Global equity markets finished lower over the week ended August 11 as Moody’s Investors Service downgraded ratings on several medium-sized U.S. banks. However, the S&P/TSX Composite Index climbed, supported by the Consumer Staples sectors. U.S. equities, as measured by the MSCI USA Index, finished the week lower. Yields on 10-year government bonds in Canada and the U.S. rose, as investors weighed higher-than-expected producer price inflation against lower inflation expectations by consumers for the next 12 months. The price of oil climbed, while gold prices declined.
Canada’s trade deficit widens in June
Canada’s trade deficit expanded to $3.73 billion in June from $2.68 billion in May, marking the largest deficit in nearly three years.
According to Statistics Canada, the widening deficit was driven by a 2.2% decrease in exports, overshadowing a more modest 0.5% decline in imports.
Exports dropped to $60.7 billion in June, reaching the lowest level since the start of 2022. The decline was particularly prominent in exports of metals and industrial machinery.
Reduced purchases of energy products factored in the decline in imports.
The reduction in trade volumes is likely to weigh on Canada’s gross domestic product (“GDP”) growth in the second quarter of 2023.
U.S. inflation rises modestly
The U.S. annual inflation rate for July, as reported by the U.S. Bureau of Labor Statistics, reached 3.2%, a slight increase from June’s 3.0%. Economists had forecast 3.3%.
Energy costs declined by 12.5% in July. However, electricity prices and transportation expenses trended upwards.
The annual core inflation rate, excluding both food and energy components, eased slightly to 4.7% in July, down from June’s 4.8%.
On a monthly basis, July experienced a 0.2% increase in inflation, aligning with market forecasts. This mirrored the prior month’s rise, marking the smallest consecutive increases observed in the past two years.
The combination of moderate inflation and a gradual cooling of the labour market lifted economists’ confidence in the U.S. central bank’s ability to orchestrate a “soft landing” for the economy.
China’s consumer prices fall
Consumer prices in China took an unexpected turn with a 0.3% year-over-year decline in July. It was the first decline since February 2021.
Following zero growth in consumer prices in June, the decline in July was led by lower food and transportation prices.
However, analysts noted that the decline may be connected with a “high base effect” from 2022, when inflation was relatively high.
In addition, China’s producer prices maintained a downward trajectory, with a 4.4% year-over-year decline in July. It was the tenth consecutive monthly decline.
U.K. GDP growth surprises
Preliminary estimates from the Office for National Statistics revealed 0.4% year-over-year expansion of the U.K. economy in the second quarter of 2023.
This outperformed the 0.2% growth in the first quarter and exceeded second-quarter projections of 0.2%.
On the expenditure side, household consumption rose by 0.7% versus 0.2% in the first quarter. Government spending also rebounded with growth of 2.6%.
Exports and imports both declined, with the latter falling by 6%. The Bank of England cautioned that it expects GDP growth to remain below pre-pandemic rates in the medium term.
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