Global equity markets ticked higher over the week ended September 15 as inflation data in the U.S. did not change investor expectations of the U.S. Federal Reserve Board (“Fed”) holding steady at its next meeting. In Canada, the S&P/TSX Composite Index finished higher, led by the Materials sector. U.S. equities, as measured by the MSCI USA Index, finished largely unchanged. Yields on 10-year government bonds in Canada and the U.S. increased over the week. The price of oil continued its upward climb in September. Gold prices were flat over the week.
More homes needed in Canada
Canada Mortgage and Housing Corporation (“CMHC”) updated its Supply Gaps Estimate report, which now says Canada has a housing gap of 3.45 million.
CMHC believes closing this housing gap by 2030 could help Canada overcome its housing affordability issues.
To help support the creation of more homes, the federal government created the Housing Accelerator Fund in the 2022 federal budget. The Fund’s first deal was completed last week with London, Ontario, where 2,000 homes will be built over the next three years for $74 million.
Housing prices surged over the last few years amid low interest rates, high demand and muted supply. The federal government hopes that increasing the supply of homes will help bring the market into balance and make housing more affordable.
In August, sales of existing homes in Canada plunged 4.1%, the second straight monthly decrease. The real estate market has lost some steam after the Bank of Canada raised interest rates over the past year; however, it did hold its key interest rate steady at 5.00% during their last meeting on September 6.
U.S. inflation rate moves higher
The inflation rate in the U.S. edged higher for a second straight month, reaching 3.7% in August. August’s reading was a notch above the 3.6% rate economists had expected.
A rise in transportation services prices contributed to the higher rate in August. Meanwhile, energy prices fell but much more slowly in August compared to July.
Despite the elevated prices, U.S. consumers demonstrated their relative strength in August, pushing retail sales higher by 0.6%, the fifth consecutive increase.
After the data release, attention turned to the Fed. Investors largely expect the inflation print to have little impact on the Fed’s next decision. But as inflation remains elevated and spending relatively strong, another rate increase might be possible.
ECB raises rates for a tenth straight time
The European Central Bank (“ECB”) raised its main refinancing interest rate by 25 basis points (“bps”) to 4.50%.
The rate hike surprised economists, who were expecting the ECB to hold steady rather than raising this rate for a tenth straight meeting to its highest level since 2001.
Europe’s central bank believes the rate increase was warranted as it seeks to bring down inflation.
In its revised expectations, the ECB expects inflation to be 3.2% in 2024, which will still be well above its 2% target.
Europe’s economy has struggled for traction, with consumers and businesses grappling with tight financial conditions.
Stimulus measures in China may be helping
Critical economic data in China might indicate better conditions for the world’s second-largest economy.
Retail sales rose by 4.6% year-over-year in August, its fastest growth rate since May, boosted by higher sales for cosmetics, furniture and automobiles.
Industrial production also rose faster in August compared to July, rising by 4.5% on a year-over-year basis.
The People’s Bank of China (“PBOC”) continued to take measures to help stimulate activity in China’s struggling economy. The PBOC reduced its reserve requirement ratio by 25 bps to 10.50%.
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