September 16, 2022Money Education Financial literacy Economy Good reads Professionals Commentary In the news News Trending Weekly update Weekly commentary
What's Happening Today - September 16
Once more into that period of uncertainty ahead of a rate hike decision. This time we’re waiting on the Fed to announce what size hike the U.S. will see, and 50 bps is out the window based on the recent CPI print. Now the wagers are on a 75 bps increase with some suggesting they may go to 100 bps. Either way, it’s the waiting that’s the hard part, which is one of the many reasons markets turned negative again this week.
Here in Canada, there’s not a lot on the docket. Housing starts decreased by 3.0% in August, which makes it six months in a row that housing has gone down. This should come as no surprise as Canada is well known for an outsized exposure to the real estate markets, and the Bank of Canada rate hikes have definitely hit this sector the hardest. This is also the reason we probably won’t see the terminal rate for Canadian interest rates go as high as those in the U.S..
Speaking of the States, a little good news on the rail bargaining front. The risks of a U.S. rail strike, impacting the flow of goods, and compromising U.S. supply chains, appeared to be an additional existential risk. Any restrictions on the flow of goods risked pushing prices higher. Indeed any disruption in freight rail services would be potentially catastrophic for manufacturers, retailers and food producers, potentially adding another layer of inflationary pressures for the Fed to fret about. Ahead of today’s deadline, it appears that U.S. rail companies and unions representing some 100,000 workers may have come to an agreement. The railroads and the workers’ union have been trying to negotiate a new employment contract for nearly three years.
European indices remain in negative territory as investors focus on high inflation with more warning signs pointing to a global economic slowdown. Eurozone inflation hit a record high of 9.1% in August, driven by higher energy and food prices. In war related news, Germany placed three refineries owned by the Russian company Rosneft Germany under “trusteeship”. This helps to shore up fuel resources for Germany moving into winter, and places additional economic pressure on Russia.
Over in the United Kingdom, more signs of trouble brewing in the real economy as retail sales underwhelms. Headline sales were down 1.6% month-over-month compared to street’s call for a 0.5% decline. British retail sales falling more than expected is a sign that the economy is sliding into recession as the cost of living squeezes households.
Asian markets closed lower as investors continued to worry about a global economic slowdown amid rising interest rates. China’s data showed growth accelerated in August as retail sales increased 5.4% versus 3.5% forecast, and industrial production grew 4.2% versus 3.8% expected. President Xi’s first trip outside of China for more than two years comes as he participates in the Shanghai Cooperation Organization meeting in Uzbekistan. The trip witnesses the Chinese leader meeting President Putin. The last time the two leaders sat down, at the Winter Olympics in Beijing, they declared a “new era” in international relations, remember they met several weeks ahead of the Russian invasion of Ukraine. However, since that meeting, following which they declared a friendship with “no limits,” the political environment has changed while the broad macro backdrop has diminished. In terms of the latter the actions of Putin threaten to compromise his own gas industry, while real estate concerns continue to drag on Chinese macro sentiment. Putin will be hoping that China will continue to sound supportive. Remember Chinese relations with the west have proved to be compromised of late in large part due to issues relating to Taiwan. Nevertheless, we would not expect China to respond favorably to any Russian calls for either military assistance or financial support.
Oil prices edged higher on fears of sharp interest rate hikes that would harm global growth and hit fuel demand.
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