Despite a good start to the week, markets started to show some weakness on Thursday. Overall though we are ahead in both equity and bond markets. The Canadian dollar is stronger, and gold hit an all-time high on Tuesday.
| Index | Close Aug 15th 2024 | Close Aug 22nd 2024 |
| S&P500 | 5,546 | 5,576 |
| TSX60 | 23,033 | 23,037 |
| Canada 10 yr. Bond Yield | 3.10% | 3.09% |
| US 10 yr. Treasury Yield | 3.92% | 3.87% |
| USD/CAD | $1.37302 | $1.35996 |
| Brent Crude | $80.91 | $77.06 |
| Gold | $2,455 | $2,484 |
| Bitcoin | $57,542 | $60,336 |
Source: Trading Economics & Factset
Canada’s inflation rate dropped to its lowest level in over 3 years in July to 2.5%. The continuing disinflation will give the Bank of Canada more reason to cut rates again on September 4th. The falling rates are also starting to have a modest effect on housing affordability as mortgage rates also come down. Rates are just one piece of the housing puzzle though and it will take a combination of increased supply, lower construction and/or regulatory costs, and lower prices to make a sustained difference.
In the US a major revision to the employment statistics has buoyed hopes for a September rate cut. The Bureau of Labor Statistics (BLS) revised its jobs creation number lower by 818,000 jobs, the largest downward revision in 15 years. Goldman Sachs disputed the revision saying that it overstated the number by as much as 400,000 to 600,000. GS’ argument is that it does not include immigrants lacking legal status that have been a large contributor to the job market. To be fair, there is a lot of noise and ambiguity in the employment numbers as the various estimates come from very different data sources. There does not seem to be one book of truth. That said, pay attention to the overall trend and put aside the absolute number.
The US dollar has been weaker against most currencies as traders anticipate rate cuts in the fall. The latest jobs revisions are playing into the sentiment. Markets are currently giving a 25% probability of a 50-bps rate cut and 75% probability of a 25-bps cut.
Jackson Hole Wyoming is hosting its annual symposium of central bankers this week. While most of the talk will be very wonkish, investors will be paying close attention to Jerome Powell’s speech Friday morning. While Powell will choose his words carefully, the gathering has moved the markets in the past.
A shut down of rail service has been narrowly avoided this week. Both Canadian National (CN) and Canadian Pacific Kansas City (CPKC) locked out their employees Thursday morning. The Federal government has now ordered an end to the lockout and sent the companies and Union to binding arbitration. All parties remained far apart in their demands, most of which centered around working conditions and safety.
Staying on the topic of rail in Canada, Air Canada has joined a consortium with France’s SNCF Voyageurs vying to build and operated a fast train service between Windsor ON and Quebec City. Some are worried about a conflict of interest and how committed an airline can be to a rail project. As an occasional user of Via Rail between Toronto and Montreal, I don’t care who builds a modern service in the Windsor-Quebec corridor, just do it. The current trip is pleasant, the cars are clean and service very good. It is just very slow as the passenger service takes second place to freight. It will be a multi-billion-dollar project that will take decades to complete though.
Air Canada is also facing down a potential strike by its pilots. Pilots voted 98% in favour of strike action. Pay, retirement benefits and “quality of life issues” are all on the table. The pilots will be in a position to walk off the job in mid- September. If you are flying around that time, maybe take the train 😉
With all this talk about railways, we’ll leave you with this timeless classic from Gordon Lightfoot… enjoy.
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
