| Close
July 4 | Close
June 27 | Weekly
Change | Net Weekly
Change % |
DJIA | 44,371.51 | 44,828.53 | -457.02 | -1.02% |
Nasdaq | 20,585.53 | 20,601.10 | -15.57 | -0.08% |
S&P 500 | 6,259.75 | 6,279.35 | -19.60 | -0.31% |
| S&P TSX | 27,023.25 | 27,036.16 | -12.91 | -0.05% |
Source: Globe & Mail
Letters to the Forecast Editors
Robert Kavcic
BMO Senior Economist
He was at it again this week. President Trump sent out tariff letters to nearly two dozen countries, seeking more balanced and fair trade. But, the new levels were mostly little-changed from those laid out on ‘Liberation Day’, with deadlines pushed to August 1st. The interpretation for markets seems to be that this is yet more noise, and another kick of the can down the road to a later date. Indeed, while the letters were being handed out, both the S&P 500 and TSX were pushing new record highs, each now up more than 20% from their early-April lows with valuations rising.
After a period of apparent progress, Canada was in the crosshairs again after President Trump threatened 35% tariffs as of August 1st. That would be separate from any sectoral tariffs, while USMCA exemptions would reportedly still apply. This is still far from final, but it’s yet another concerning twist that prolongs the uncertainty on the trade file. Trump concluded by writing that, “if Canada works with me to stop the flow of Fentanyl, we will, perhaps, consider an adjustment to this letter”. There are seemingly two big takeaways from this. First, bilateral negotiations probably hit a rough patch, prompting the President to lean in harder. And, it’s looking less and less like the endgame here will be one without some sort of lasting tariff on Canada. The questions going forward then become: How much of a lasting tariff is priced in already? And, can the economies of Canada and other major U.S. trading partners absorb that through various channels and move on? Markets are betting that they can.
Back in the economy, the U.S. data flow was limited this week, and there’s still scant evidence of a major inflation impulse from tariffs already in place. One paper released by the Council of Economic Advisors (although not the most neutral source) noted the underperformance of PCE prices with high import content through May; that picks up on recent work by the Minneapolis Fed wondering if tariff impacts have been avoided, or simply delayed. Truth be told, we really haven’t seen a notable impact in the inflation data yet. After a few hot prints in January and February, core goods inflation has levelled off, leaving the year-over-year rate at just 0.3% (June data are out next week). Non-petroleum import prices have been warmer, but still contained at 1.8% y/y. If the inflation pass-through has not been avoided, it certainly seems delayed either by pre-loading inventories, and/or by some crafty administrative tariff dodging. The Minutes of the June FOMC meeting noted that “a couple of participants… would be open to considering a reduction in the target range for the policy rate as soon as the next meeting”. We judge that is too soon, but ultimately believe that growth softness will outweigh inflation firmness, and still-restrictive rates will warrant easing by the end of the summer. Both 10- and 2-year yields were little changed on the week.
The Bank of Canada is arguably in a more comfortable spot, with 225 bps of easing already bringing rates down to the middle of the Bank’s presumed neutral range. Above-target and accelerating recent core inflation momentum, along with a wave of fiscal stimulus, has complicated rate-cut prospects for July 30th. Doves were hanging onto building job-market slack, but a strong 83k employment gain in June cleaned up a lot of the damage done by a handful of recent poor reports. We still judge that business uncertainty, a lifeless real estate market and softer overall job market conditions will ultimately warrant rates closer to stimulative territory, but July is looking like another meeting on the sidelines—next week’s CPI report will be the final test.
While we’re on the subject, we’ll just remind Canadians that, despite all of the economic noise right now, levels of interest rates out there in the market today are actually very ‘normal’. Whether it’s the Bank of Canada’s policy rate, rates on GIC savings, or mortgage rates for new home purchases or renewals, what you see out there in the market now is probably what you can expect to get in a ‘neutral’ environment going forward. For savers, bond yields and GIC rates have backed off their highs, but are at least offering decently positive real returns. For borrowers, those waiting for sub-2% mortgage rates again are going to remain disappointed in our view.
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
Canadian inflation is expected to perk up in June, with challenging base effects driving much of the acceleration. We’re looking for prices to be up 0.2% in the month, lifting inflation to 2.0% y/y, right on the year-to-date average. Price pressures are expected to be driven by food and transportation. With respect to food prices, we are expecting to see some tariff pass-through as highlighted by some grocery chains. Fortunately, energy prices were tame, helping restrain the extent of the headline increase.
Core inflation looks to come in around +0.2%/+0.3%, which would lift the yearly rates about one tick (averaging ~3.1%). Following surprising strength in April, May saw a modest pullback, but the core metrics continue to run at levels inconsistent with the 2% target. The breadth of inflation worsened in May and will need to improve for the BoC to gain confidence that price pressures are easing. Following the huge June job gain, it will take an outsized move lower in underlying inflation for the BoC to even consider cutting in July.
Canada’s housing market appears to have firmed up in June, though the market remains broadly balanced at a national level. Regionally, we continue to see softness in affordability-challenged areas in Ontario and B.C., while Quebec and Atlantic Canada remain home to some of the tightest markets in the country. We expect national sales activity to be down 2.0% y/y, which could translate to a third straight monthly increase in seasonally adjusted terms. Average prices look to slip 1.0% y/y, while the quality-adjusted MLS HPI could remain 3.5% below year-ago levels. While the market is showing some signs of life, it will likely take additional rate cuts and/or more certainty in the economic outlook to kick start a more meaningful recovery.
YTD, the TSX up 9.28%, and the benchmark 10-year yield ended the week to yield 3.49%.
U.S. & Global
CPI inflation is expected to pick up in June following four consecutive months of relatively tame readings. Prices look to increase 0.3% in June following a modest 0.1% rise in May. From a year ago, the inflation rate is projected to rise to 2.6% from 2.4%. Declining gasoline and energy prices were a big part of the recent moderation in inflation, but that likely ended in June. Retail gasoline prices were basically flat last month, while crude oil prices jumped 10% on the worsening Middle East conflict. We also anticipate less relief from declining airfares, motor vehicle, and apparel prices than we saw in May. Goods prices could also start ticking up as tariff-related costs start to get passed along. Price pressures for manufacturers and services business remain high. The ISM Manufacturing Prices Index was even higher in June, rising slightly to 69.7. The ISM Services Prices Index moderated only a bit to 67.5.
Core inflation is forecast at a somewhat elevated 0.3% in June, up from 0.1% in May. The yearly rate is expected to increase to 2.9% from 2.8%. The pickup in monthly inflation will likely keep the Fed firmly on the sidelines at the next meeting.
YTD, the DJIA is up 4.30%, the NASDAQ is up 6.60%, and the S&P 500 is up 6.43%. The 10-year Treasury yield ended the week to yield 4.41%.
Source: BMO Capital Markets
The Good: Employment +83,100 (June)—third straight gain; Unemployment Rate fell 0.1 ppts to 6.9% (June); Average Hourly Wages +3.2% y/y (June); Building Permits +12.0% (May) Ivey Purchasing Managers Index +4.4 pts to 53.3 (June).
The Bad: No news is good news.
The Good: Global Supply Chain Pressure Index 0.0 (June); Initial Jobless Claims -5k to 227k (July) —7-week low.
The Bad: NFIB Small Business Optimism -0.2 pts to 98.6 (June); Continuing Claims +10k to 1,965k (June)—highest since late 2021; Consumer Credit slows to +$5.1 bln (May)—pullback in credit card balances.
Source: Canoe.com/Associated Press
Thousands celebrate baby hippo Moo Deng’s first birthday at a Thailand zoo
CHONBURI, Thailand (AP) — Thousands of excited fans flocked to a Thai zoo on Thursday to celebrate the first birthday of Moo Deng, the adorable baby pygmy hippo that has become a social media sensation.
The Khao Kheow Open Zoo was overrun with Moo Deng fans on the first of four days of activities marking the hippo’s birthday. Children under 12 years old can enter the zoo, about a two hour drive from the capital Bangkok, for free throughout the extravaganza.
Excited fans
Many of Moo Deng’s fans flew miles to see her.
Among them was Molly Swindall, who traveled from New York for the celebrations. She was seen handing a tray of food to a zoo keeper for Moo Deng’s breakfast, which the baby hippo and her mother Jona quickly devoured.
“I just loved her so much and decided, you know what, I have three or four days off of work,” said Swindall, “I can make it work to fly to Thailand. I will only be there for about 30 hours, but that’s enough to go see Moo Deng. And that’s exactly what I did.”
By Thursday afternoon, the number of visitors reached 12,000, zoo director Narongwit Chodchoy said. Despite the noise of visitors calling out for her attention, Moo Deng appeared peaceful as she took a dip in a pond in her enclosure.
Fans photographed the baby hippo with their cameras or cell phones and sang “Happy birthday” as her birthday cake, made of a variety of fruits and vegetables, was placed near the pond.
“Moo Deng is my happy pill, and she’s my energy pill, my curing pill. She’s my vitamin!” said Thea Chavez, who flew in from Houston, Texas.
Another fan, Jennifer Tang from Malaysia, leaned over the enclosure to take pictures.
“She makes me happy. Whenever I’m stressed at work I pull up photos of Moo Deng,” Tang said. “So my whole office knows that I’m here .... They let me take a week off.”
The zoo held online auctions to celebrate Moo Deng’s birthday, with photos, footprints and a food container on offer to raise funds for all the animals under their care.
They also held an auction for the honor of sponsoring her birthday cake, which went for 100,000 baht ($3,065.)
A star baby hippo
Moo Deng soared to stardom shortly after she was born, largely thanks to her keeper Atthapon Nundee who shared adorable pictures and videos of the baby hippo on social media. Atthapon keeps Moo Deng’s fans updated on fun hippo moments — how she squirms as he tries to wash her, bites him as he tries to play, or calmly closes her eyes as he rubs her belly.
The name Moo Deng, which literally means “bouncy pork” in Thai, was chosen by fans via a poll on social media. It matches the names of her other siblings: Moo Toon (stewed pork) and Moo Waan (sweet pork). There is also another hippo at the zoo named Kha Moo (stewed pork leg).
The zoo — which sits on 800 hectares (almost 2,000 acres) of land and is home to more than 2,000 animals — saw spikes of visitors since shortly after Moo Deng was born. But Narongwit said the number of visitors has somewhat dropped since the height of Moo Deng’s fame. He said the zoo has had about 2,000 visitors during a weekday and around 5,000 during weekends over the past few months — about half the numbers it saw at its peak.
“Moo Deng is a representative of all wild animals, and she helps everyone understand the roles of zoos,” Narongwit told The Associated Press. “She speaks for all nearly extinct animals, and turns people’s attention to their conservation.”
The zoo also runs breeder programs for many endangered species, including the pygmy hippopotamus. The species is native to West Africa, where it is threatened by poaching and loss of habitat. There are only 2,000 to 3,000 left in the wild.
