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America: The calm before the storm
- This week has been a lighter calendar for economic data. The ISM services index fell to 50.8, indicating that the services sector may be losing momentum. The unexpected surge in unemployment claims is a sign of cracks in the labor market. Rising mortgage rates appear to be hampering a recovery in the housing market. Mortgage purchase applications have now fallen for the fourth week in a row. Net exports are starting to have a significant impact on Q2 real GDP growth.
- Next Week: CPI (Tuesday), Retail Sales (Thursday), Industrial Production (Thursday)
International: hawk hike by Bank of Canada and Reserve Bank of Australia
- Bank of Canada policymakers surprised market participants this week by raising the policy rate by 25bps to 4.75%, coming out of a moratorium. The central bank said monetary policy was not restrictive enough to rebalance supply and demand and bring inflation back on target sustainably. Elsewhere, the Reserve Bank of Australia also hiked rates by 25bps at its June meeting, bringing the cash rate to 4.10%. This matched our expectations, but came as a surprise to many market participants. Like the Bank of Canada, the language of the monetary policy announcement is hawkish in nature, and it is believed that further monetary tightening is imminent.
- Next Week: European Central Bank (Thursday), China Activity Data (Thursday), Bank of Japan (Friday)
Interest Rate Watch: Fed Considers Possibility of Suspension at Next Week’s Meeting
- I think the most likely outcome at next week’s meeting is for the FOMC to keep its policy rate unchanged, but make it clear at its July 26th meeting that another rate hike is still a possibility.
Credit Market Insights: Student Loan Forgiveness Decision Approaching
- The U.S. Supreme Court is set to rule on President Biden’s plan to forgive student loan debt in the coming weeks. But regardless of the ruling, the end of the three-year suspension of payments is looming at the end of August, which could prove a headwind for some households.
