At the close of business last Friday, global equities were modestly lower on the week, ending four straight weeks of advances. The yield on the US 10-year Treasury note rose ten basis points to 2.95% on the week and the price of a barrel of West Texas Intermediate crude oil fell to $88.50 from $92 a week ago. Volatility, as measured by the Cboe Volatility Index (VIX), rose to 20.7 from 19.2.
At a time of year when natural gas prices are typically near seasonal lows, record-high prices in Canada, the US, and Europe portend continued elevated prices as winter approaches, setting the stage for a “stagflationary” environment.
CANADIAN ECONOMIC NEWS
Canada’s consumer price index eased to 7.6% year over year in July from 8.1% in June, but core inflation rose to 5.5%. Employers are offering bonuses to hire workers as they can’t find people to fill job vacancies. Wage demands are keeping pressure on the Bank of Canada to continue its aggressive tightening policy. This leads to higher borrowing costs for both businesses and consumers. We think employers are likely to use more technology where possible to replace workers going forward.
US ECONOMIC NEWS
Fed minutes a mixed bag
The minutes of the July FOMC meeting provided investors with little clarity on when and where the US Federal Reserve will halt its tightening cycle, nor did they indicate that a potential dovish pivot from the central bank is in the offing. Policymakers said that ongoing rate hikes remain appropriate and that moving to a restrictive policy stance will be required. Officials also noted that a slower pace of hikes will become appropriate at some point and many feared that the Fed could tighten more than necessary. The markets await Fed Chair Jerome Powell’s address at the annual Jackson Hole Symposium next Friday for updated views. Our view is that we are likely to see a 50 basis point increase in both Canada and the US in September as inflation pressure continues to ease.
Here is an interesting point: A PwC survey found that half of the companies surveyed in the US are planning layoffs and that 52% have implemented hiring freezes. Employees demanding higher wages is a key reason inflation continues to be a problem. Employers are now using more technology and robots to replace workers and we expect this trend to continue.
EUROPEAN ECONOMIC NEWS
Surging inflation sends UK confidence lower
Amid signs of impending recession and a forty-year high in the cost of living, consumer confidence in the United Kingdom fell to a record low of minus 44 in August. Retail sales remain muted, though they were boosted in July by a two-day sales promotion by an online retailer. Stripping out those sales, volume was down for a third straight month in July. A survey by Bloomberg showed that UK economists see a 75% chance of a recession within the next twelve months, up from 44% odds in the prior survey. The darkening mood comes as inflation reached 10.1% for the first time since 1982. One bright note this week was a solid UK employment report, with the unemployment rate holding steady at 3.8%, though real wages continue to be undermined by surging inflation.
In July, German producer prices rose a record 37.2% compared with a year ago, led by a surge in energy prices. Amid fears of exceptionally tight energy supplies this winter, the Wall Street Journal reported Germany will keep its three remaining nuclear power plants operational longer than previously planned.
JAPAN, CHINA, and EMERGING MARKETS ECONOMIC NEWS
China cuts rates to counter slower growth
The People’s Bank of China unexpectedly cut the rate on its Medium-term Lending Facility to 2.75% on Monday amid a massive slump in residential property sales. This past week, China also reported that industrial production, retail sales, and fixed asset investment were all weaker than expected in July. This coming week, the PBOC is expected to trim the rate on its loan prime rate, the benchmark lending rate for loans to companies. Disruptions from COVID-19 remain a drag on China’s economy with case counts jumping to a three-month high this past week.
Above all, I want my clients to feel confident, and I want them to feel safe. Part of achieving those things in any relationship is knowing exactly who you’re dealing with. You need to know someone’s character, their values, and why you can believe partnering with them will bring great benefit to your life.
That’s why, when we rebranded to Dream Harbour Wealth Advisors, we shot some short video bios to remind our clients of exactly who we are—and to introduce ourselves to our clients of the future.
In case you missed it, here’s my full-length bio: https://www.youtube.com/watch?v=NxKPYrelcYI
I encourage you to explore the rest of our YouTube channel, to help remind you that #HereYourDreamsAreSafe, always.