Author: Consultant

Canada’s inflation rate slows to 7.6% in July, but more Bank of Canada rate hikes expected

Canadian inflation slowed in July as consumers paid much less for gasoline, marking what could be the start of a long journey back to low and stable rates of price growth.

The Consumer Price Index rose 7.6 per cent in July from a year earlier, Statistics Canada said Tuesday. That was down from 8.1 per cent in June, the highest inflation rate in nearly 40 years. On a monthly basis, the change in CPI was the smallest since December, 2021.

Gas prices, while still much higher than last year, fell 9.2 per cent in July from June, making the biggest contribution to lower headline inflation. August is bringing more relief at the pump, too: The national average price for regular unleaded gas was $1.73 a litre on Monday, down 9 per cent from the average retail price in July, according to data from Kalibrate Technologies.

Still, other details in Tuesday’s report were less encouraging. Groceries rose at an annual rate of 9.9 per cent in July, accelerating from 9.4 per cent in June. Rents increased 4.9 per cent, the most since 1989. And natural gas prices jumped by a whopping 43 per cent, which Statscan attributed in part to the Ontario Energy Board’s approval of rate increases.

Moreover, the average of the Bank of Canada’s core measures of annual inflation – which strip out volatile price changes – rose to 5.3 per cent from 5.2 per cent. Financial analysts said those details underscored why the central bank is certain to keep hiking interest rates.

“It’s great that headline inflation is moving in the right direction as energy prices ease,” said Leslie Preston, managing director at TD Economics. “But there was very little cooling in core inflation. And I think it’s a reminder that the Bank of Canada needs to continue to raise rates to rein in inflationary pressures.”

Similar to Canada, the U.S. reported an easing of inflation last week, with the annual rate falling to 8.5 per cent in July from 9.1 per cent in June. In addition to gas, several key commodities – including wheat and lumber – have tumbled this summer, as have shipping rates, offering some modicum of relief to companies and households.

At the same time, inflation remains uncomfortably high and could take years before returning to desired levels. The Bank of Canada projected in July that inflation won’t return sustainability to its 2-per-cent target until late 2024. Financial analysts expect the bank to make another hefty rate hike in September, perhaps by half or three-quarters of a percentage point. The bank’s policy rate is now at 2.5 per cent, the highest since 2008.

Central bankers are trying to engineer a “soft landing,” in which they hike interest rates to slow demand and tame inflation, but without sending the economy into a recession. “The path to this soft landing has narrowed,” Bank of Canada Governor Tiff Macklem said in July, citing persistently high inflation that “requires stronger action now” via large rate hikes.

Canada’s economic growth has slowed considerably in recent months, while the country’s sizzling housing market has turned cold. The odds of a recession are rising, economists say, although Royal Bank of Canada is the sole lender to predict that outcome by next year.

“I certainly don’t think we’re in a recession at all,” Pedro Antunes, chief economist at the Conference Board of Canada, said in a recent interview. “The reason I think we may avoid a recession is in part because labour markets are still in exceptionally good shape.”

Canada shed jobs in June and July, although the country’s unemployment rate remains at 4.9 per cent – the lowest in more than four decades – demonstrating how the lack of available workers continues to be a pressing issue for many employers.

Aug 16: At midday: TSX hits near 10-week high on boost from financials

Canada’s main stock index hit a near 10-week high on Tuesday, boosted by financial stocks after data showed elevated core price pressures, spurring bets of another big rate hike by the Bank of Canada next month.

Canadian inflation slowed to 7.6% in July, matching analysts’ forecasts and down from 8.1% in June, Statistics Canada data showed, but economists said hot core measures suggest another outsized interest rate hike was still to come.

The central bank raised its main interest rate by 100 basis points in July in a bid to tame inflation, becoming the first G7 country to make such an aggressive hike in this economic cycle.

Traders now see 70% odds of 50 basis points rate hike at the BoC’s September meeting.

The financial sector rose 0.5% on bets of rising rates, while high-growth stocks of technology and weed companies slid as yields gained ground.

“The Canadian market is very commodity and interest rate sensitive and while these things (cooling inflation) are wonderful for the world, they are not conducive to outperformance of the TSX,” said Barry Schwartz, portfolio manager at Baskin Financial Services.

At 10:59 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 23.34 points, or 0.12 percent, at 20,203.94.

Brent crude futures and U.S. West Texas Intermediate crude extended losses from the previous session when China’s central bank cut lending rates to revive a surprise slowdown in the economy.

Canada’s energy index slipped, adding to 1.6% decline a day earlier.

Stocks edged lower in morning trading on Wall Street Tuesday as investors cautiously reviewed mostly encouraging financial results from major retailers.

The S&P 500 fell 0.2%. The Dow Jones Industrial Average rose 79 points, or 0.2%, to 33,991 and the Nasdaq fell 0.9%.

Walmart jumped 5.7% and after the nation’s largest retailer reported strong results that easily topped analysts’ forecasts. Home Depot rose 3.2% after also reporting better-than-expected results. The gains from both companies did much of the heavy lifting for the Dow.

Retailers and consumer product makers made solid gains, but those were in kept in check by broad losses in technology stocks. Chipmaker Nvidia fell 1.7%.

Bond yields gained ground. The yield on the 10-year Treasury rose to 2.86% from 2.79% late Monday.

European markets were slightly higher and Asian markets closed mixed overnight.

Consumers are facing hottest inflation in 40 years and the latest results from retailers show that spending remains solid. Wall Street has been concerned that higher prices on everything from food to clothing could eventually stunt the economy’s main engine of growth, consumer spending. Investors will get more updates on the retail sector this week, when Target reports its results on Wednesday.

The Commerce Department releases its July retail sales report on Wednesday. Economists surveyed by FactSet expect modest 0.2% growth from June, when sales rose 1%.

The retail reports are capping off the latest round of corporate earnings, which have been closely watched by investors trying to determine inflation’s impact on businesses and consumers, while trying to gauge how Federal Reserve will react. The central bank is raising interest rates in an effort to slow down economic growth and rein in inflation, though it risks hitting the brakes too hard and veering the economy into a recession.

Investors are looking for any signs that inflation is peaking or cooling in the hopes that the Fed could ease its aggressive rate hike policy.

Stocks had their best month in a year-and-a-half in July and the winning streak has been continuing into August partially on hopes that inflation is easing. The latest government report on consumer prices showed that inflation essentially stalled from June to July.

Still, trading has been choppy, with major indexes swaying between gains and losses throughout each day.

Reuters and The Associated Press

Walmart is a top US inflation gauge

As the nation’s biggest retailer and employer, Walmart is considered one of the best inflation gauges out there — and investors will be paying close attention when the company’s second-quarter earnings for its 2023 fiscal year are released Tuesday morning.

https://www.foxbusiness.com/markets/walmart-is-a-top-us-inflation-gauge

China’s consumer and factory data miss expectations in July

• Retail sales grew by 2.7% in July from a year ago, the National Bureau of Statistics said Monday. That’s well below the 5% growth forecast by a Reuters poll, and down from growth of 3.1% in  June.
• Industrial production rose by 3.8%, also missing expectations for 4.6% growth and a drop from the prior month’s 3.9% increase.
• Investment into real estate fell at a faster pace in July than June, while investment into manufacturing slowed its pace of growth.

https://www.cnbc.com/2022/08/15/chinas-consumer-and-factory-data-miss-expectations-in-july.html

China unexpectedly cuts key rates as economic data disappoints

China’s central bank cut key lending rates in a surprise move on Monday to revive demand as data showed the economy unexpectedly slowing in July, with factory and retail activity squeezed by Beijing’s zero-COVID policy and a property crisis.

The grim set of figures indicate the world’s second largest economy is struggling to shake off the June quarter’s hit to growth from strict COVID-19 restrictions, prompting some economists to downgrade their projections.

Industrial output grew 3.8% in July from a year earlier, according to the National Bureau of Statistics (NBS), below the 3.9% expansion in June and a 4.6% increase expected by analysts in a Reuters poll.

Retail sales, which only just returned to growth in June, rose 2.7% from a year ago, missing forecasts for 5.0% growth and the 3.1% growth seen in June.

“The July data suggest that the post-lockdown recovery lost steam as the one-off boost from reopening fizzled out and mortgage boycotts triggered a renewed deterioration in the property sector,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“The People’s Bank of China is already responding to these headwinds by stepping up support…But with credit growth proving less responsive to policy loosening than in the past, this probably won’t be sufficient to prevent further economic weakness.”

Local shares gave up earlier gains after the data while the yuan weakened to a one-week low against the dollar and the Australian and New Zealand currencies pulled back from their recent two-month highs.

China’s economy narrowly escaped a contraction in the June quarter, hobbled by the lockdown of the commercial hub of Shanghai, a deepening downturn in the property market and persistently soft consumer spending.

Risks still abound as many Chinese cities, including manufacturing hubs and popular tourist spots, imposed lockdown measures in July after fresh outbreaks of the more transmissible Omicron variant of the coronavirus were found.

The property sector, which has been further rocked by a mortgage boycott that weighed on buyer sentiment, deteriorated in July. Property investment tumbled 12.3% last month, the fastest rate this year, while the drop in new sales deepened to 28.9%.

Nie Wen, Shanghai-based economist at Hwabao Trust, lowered his forecast for the third-quarter gross domestic product growth by 1 percentage point to 4-4.5%, after the weaker-than-expected data.

ING also cut their forecast for China’s 2022 GDP growth to 4% from 4.4% previously, and warned a further downgrade is possible, depending on the strength in exports.

Balancing Act

To prop up growth, the central bank on Monday unexpectedly lowered interest rates on key lending facilities for the second time this year. Analysts expect the cut is likely to lead to a corresponding reduction in benchmark lending rates next week.

Many believe the room for the People’s Bank of China to ease policy further could be limited by worries about capital outflows, as the U.S. Federal Reserve, and other economies, aggressively raise interest rates to fight soaring inflation.

“Very sluggish credit demand in July on the back of weak activity growth, further deterioration in property indicators and lower-than-expected CPI inflation might have contributed to the PBOC’s move,” said analysts at Goldman Sachs.

“Going forward, whether PBOC would cut interest rates again could be data-dependent in our view.”

Official figures on Friday showed new yuan loans tumbled by more than expected in July, as companies and consumers stayed wary of taking on debt.

Chinese policy-makers are trying balance the need to shore up a fragile recovery and eradicate new COVID-19 clusters. As a result, the economy is expected to miss its official growth target this year – set at around 5.5% – for the first time since 2015.

In eastern Zhejiang province, the city of Yiwu, a key global supplier of small and cheap products, has been wrestling with COVID-related disruptions on and off since July. Many parts of Yiwu have been thrown into an extended lockdown since Aug. 11.

“We’ve halted factory production since the city imposed a ‘quiet mode’,” said a sales manager at a Yiwu factory that makes consumer goods.

Fixed asset investment, which Beijing hopes will compensate for slower exports in the second half, grew 5.7% in the first seven months of 2022 from the same period a year earlier, versus a forecast 6.2% rise and down from a 6.1% jump in January-June.

The employment situation remained fragile. The nationwide survey-based jobless rate eased slightly to 5.4% in July from 5.5% in June, although youth unemployment stayed stubbornly high, reaching a record 19.9% in July.

“In our view, China’s growth in H2 will be significantly hindered by its zero-COVID strategy, the deteriorating property sector, and a likely slowdown of export growth,” analysts at Nomura said.

“Beijing’s policy support could be too little, too late and too inefficient.”

At the open: TSX starts lower as oil slumps on disappointing China data – Aug 15, 2022

Canada’s main stock index opened lower on Wednesday as oil prices tumbled after weaker-than-expected Chinese economic data clouded the outlook for the global economy.

At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 142.59 points, or 0.71%, at 20,037.22.

Miner Turquoise Hill Resources Ltd plunged 16% on rejecting an offer by majority shareholder Rio Tinto Ltd to buy the 49% stake it doesn’t already own for $2.7-billion

Wall Street’s main indexes opened lower on Monday, mirroring global markets, after weak economic data from China rekindled fears of an economic slowdown in the world’s second-largest economy.

The Dow Jones Industrial Average fell 50.35 points, or 0.15%, at the open to 33,710.70.

The S&P 500 opened lower by 10.78 points, or 0.25%, at 4,269.37, while the Nasdaq Composite dropped 50.56 points, or 0.39%, to 12,996.63 at the opening bell.

China’s central bank slashed key lending rates to revive demand as data showed the economy unexpectedly slowing in July, with factory and retail activity squeezed by Beijing’s zero-COVID policy and a property crisis.

U.S.-listed shares of China’s e-commerce giant Alibaba Group Holding Ltd and internet firm Baidu Inc declined more than 1% each in early trading.

Megacap growth and technology stocks such as Apple and Amazon began lower while banks also edged down after posting six straight weeks of gains.

“With the recent rally that we’ve had from the June lows, it just gives investors a reason to pause today,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

“I think the primary reason futures are down is because China surprisingly cut one of their key lending rates as economic news was a little bit weaker than expected.”

Oil stocks Exxon Mobil Corp, Chevron Corp, Halliburton Co and Marathon Oil Corp fell as crude prices tumbled on concerns over demand in China, the world’s largest crude importer.

U.S. benchmark crude oil shed $4.46 to $87.63 per barrel in electronic trading on the New York Mercantile Exchange. It lost $2.25 per barrel on Friday.

Brent crude oil, the basis for pricing for international trading, gave up $4.62 to $93.53 per barrel.

Wall Street has rallied over the last few weeks, with the benchmark S&P 500 index recovering half of its losses this year as optimism seeped back into markets following data that raised hopes the U.S. Federal Reserve can achieve a soft landing for the economy.

The S&P 500 and the Nasdaq posted their fourth straight week of gains on Friday even as Fed officials pushed back on expectations that the central bank will end its rate hikes sooner than anticipated, and economists warned that inflation could return in the coming months.

Meanwhile, analysts and advisers were optimistic that the move to delist five Chinese state-owned enterprises from the New York Stock Exchange could pave the way for Beijing to strike an audit deal with the United States, ending a more than decade-old dispute.

U.S.-listed shares of the five Chinese firms China Life Insurance Co Ltd, Sinopec, Aluminum Corp of China Ltd, PetroChina Co Ltd and Sinopec Shanghai Petrochemical Co Ltd extended Friday’s decline.

Reuters

U.S. Consumer Sentiment Improves Much More Than Expected In August

By RTTNews Staff Writer   ✉  | Published: 8/12/2022 10:45 AM ET

Consumer sentiment in the U.S. has improved by much more than expected in the month of August, according to preliminary data released by the University of Michigan on Friday.

The report showed the consumer sentiment index jumped to 55.1 in August from 51.5 in July. Economists had expected the index to inch up to 52.5.

With the bigger than expected increase, the consumer sentiment index continued to recover after hitting a record low 50.0 in June.

The extended rebound by the headline index reflected a significant improvement in consumer expectations, with the index of consumer expectations surging to 54.9 in August from 47.3 in July.

“All components of the expectations index improved this month, particularly among low and middle income consumers for whom inflation is particularly salient,” said Surveys of Consumers Director Joanne Hsu.

She added, “The year-ahead economic outlook rose substantially to just above its average reading from the second quarter 2022, while the two other expectations index components remain at or below their second quarter averages.”

Meanwhile, the report showed a pullback by the current economic conditions index, which fell to 55.5 in August after climbing to 58.1 in July.

The University of Michigan also said one-year inflation expectations dipped to 5.0 percent in August from 5.2 percent in July, while five-year inflation expectations crept up 3.0 percent from 2.9 percent.

Hsu noted one-year inflation expectations fell to the lowest level since February but were still well above the 4.6 percent reading from a year ago.

“Uncertainty over long run inflation receded a bit, with the interquartile range in expectations falling from 4.7 last month to 3.8 this month, remaining above the 3.3 range seen last August,” Hsu added. “Still, the share of consumers blaming inflation for eroding their living standards remained near 48%.”

House passes massive climate, tax and health bill, sending Biden a core piece of his agenda to sign

• The House passed a sweeping tax, health and climate bill, dubbed the Inflation Reduction Act.
• Its passage marked a win for Democrats and President Joe Biden less than three months before the pivotal midterm elections.
• Biden is expected to sign the legislation, a core piece of his agenda, in the coming days.

https://www.cnbc.com/2022/08/12/house-to-vote-on-inflation-reduction-act-tax-and-climate-bill.html

Economic Calendar : Aug 15 – Aug 19

Monday August 15

China retail sales, industrial production and fixed asset investment

Japan real GDP and industrial production

(8:30 a.m. ET) Canadian manufacturing sales and new orders. The Street expects month-over-month declines of 1.0 per cent for both.

(8:30 a.m. ET) Canada’s wholesale trade for June. Estimate is a rise of 0.5 per cent from May.

(8:30 a.m. ET) Canada’s new motor vehicle sales for June. Estimate is a year-over-year decline of 10.0 per cent.

(8:30 a.m. ET) U.S. Empire State Manufacturing Survey for August.

(9 a.m. ET) Canada’s existing home sales and average prices for July. Estimates are declines of 26.0 per cent and 4.0 per cent year-over-year, respectively.

(9 a.m. ET) Canada’s MLS home price index for July. Estimate is a rise of 12.5 per cent year-over-year.

(10 a.m. ET) U.S. NAHB Housing Market Index for August.

Earnings include: Galaxy Digital Holdings Inc.; Ivanhoe Mines Ltd.; K92 Mining Inc.; MAG Silver Corp.

—

Tuesday August 16

Japan tertiary index

Euro zone trade balance

(8:15 a.m. ET) Canadian housing starts for July. The Street is expecting an annualized rate decline of 3.2 per cent.

(8:30 a.m. ET) Canada’s CPI for July. The consensus forecast is for a rise of 0.1 per cent from June and up 7.6 per cent year-over-year.

(8:30 a.m. ET) Canadian international securities transactions for June.

(8:30 a.m. ET) U.S. housing starts for July. The Street is projecting an annualized decline of 1.4 per cent.

(8:30 a.m. ET) U.S. building permits for July. The Street expects an annualized rate drop of 3 per cent.

(9:15 a.m. ET) U.S. industrial production for July. The consensus estimate is a rise of 0.4 per cent from June.

Earnings include: Dream Unlimited Corp.; Home Depot Inc.; Osisko Mining Corp.; Sea Ltd.; TJX Companies Inc.; Walmart Inc.

—

Wednesday August 17

Japan trade balance and core machine orders

Euro zone real GDP

(8:30 a.m. ET) U.S. retail sales for July. The Street is estimating a rise of 0.1 per cent from June.

(10 a.m. ET) U.S. business inventories for June. Consensus is a rise of 1.4 per cent from May.

(2 p.m. ET) U.S. Fed minutes from July 26-27 meeting are released.

Earnings include: Analog Devices Inc.; Birchcliff Energy Ltd.; Cisco Systems Inc.; Cresco Labs Inc.; Lowe’s Companies Inc.; Target Corp.

—

Thursday August 18

Euro zone CPI

(8:30 a.m. ET) Canada’s industrial product and raw materials price indexes for July. Estimates are month-over-month declines of 1.0 per cent and 4.5 per cent, respectively.

(8:30 a.m. ET) U.S. initial jobless claims for week of Aug. 13. Estimate is 265,000, up 3,000 from the previous week.

(8:30 a.m. ET) U.S. Philadelphia Fed Index for August.

(10 a.m. ET) U.S. existing home sales for July. Consensus is a decline of 4.6 per cent on an annualized rate basis.

(10 a.m. ET) U.S. leading indicator for July.

Earnings include: Applied Materials Inc.; Canadian Solar Inc.; Estee Lauder Companies Inc.

—

Friday August 19

Japan CPI

Germany PPI

(8:30 a.m. ET) Canadian retail sales for June. The Street is forecasting a rise of 0.4 per cent from May.

(8:30 a.m. ET) Canada’s new housing price index for July. Estimate is flat from June and up 7.4 per cent year-over-year.

(8:30 a.m. ET) Canada’s household credit and mortgage credit for June.

Earnings include: Deere & Co.; Newcrest Mining Ltd.