Weekly commentary – For the week ended July 12

Global equity markets moved higher over the week ended July 12. Slowing inflation in the U.S. pointed to the U.S. Federal Reserve Board (“Fed”) beginning to lower interest rates this year. Investors continue to be encouraged by signs the global economy is stabilizing and might avoid a recession. In Canada, the S&P/TSX Composite Index advanced, led by the Real Estate sector. U.S. equities also advanced over the week. Gold prices ticked higher, while the price of oil fell. Yields on 10-year government bonds in Canada and the U.S. dropped over the week.

U.S. inflation slows in June

• The U.S. inflation rate fell more than expected in June, reaching 3.0% versus the 3.1% economists had expected.

• This was down from the 3.3% rate in May and was the lowest since June 2023.

• Price growth for energy and shelter moderated, while new and used car prices dropped. Food prices accelerated in June, albeit at a very slow pace.

• The core inflation rate also came down in June.

• With the Fed seeking signs of inflation coming down further, this report was likely a positive development. The drop in inflation reinforced expectations of a rate cut from the Fed in 2024.

Canadian real estate activity springs to life

• The Canadian Real Estate Association reported that sales of existing homes in Canada surged higher in June, rising by 3.7%.

• June’s increase was the first since March, and the largest since January. Real estate activity has been relatively muted in 2024 as high borrowing costs weigh on demand. High home prices provided another headwind for those seeking to purchase a home.

• Markets are hoping the recent rate cut from the Bank of Canada, and potentially more this year, could restoke demand and improve market activity.

• The other side of the market equation remains low. Supply of homes is relatively subdued. In response, the government has put its focus on increasing this supply.

• However, builders have also been hindered by tight financial conditions, which is weighing on their plans. Building permits fell by 12.2% in May, the second drop in the past three months.

U.K. economy moves higher

• The U.K. economy grew by 0.4% in May, benefiting from strong retail trade and construction activity.

• This followed no growth (0.0%) in April.

• This was a positive result for the newly elected Labour Party, who’ll look to add to this growth as they implement their new policies.

• May’s expansion puts the economy on pace to grow over the second quarter. With the U.K. economy showing some signs of stabilizing, it could push back a potential rate cut from the Bank of England.

China’s imports weighed down by weak demand

• Exports from China rose by 8.6% year-over-year in June, marking the largest gain since March 2023.

• The increase came in part due to getting orders out the door ahead of potential tariffs. Shipments to the U.S., the European Union and Japan increased.

• China’s growing trade surplus has worried other economies, resulting in additional tariffs in recent months, notably on electric cars.

• On the other hand, imports fell by 2.3% in June over the same month in the previous year, the third decline in the last five months.

• The significant drop in imports is concerning, suggesting weak domestic demand persists. This has weighed on China’s economy for several quarters.

• While the government has begun implementing measures to help boost domestic demand and the economy overall, demand is likely to remain relatively soft in the months ahead.