Market update

Canada’s Consumer Price Index (CPI) rose 7.6% in July, down from 8.1% in June as expected. Excluding gasoline, core CPI rose 6.6% year-over-year in July.

Canadian June retail sales rose 1.1% versus expectations of 0.3% to $63.1 billion, led by higher sales of gasoline, motor vehicles, and auto parts.

Canada's average resale home price fell 4.5% from a year ago in July and was down 5.4% on the month as borrowing costs increase.

Statistics Canada says sales in the petroleum and coal industry fell 7.8 % in June as concerns over the global economic slowdown led to lower demand for energy products and contributed to the lower sales.

U.S. retail sales come in flat versus a forecasted slight increase in July, largely because of falling gas prices and fewer purchases of new cars and trucks. Sales were stronger at other retailers, especially online stores such as Amazon.

U.S. existing-home sales fell in July for the sixth-straight month by 5.9% which was also below expectations. This was the lowest level seen since May 2020 when sales hit their low point during the COVID-19 lockdowns. Median existing-home price for all housing types was still up 10.8% from July 2021.

U.S. initial jobless claims decreased to 250,000 well below the expectation of 265,000.

U.S. homebuilding fell to the lowest level in nearly 18 months in July, weighed down by higher mortgage rates and prices for construction materials, suggesting the housing market could contract further in the third quarter.

U.K. data showed the economy contracted as the gross domestic product shrank by 0.1% quarter-over-quarter in Q2, though less than the contraction expected by analysts.

Gas supply in Europe is still a concern as heatwave boots demand as European natural gas prices rose 6.8% yesterday.

European markets traded higher, boosted by oil stocks, despite being capped by growth fear as inflation reached a record high of 8.9% in July.

U.K. data shows ongoing labor market tightness, but real wages tumble the most on record while economists see 75% probability of a U.K. recession.

Germany's gas storage facilities have reached the first stage goal of a fill level of 75%, two weeks ahead of schedule.

German producer price index (PPI) rose 37.2% year-over-year versus well above expectations; the highest level in 70 years due to high energy prices.

Japan’s core inflation has increased to 2.4% year-over-year above expectations driven by fuel and raw material prices.

China continues to grapple with Covid-19, as cases hit a three-month high and lockdowns increase.

Data showed China’s industrial output and retail sales for July missed expectations while China's central bank unexpectedly cut key lending rates, for the second time this year.

Oil prices were mixed as weak economic data from China raised fears that a slowing global economy will reduce demand for energy products weighed on strong demand in the U.S. and an expected fall in Russian supply during winter.

Weekly change: TSX: FLAT%; DOW: FLAT; S&P 500: -1.1%; NASDAQ: -2.5%; GOLD: -2.9% WTI: -1.3% ** as at 1pm on Friday August 19th

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Canadian CPI (July): Accelerating core spells trouble by Karyne Charbonneau Link to Article

Canadian inflation took its foot off the gas in July, but certain core components to the figure were not as reassuring. Headline inflation decelerated to 7.6% year-over-year in July on a much smaller 0.1% month-over-month increase, roughly in line with expectations.

As was widely expected, gasoline prices fell 9.2% in June to be the main downward contributor to the deceleration in total inflation. Within the energy category, this was partially offset by higher natural gas prices, which at 12.4% growth on the month were the largest contributor to the monthly CPI increase.

After pausing in June, food prices resumed their climb in July with a 0.9% increase to reach 9.2% annually. The war in Ukraine had earlier led to a spike in food commodities, particularly wheat, and although many food commodities have since cooled off, the lagged effect is still impacting the price the price of groceries.

CPI inflation excluding food and energy picked up speed in July with a 0.5% increase to reach 5.5% year-over-year. Goods price inflation fell while service inflation accelerated. For Canadians trying to enjoy their summer, services that were previously impacted by the pandemic such as travel accommodation (+10.1% monthly), air transportation (+25.5% monthly), and restaurants (+1% monthly) all became pricier. Hotel prices are now almost 50% more expensive than a year ago.

Implications & actions

While inflation seems to finally have started its long descent, the acceleration in inflation excluding food and energy will be a concern for the Bank of Canada. With gasoline prices set to decline further in August, so should headline CPI, but that is not what the Bank will be watching. The focus should be on shelter prices (excluding mortgage costs), which should decelerate with the cooling housing market, and overall service inflation. For now, the Bank of Canada remains on track for a 75 bps increase at its September rate decision.

 

Americans spend less at the pump, more elsewhere in July by Katherine Judge Link to Article

Retail sales made no progress in the U.S. in July, as the drop in gasoline prices limited sales, along with a fall in auto sales.

Things looked better elsewhere as lower gas prices opened up room for spending in other categories. Excluding gasoline, autos, restaurants, and building materials, spending rose by 0.8%, above expectations, driven by online shopping. Accounting for price increases, real spending in the group appears to have grown, leaving that group above its pre-pandemic trendline.

Looking ahead, while the fall in gasoline prices will continue to provide relief to consumers, where spending is likely directed towards services, rather than goods.

The drop in vehicle sales was in contrast to the earlier reported growth in unit sales, highlighting either a shift in demand to lower priced cars, or the decline in used car prices that reduced nominal spending on such vehicles.

Sluggish restaurant sales will represent a decline in volume terms. Interestingly, that wasn't supplemented by grocery store spending, even with prices climbing in July. Traffic at restaurants has improved so far in August and could support higher receipts at restaurants during the month.

Despite a cooling housing market, building material sales rose strongly in July, but we don't expect that momentum to be sustained, as interest rates are set to climb further over the rest of the year, dampening housing activity.

Implications & actions

Goods consumption appears to be off to a solid start in the quarter, but we don't expect the momentum to be sustained. Auto sales could be an outlier as supply chain issues abate. The downside miss and downward revision to June initially caused bond yields and the USD to drop, but the moves were mostly reversed, as things looked better in the control group.

 

Global Insights

While many Canadian homebuyers remain on the sidelines, some regions across the country are seeing detached property buyers lured back to the market amid a substantial decline in prices, according to a new report released Thursday from RE/MAX Canada.

Bloomberg

The United States and Taiwan have agreed to start trade talks under a new initiative to reach agreements with "economically meaningful outcomes", with a Taiwan official saying China's "economic coercion" would also be discussed.

Reuters

The international dispute over Line 5 belongs in federal court, a Michigan judge declared Thursday, dealing a critical blow to Gov. Gretchen Whitmer's bid to shut down the controversial cross-border pipeline.

Bloomberg

Canadian department store Zellers hopes to make a comeback next year, a decade after the discount chain shuttered most of its locations, brand owner Hudson’s Bay Co. said Wednesday.

Bloomberg

 

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