Making sense of the markets this week: August 18, 2024

US to lower rates—in the end

After much speculation about when the US will finally start cutting its interest rates, the CME FedWatch tool reports a 100% chance that the US Federal Reserve will cut its rates in September. Market watchers are very optimistic, with a 36% chance that the US Fed will move towards a 0.50% rate cut instead of a rate cut. And looking ahead, the futures market predicts a 100% chance of a 0.75% rate cut in December of this year, and a 32% chance of a 1.25% rate cut. Forecasts got stronger this week as the annual rate of inflation in the US fell to 2.9%, its lowest rate since March 2021. There are a lot of percentages here, but the bottom line is that people are expecting a big interest rate cut.

Those opportunities should take some of the currency pressure off the Bank of Canada (BoC) when it makes its next interest rate decision on September 4. If the BoC were to continue cutting rates at a faster pace than the US Fed, Canada. the dollar will depreciate significantly and foreign led inflation can be a problem.

Here are some highlights from the US Department of Labor's CPI report for July:

• Core CPI (excluding food and energy) rose at an annualized rate of inflation of 3.2%.
• Housing costs rose by 0.4% in one month and accounted for a 90% increase in inflation.
• Food prices rose 0.2% from June to July.
• Electricity prices were low from June to July.
• Health care services and clothing actually decreased by 0.3% and -0.4% respectively.

Combined with the small jobs report for July, it is clear that inflationary pressures led by US consumers are easing. As the US lowers interest rates and mortgage costs fall, it is likely that housing costs (the last leg of strong inflation) will also fall.

Walmart: “It's not showing a recession”

Despite slowing US consumer spending, major retailers Home Depot and Walmart continue to book strong profits.

While Home Depot posted a strong earnings beat on Wednesday, forward guidance was tepid, resulting in a 1.60% gain for the day. Walmart, on the other hand, knocked the ball out of the park and raised the bar ahead and posted a 6.58% gain on Thursday.

Walmart Chief Financial Officer John David Rainey told CNBC, “In this area, it's either responsible or prudent to be a little cautious in outlook, but we're not showing a recession.” He continued, “We see, among our members and customers, that they are always choosing, understanding, looking for value, focusing on things like important things rather than things they can choose, but importantly, we don't see any more consumer fraud. life.”

Walmart US same-store sales were up 4.2% year over year, while e-commerce sales were up 22%. The retailer highlighted the introduction of the Bettergoods grocery brand as a way to capitalize on the trend towards cheaper options for eating at home, and away from fast food.