Global equity markets posted a loss over the week ended September 2 in anticipation that the U.S. Federal Reserve Board (“Fed”) would maintain its aggressive stance to tame inflation. Mixed economic data over the week did not give clear indication the Fed would need to scale back its interest rate increases in the near term. The S&P/TSX Composite Index was dragged down by the Materials sector. In the U.S., the S&P 500 Index declined, hindered by weakness in all 11 sectors. Ten-year government bond yields in Canada and the U.S. advanced over the week.
Canada’s economic growth misses expectations
Canada’s gross domestic product expanded by 3.3%, annualized, in the second quarter of 2022, missing the 4.4% increase economists expected.
It was, however, a faster pace than the 3.1% increase in the first quarter of 2022 and marked the fourth straight quarterly expansion.
Household spending was a key driver of growth over the quarter but was partially offset by a drop in real estate investment.
Statistics Canada estimated Canada’s economy may have contracted by 0.1% in July, suggesting a slowing global economy, higher prices and rising rates might be weighing on Canada’s economy.
Canadian manufacturing activity contracts
For the first time since 2020, manufacturing activity in Canada contracted.
The S&P Global Canada Manufacturing Purchasing Managers Index dropped to 48.7 in August, down from July’s 52.5 reading.
A decline in new orders and output weighed on Canada’s manufacturing sector during the month. On the positive side, price pressures eased.
The contraction in Canadian manufacturing is consistent with other data that indicates the Canadian economy is slowing in the third quarter.
Pace of hiring in the U.S. slows
The U.S. economy added 315,000 jobs in August, slowing from the 526,000 jobs added during July.
With the labour force participation rate rising to 62.4%, the unemployment rate ticked higher to 3.7%, from 3.5%.
In its restructured National Employment Report, ADP reported that U.S. private businesses added 132,000 jobs in August, the lowest increase since early 2021
U.S. job openings rose to 11.2 million in July, its first monthly increase since March 2022.
With the jobless rate moving higher, investors were left to question how this may impact the Fed’s next interest rate increase.
Europe’s inflation remains elevated
While inflation appears to be easing in some parts of the world, the story is not the same in Europe.
Based on a preliminary estimate, Europe’s inflation rate reached a record high of 9.1% in August, boosted by higher prices for energy and food.
Energy prices rose 38.3% year-over-year as the continent copes with an energy crisis largely due to the conflict in Ukraine.
The harmonized inflation rate in Germany, Europe’s largest economy, rose to another all-time high of 8.8% in August.
Persistently high inflation levels across Europe will likely lead to more interest rate increases by the European Central Bank.
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