Market Forecast

  • Jul23

    Market Update

     

    The latest flurry of economic data appears to give the Bank of Canada the footing it needs to stand firm on interest rates.

    Core inflation came in at 2.1% in May.  That is the highest rate since 2012.  The central bank prefers the core reading, which strips out volatile items like food and fuel, which were both the big influencers in May. 

    Canada’s retail sales numbers are generally deemed to be good.  Although the April increase of just 0.1% is virtually flat, the underlying data shows that 7 of 11 sectors experienced increases.  The big losers were businesses that were adversely affected by this spring’s bad weather.

    Job creation set another record in May, adding nearly 28,000 jobs and pushing the unemployment rate to 5.4% -- a 43 year low.

    The big uncertainty, now, is the United States where there is a growing consensus that the Federal Reserve is leaning toward an interest rate cut.  The U.S. central bank left its rate unchanged last week, and data from the governors suggests they have no desire for a cut, but markets and futures traders are convinced it will happen in July.  Fed chair, Jerome Powell, has not ruled out a cut if it is needed.

    With rates where they are: 1.75% here and 2.25% to 2.50% there, neither central bank has much room for rate reductions.  There are serious doubts that small or token cuts will spur businesses or consumers to spend more or take-on more debt.