Global equity markets advanced during the week ended July 29 after U.S. Federal Reserve Board (“Fed”) Chair Jerome Powell noted the Fed might slow monetary tightening if economic conditions shift. In Canada, the S&P/TSX Composite Index finished in the green, led by the Energy sector. In the U.S., the S&P 500 Index was pushed higher by the strong performance of the Energy sector. Oil and gold prices both ticked higher over the week. Ten-year government bonds in Canada and the U.S. fell relatively sharply.
Fed continues rate hikes
The Fed raised its federal funds rate by 75 basis points (“bps”) to a target range of 2.25% to 2.50%.
The increase marked the Fed’s fourth straight rate hike and second consecutive 75-bps jump as the central bank aims to combat surging inflation and bring it back closer to its 2% target.
Although the Fed noted it anticipated more rate increases, Powell’s comments after the Fed’s meeting hinted at a slower monetary tightening pace if inflation peaks or economic activity weakens considerably.
Weakening economic growth
An advanced estimate indicates that for the second straight quarter, the U.S. economy shrank. U.S. gross domestic product fell at an annualized pace of 0.9% in the second quarter of 2022, surprising economists expecting a 0.4% increase.
The dip follows a 1.6% annualized decline in the first quarter. Based on two straight quarters of declining economic growth, the U.S. economy fell into a technical recession.
Consumer spending growth slowed during the quarter, and the economy was hindered by weaker business spending and real estate investment.
In Europe, a flash estimate showed the economy grew by 0.7%, exceeding the 0.2% increase economists expected.
The European economy benefited from gains in Italy and Spain, which offset weakness in Germany.
IMF expects slower growth in 2022
According to its July World Economic Outlook, the International Monetary Fund (“IMF”) lowered its projection for global economic growth this year to 3.2%, from 3.6% in its April outlook. The IMF says global growth was 6.1% in 2021.
The economic organization’s projection lowered in response to a contraction in global output, particularly from China amid its lockdown restrictions.
The IMF believes global economic growth will be weighed down by ongoing geopolitical tensions, surging inflation and monetary tightening.
The IMF also revised up its outlook for inflation in advanced and emerging economies to 6.6% and 9.5%, respectively.
E-commerce sales fizzle
As lockdown restrictions eased, and businesses reopened, ecommerce sales did not remain as robust as Shopify Inc. expected. More consumers returned to malls and stores to do in-person shopping.
In response, Shopify announced it would be cutting 10% of its workforce, primarily roles in recruiting, support and sales.
CEO of Shopify, Tobi Lutke, indicated the company expected ecommerce sales to grow significantly over the next five to ten years, but that bet has not paid off yet.
Shares of Shopify, which was once the largest company in Canada by market capitalization, fell over the week.
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