The consumer price index rose 0.2% m/m

Week in review

CANADA: Employment rose 54K in July according to the Labour Force survey thanks to an 82K surge in part-time jobs that more than made up for a 28K decline in the full-time segment. Jobs in the public sector jumped by no less than 49.6K while gains in private employment were more subdued (+5K). Meanwhile, self-employment edged down 1K. On a regional basis, employment was up in Ontario (+61K) and British Columbia (+11K) while Quebec (-8K) and Alberta (-4K) experienced declines. The participation rate slid one tick countrywide to 65.4%, a development that contributed in a two-tick decrease of the unemployment rate to 5.8%. Though headline job gains were impressive, the details of the report were less encouraging. Even accounting for July's small improvement, private employment remains down 43K in the first seven months of the year, the worst showing for that time period since 2009. Turning to wages, hourly earnings (seasonally adjusted by NBF) declined 0.3% m/m in July, the biggest drop since 2016, and were up a paltry 3.2% y/y, four ticks less than in the prior month.

Housing starts fell to an annualized rate of 206.3K units in July from an unsustainable 246.2K pace in June. Urban starts fell 36.6K to 190.1K, with declines registered in both the singles segment (-2.0K to 53.9K) and the multis category (-34.6K to 136.2K). Rural starts, meanwhile, retreated 3.3K to 16.2K. At the provincial level, urban starts retraced significantly in both Ontario (-35.0K to 65.7K) and Quebec (-15.1K to 33.9K). These drops were only partially compensated for by healthy increases in British Columbia (+8.2K to 42.6K) and the Prairies (+6.3K to 39.4K). Looking at the quarterly picture, starts countrywide are on track to shrink an annualized 21.8% in Q3 after having pulled back already in Q1 and Q2. This performance could translate into a negative contribution to growth from residential construction in the third quarter of 2018.

In June, the value of building permit applications slid 2.3% m/m to C$8.1 billion in seasonally adjusted terms. The retreat was caused by a 5.7% drop in construction intentions in the residential segment. Permit applications in the nonresidential sector, meanwhile, advanced 4.6%. The value of residential permits receded for both singles (-2.9%) and multis (-8.0%). On a 12-month basis, the value of building permits fell 5.6% in Canada as a whole, its sharpest yearly drop since June 2016.

UNITED STATES: The consumer price index rose 0.2% m/m, matching consensus expectations. Energy prices fell 0.5% while food costs edged up 0.1%. Excluding these two categories, core CPI also advanced 0.2% as prices for exenergy services and ex-energy commodities progressed 0.3% and 0.1% respectively. Within core services, notable increases were registered for shelter (+0.3%), education (+0.4%) and transportation (+0.5%), the latter boosted by a 2.7% spike in the airline fares subsegment. Among core goods, a 1.3% rise in the price of used vehicles was partially offset by a 1.1% drop in the medical care segment. On a year-on-year basis, the headline inflation gauge stayed put at a six-and-a-halfyear high of 2.9%, while the core measure increased one tick to 2.4%, the highest print since 2008. Pressure on core prices continues to stem mainly from services; CPI for that category is now up 3.1% y/y, the most since September 2016. Alternatively, prices for core goods are unchanged from a year ago. Considering the recent appreciation of the USD – the latter is up roughly 6% on a trade-weighted basis since mid- April – we don't see goods prices surging anytime soon.

Still in July, the producer price index (PPI) for final demand stayed level month on month after rising 0.3% in June. Though a 0.5% drop in energy prices did weigh on the overall figure, prices were still up only 0.1% m/m when this category is excluded, which is less than what had been anticipated by consensus. Prices for goods edged up 0.1% in July and were up 4.5% on an annual basis, their steepest 12-month advance since December 2011. Prices for services, on the other hand, dipped 0.1%, their first monthly drop this year. Year over year, the headline and the core PPI came in at 3.3% and 2.7%, respectively, both down a tick from June.

According to the Job Openings and Labor Turnover Survey (JOLTS), positions waiting to be filled in the United States totaled 6,662K in June, up slightly from 6,659K in May but still short of the all-time high of 6,840K reached in April. Despite the increase, the ratio of job openings to unemployed persons slipped from a record 1.10 to 1.01 (it peaked at only 0.70 before the recession). This was due to a 500K spike in the number of people looking for a job in the month, a good sign for the labour market as it resulted from a two-tick increase in the participation rate. Also, hiring retreated in the month, from 5,747K to a still-elevated 5,651K. Moreover, the report showed that the quit rate (quits as a percentage of total employment) stayed put at a cyclical high of 2.3%, suggesting that workers were still confident about their job prospects. Given that job switchers tend to see their compensation rise at a faster pace than job stayers do, the trend in quits could translate into faster wage growth.

WORLD: In Japan, real GDP rose 1.9% in annualized terms in Q2 following a lackluster -0.9% print the previous quarter. The increase was driven primarily by private consumption and business investment, which added 1.5pp and 0.8pp, respectively, to the headline figure. Trade, on the other hand, acted as a drag, chopping 0.5pp from growth as exports advanced at a much slower pace than imports. The second quarter's growth figure came in well above estimates for potential, a fact that should encourage Japan's central bank as it desperately seeks to bring inflation back towards its 2% target.

China's foreing exchange reserves unexpectedly edged up $5.82 billion in July to $3,118 billion. Before the release, there had been speculation that China might have tapped into its reserves in order to support the renminbi, which has lost nearly 8% of its value against the U.S. dollar since early March. Back in 2015-16, China burned through no less than $1 trillion worth of reserves in order to prop up its currency. This time around, with reserves barely above the psychological mark of $3 trillion, authorities seem to have opted for alternative measures instead. Last week, China's central bank imposed a 20% reserve requirement on banks that sell U.S. dollars using currency forwards, thereby effectively raising the cost of shorting the Chinese currency. That said, a more direct intervention on the currency market is always a possibility if the renminbi continues to slide.

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