Understanding the markets this week: August 18, 2024

The US will lower rates of interest –

After much speculation about when the US will finally start lowering its rates of interest, the CME FedWatch tool reports a 100% probability that the US Federal Reserve will cut its rates of interest in September. Market watchers are quite confident, as there’s a 36% probability that the US Federal Reserve will go straight to a 0.50% cut somewhat than pushing the rate of interest down. And looking ahead, the futures market is forecasting a 100% probability of a 0.75% rate cut by December of this yr, with a 32% probability of a 1.25% rate cut. The forecasts got stronger this week because the annualized inflation rate within the US edged as much as 2.9%the bottom rate of interest since March 2021. There are a number of percentages involved here, however the core idea is that individuals predict big rate cuts.

These probabilities should ease a number of the currency pressure on the Bank of Canada (BoC) when it makes its next rate of interest decision on September 4. If the BoC continues to chop rates of interest faster than the US Federal Reserve, the Canadian dollar would lose significant value and import-led inflation would likely change into an issue.

Here are a number of the key takeaways from the U.S. Department of Labor’s Consumer Price Index report for July:

• The core CPI (excluding food and energy) rose at an annualized inflation rate of three.2%.
• Accommodation costs rose 0.4% in a month and accounted for 90% of the rise in overall inflation.
• Food prices rose by 0.2 percent from June to July.
• From June to July, energy prices remained unchanged.
• Medical services and clothing even saw a decline of 0.3 percent and -0.4 percent respectively.

In combination with the Poor employment report for Julyit is kind of clear that inflationary pressures attributable to US consumers are easing. As the US cuts rates of interest and mortgage costs fall, it is kind of likely that housing costs (the last leg of strong inflation) could also fall.

Walmart: “No recession planned”

Despite falling U.S. consumer spending, major retailers Home Depot and Walmart proceed to report solid profits.

While Home Depot beat its earnings forecast by a large margin on Wednesday, the forecast was modest, leading to a every day gain of 1.60%. Walmart, then again, beat all expectations, raised its forecast and posted a gain of 6.58% on Thursday.

Walmart CFO John David Rainey to CNBC“In this environment, it’s responsible or wise to be a little cautious about the outlook, but we’re not predicting a recession.” He added: “What we see from our members and customers is that they continue to be picky, demanding and price-conscious, focusing on things like essentials rather than luxury items. But importantly, we don’t see any further deterioration in consumer health.”

Walmart US store sales rose 4.2% yr over yr and e-commerce sales rose 22%. The mega-retailer highlighted that the launch of the Bettergoods grocery brand was a strategy to monetize the trend toward cheaper options for eating at home and away from fast food.