Global equity markets finished the week ended July 21 relatively flat. Economic data pointed to the potential to avoid a global recession, but expectations for major central banks to keep raising interest rates weighed on sentiment towards risk assets. The S&P/TSX Composite Index edged higher, led by the Health Care sector. U.S. equities, as measured by the MSCI USA Index, also finished higher. Gold and oil prices advanced. Yields on 10-year government bonds in Canada and the U.S. were little changed.
Canadian price pressures soften
Consumer prices in Canada showed further signs of easing in June, with Canada’s inflation rate at 2.8%, below expectations.
June’s rate was the lowest since March 2021 and was below projections by the Bank of Canada (“BoC”), which could point to the central bank pausing again.
The inflation slowdown was driven by another sharp decline in gasoline prices, partly due to a high base year in 2022.
Conversely, two essential costs for many Canadian households remained elevated, suggesting Canadians may still feel the pinch from higher prices on necessities, despite the slowdown in the inflation print. Mortgage costs surged higher again in June, as did grocery prices.
Higher Canadian home prices expected
A report from Zoocasa forecasted that Canadian home prices will continue to increase, despite any short-term adverse events. The low supply of housing, combined with rising immigration and internal population growth, will likely put upward pressure on home prices.
While Zoocasa noted there could be short-term disruptions, as seen in 2008 and 2022, when the BoC raised interest rates quickly, home prices are on a long-term upward trajectory.
The different levels of government have maintained a focus on upping the housing supply in Canada.
Strong demand, low supply and relatively low interest rates have pushed prices significantly higher during the pandemic, raising concerns about affordability.
North American retail sales climb higher
Canadian retail sales increased by 0.2%, falling short of preliminary estimates. Sales rose at motor vehicle and parts dealers and for food and beverage retailers but fell at health care stores.
Statistics Canada estimates retail sales posted no growth in June, suggesting consumer spending may be losing some steam. This could be troubling for Canada’s economy, which has been propped up by a strong Canadian consumer.
Households continue to grapple with high inflation and surging borrowing costs.
South of the border, retail sales edged up by 0.2% in June for a third straight monthly increase. Consumer spending remains relatively strong as inflation has come down but remains elevated.
Signs point to consumer spending helping growth in the second quarter. A first estimate for U.S. gross domestic product in the second quarter will be released on July 27.
China’s economic activity underwhelms
China’s economy expanded in the second quarter of 2023, but a deeper look into the data shows growth remaining relatively weak and the outlook uncertain.
China’s gross domestic product grew at an annual pace of 6.3% in the second quarter, above the 4.5% growth in the first quarter. It was, however, below economists’ expectations.
While the headline figure was relatively impressive, the pace of growth was buoyed by a low base number in 2022, when several cities in China were under lockdown restrictions.
On a quarterly basis, economic growth slowed to 0.8% in the second quarter from 2.2% in the previous quarter. The slowdown came amid challenges in the property market and a drop in exports.
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