Global equity markets moved higher over the week ended July 22. Investors took a positive approach, believing the market may have already reached bottom. They parsed through economic data to determine the next steps global central banks might take to help slow inflation. In Canada, the S&P/TSX Composite Index advanced, led by the Information Technology and Real Estate sectors. In the U.S., the Consumer Discretionary sector helped buoy the S&P 500 Index into positive territory over the week. Oil prices moved lower, while the price of gold finished higher. Yields on 10-year government bonds in Canada and the U.S. fell.
Inflation below expectations
Canada’s inflation rate ticked higher in June, rising to 8.1% year-over-year. This was the sharpest pace of inflation in Canada since 1983.
However, it did come in below economists’ expectations of an 8.4% rate.
Gasoline prices advanced, increasing by 54.6% year-over-year. The recreation, education and reading category also added upward pressure.
Meanwhile, the core inflation rate, which excludes more volatile items such as gasoline and food, rose 6.2% in June, a faster pace than May’s 6.1%, suggesting price growth remains broadly based.
The result heightens expectations that the Bank of Canada (“BoC”) might need to remain relatively aggressive in combatting inflation. Still, the lower-than-expected reading may signal a rate hike of less than 100 basis points (“bps”) at the BoC’s next meeting.
Strong retail sales
Retail sales in Canada rose by 2.2% in May, topping the 1.6% increase economists expected.
It was also the fastest monthly pace of growth since January, as consumers showed some resiliency amid surging prices.
Strong sales at gasoline stations, which rose by 9.2% partly due to higher prices, was the main contributor to May’s increase. Sales also increased at convenience stores and for motor vehicles and parts.
Statistics Canada estimated retail sales rose by 0.3% in June.
The takeoff begins
The European Central Bank (“ECB”) raised its main refinancing interest rate by 50 bps to 0.50%.
The increase surprised economists who were expecting a 25-bps rate increase that the ECB initially conveyed.
The ECB noted the first increase to its policy interest rate since 2011 was needed in response to surging inflation, which continues to run at record levels in Europe.
The ECB believes inflationary pressures may persist and will likely warrant further rate increases.
Europe’s central bank also raised its marginal lending facility rate and deposit facility rate by 50 bps to 0.75% and 0.00%, respectively.
U.S. home sales decline... again
Existing home sales in the U.S. fell by 5.4% in June to 5.12 million units. The decline marks the fifth consecutive monthly drop, taking home sales to their lowest level since June 2020.
Demand appears to be waning in the U.S. in response to rising mortgage rates and elevated prices.
The Mortgage Bankers Association of America reported the rate on a 30-year mortgage ticked higher to 5.82% from 5.74% for the week ended July 15.
Mortgage applications fell during the same week, marking the third consecutive weekly decline.
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