Today
Futures are pointing lower this morning as a rally in tech shows signs of slowing ahead of U.S. jobs data that may give more clues on the outlook for the Fed’s interest rate path. We are now at the halfway point of the year, with equity markets seeing strong gains YTD, thanks in part to the strength in the tech sector and data showing inflation moderating. Investors are now trying to determine if the strong start to the year can continue in the back half of the year, with bearish market observers concerned about poor breadth and political uncertainty signaling choppiness ahead.
Headline inflation in the euro area dipped to 2.5% in June, while core inflation, which excludes volatile items such as energy and food, held steady at 2.9%, narrowly missing the forecast of 2.8%. The rate of price increases in services remained unchanged at 4.1%. These figures were in line with economists’ expectations and follow the ECB’s initial 25 basis point rate cut in June. ECB officials indicated that the path to the 2% inflation target will be challenging, with no predetermined monetary policy path. Still, money markets expect another two 25 bp rate cuts this year. Those expectations come despite the stickiness in services inflation, rising wage growth, and falling unemployment.
Canada’s economy is slowing after a strong start in the second quarter, suggesting the BoC will continue cutting interest rates this year. Preliminary data shows a 0.1% GDP increase in May, driven by growth in manufacturing, real estate, and finance, offsetting declines in retail and wholesale trade. April saw a 0.3% expansion, pointing to an annualized 1.8% growth in Q2, slightly above Q1’s 1.7%. This modest growth, which is below potential, likely means further rises in unemployment and moderation in inflation. The BoC recently cut rates by 25 bps to 4.75% and is expected to hold rates steady at the July 24 meeting before potentially easing again in September. The economy’s below-potential growth, combined with ongoing cooling price pressures, supports this easing trend.
U.S. manufacturing contracted for the third consecutive month in June, with the ISM manufacturing PMI dropping to 48.5 from 48.7 in May, indicating ongoing contraction due to weak demand for goods and higher interest rates. Economists had expected a rise to 49.1, but manufacturing, which comprises 10.3% of the economy, is struggling. The Fed has kept its interest rates steady since last July, but financial markets anticipate a rate cut in September despite the Fed’s hawkish stance. The ISM survey showed subdued new orders and declining factory output, with the production sub-index falling to 48.5. Input prices dropped to a six-month low of 52.1, suggesting continued disinflation, while factory employment declined due to layoffs and hiring freezes. On top of that, the labour market has been cooling, with the U.S. government expected to report on Friday that nonfarm payrolls increased by 190,000 jobs in June after surging 272,000 in May.
The rise of 24-hour stock trading, driven by retail investor demand, is causing concern on Wall Street. Platforms like Robinhood and Interactive Brokers now offer round-the-clock trading, eliminating the traditional overnight break. This trend is gaining traction with retail traders who prefer trading at their convenience and reacting to global events in real-time. However, industry experts worry about the risks of illiquidity, price manipulation, and mental health impacts due to the relentless nature of a market that never sleeps. Regulatory bodies are considering measures to ensure market stability and protect against fraud, but practical challenges like trade clearing present obstacles to immediate widespread adoption. As this trend grows, experts are saying that it could further divert global capital into U.S. markets, potentially pressuring international equities.
China’s factory activity contracted for the second month in a row in June, with the official manufacturing PMI holding at 49.5, signaling ongoing economic weakness. The non-manufacturing PMI, which covers construction and services, also fell to 50.5 from 51.1 in May. This contraction reflects the uneven performance of China’s economy, struggling with a prolonged real estate crisis and weakened consumption. Additionally, trade tensions with Canada, the U.S., and EU, who are threatening tariffs on Chinese exports due to perceived unfair subsidies, further challenge China’s economic outlook.
The good old hocket game! In April, Canada’s economy saw a notable boost from the NHL playoffs, according to Stats Canada. The arts, entertainment, and recreation sector experienced a 0.9% increase, largely driven by spectator sports as four Canadian hockey teams made it to the NHL playoffs. This sector’s rise to $17.1 billion annualized marked its largest seasonally adjusted gain since last July, though it constitutes only 0.8% of Canada’s total economic output. This uplift highlights the significant economic impact of major sporting events on local economies. Maybe this will encourage a Canadian team to actually take home the cup next year…
The sauce for everyone? Heinz has launched a new condiment called “Every Sauce”, which combines 14 of its popular sauces into one unique offering. Unfortunately, the sauce is currently only available in the UK and more rare than some fine bottles of wine, with only 100 bottles available. Those looking to get their hands on this Holy Grail of sauce must complete a quiz on the Heinz website for a chance to win. The sauce is described as a blend of rich and herby Burger Sauce, creamy Truffle Mayo, and twelve other flavours including Garlic Sauce, Smokey Baconnaise, and Curry Ketchup. For those who don’t win, Heinz said that they will provide the recipe so fans can create their own batch at home.
Diversion: Those are some sharp credit cards.
