectations and was the lowest since February 2021.
Prices for energy products and new and used vehicles declined. Conversely, shelter costs accelerated in August. The growth in food prices softened in August over July.
While the decline in the headline figure was encouraging, core inflationary pressures remained elevated, likely eliminating the possibility of an outsized rate cut from the Fed.
The Fed is expected to begin lowering interest rates on September 18, likely starting with a 25-basis-point (“bps”) rate cut.
ECB makes second rate cut this year
The European Central Bank (“ECB”) lowered its policy interest rate by 60 bps to 3.65%. Economists were expecting the rate cut. Europe’s central bank also lowered its marginal lending facility and deposit facility rate to 3.90% and 3.50%, respectively.
For the second time this year, the ECB has lowered its key interest rates with inflation subsiding and economic growth stalling. Consumer activity has been relatively weak over the year as tight financial conditions weigh on European households.
The ECB sees inflation falling over the next few years, but it could remain above the central bank’s target in the near term given the potential for energy prices to move higher.
In its quarterly outlook, the ECB said it expects inflation of 2.5% this year and 2.2% in 2025. Europe’s central bank also downgraded its 2024 growth projection from 0.9% to 0.8%.
The ECB is likely to keep dropping interest rates amid softening inflation and muted economic activity. Markets are currently expecting another rate cut from the ECB this year.
U.K. economy feeling the pressure
For the second straight month in July, the U.K. economy posted no growth (0.0%). Economists were expecting growth of 0.2% over the month.
The services sector was a positive contributor to growth over the month. On the other hand, the U.K. economy continues to be weighed down by a weak manufacturing sector, with production dropping by 1.0% in July.
Despite relatively weak economic activity, the labour market has shown some signs of improvement. The U.K. economy added 265,000 jobs over the three-month period ended in July, with the unemployment rate ticking lower to 4.1% from 4.2%.
The Bank of England (“BoE”) lowered its policy interest rate to 5.00% at its last meeting. Markets are expecting the BoE to hold steady on September 19, but another rate cut in the last quarter of 2024 is a possibility.
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