Lower-than-expected U.S. inflation raised expectations that the U.S. Federal Reserve Board (“Fed”) could moderate future rate hikes helped global equity markets move higher for the week ended August 12. The S&P/TSX Composite Index advanced, supported by the Energy and Materials sectors. South of the border, the S&P 500 Index finished higher, benefitting from the Information Technology sector. Oil and gold prices both rose over the week. In fixed income, 10-year government bonds in Canada and the U.S. moved higher.
Peak inflation?
U.S. inflation for July came in below estimates, raising hopes that the sharp rise in inflation may be nearing its peak.
The U.S. inflation rate was 8.5% in July, below the 8.7% economists expected and June’s multi-decade high of 9.1%.
Lower gasoline prices helped to ease inflation. Airline ticket prices fell during the period, while food and shelter costs rose in July.
The surprise inflation data heightened expectations that the Fed may be open to moderating future interest rate hikes.
U.K. GDP contracts in the second quarter
The Office for National Statistics reported that U.K. Gross domestic product (“GDP”) contracted by 0.1% in the second quarter of 2022, less than the 0.3% forecasted by economists.
A slowdown in retail sales and household spending were the largest contributors to the decline.
The end of COVID-19 testing resulted in a decline in the Health Care sector’s output. Conversely, activity in the travel industry was robust.
In terms of economic growth, the U.K. trailed Germany, France, Italy and Canada, but outperformed the U.S. in the second quarter.
Leading indicators signal slowdown
The Organisation for Economic Co-operation and Development (“OECD”) is warning of a lower economic outlook for major economies around the world.
Leading indicators tracked by the OECD suggest high inflation and monetary tightening have dragged down consumer confidence and stock prices in major economies.
Weaker order books and building permits suggest a slowdown in growth.
The economic outlooks for Canada, the U.S., Europe and the U.K. have weakened, according to the OECD.
Helping Canadians with their first home purchase
The Finance Department of Canada released new details on the tax-free First Home Savings Account (“FHSA”), which is expected to launch in 2023.
The FHSA was proposed in the 2022 Federal Budget to help first-time home buyers save for their down payment.
The new account will combine elements from an RRSP and TFSA.
Like an RRSP, contributions to the FHSA will be tax-deductible, but withdrawals from the account to purchase a first home can be made tax-free like a TFSA, including from any investment income or growth earned in the account.
Despite the recent shift in market conditions, home prices in Canada remain relatively elevated and unaffordable for many Canadians.
The government hopes this new tax-free savings account will support the entry of first‑time home buyers into the housing market.
Comments