Weekly economic and financial commentary: Wake me up when September ends

Summary

United States: Economic resilience or reticence?

• The U.S. economy defied expectations in the second quarter, expanding at a 2.8% annualized pace. Despite the upside surprise, we still see enough softening in inflation and signs of stress to warrant a rate cut in September.

• Next week: ECI (Wed.), ISM Manuf. (Thu.), Employment (Fri.)

International: Bank of Canada doubles down on monetary easing

• The Bank of Canada (BoC) cut its policy rate 25 bps to 4.50% this week, following on from its initial rate cut in June. The accompanying statement was dovish in tone, suggesting that further rate cuts will be forthcoming in the months ahead. This week's sentiment surveys for July showed a strengthening in the U.K. manufacturing and services PMIs, but a moderate softening in the Eurozone PMIs.

• Next week: Eurozone CPI (Wed.), BoJ Policy Announcement (Thu.), BoE Policy Rate (Thu.)

Interest rate watch: Wake me up when September ends

• The only change we expect out of next week's monetary policy meeting is for the FOMC to signal rate cuts are coming as early as its next meeting in September. Inflation progress resumed in Q2, and the labor market is softening—both developments position for Fed easing.

Credit market insights: Small businesses are feeling the pinch

• The NFIB Small Business Optimism Index remains lower than its historical average even at its highest level this year. With tight credit standards and high interest rate loans, we forecast some modest relief may only be from the Fed later this year.

Topic of the week: U.S. presidential election update

• The U.S presidential election took yet another historic turn this week, when President Biden announced that he will not seek re-election this November and subsequently endorsed Vice President Kamala Harris. While it is hard to say anything with certainty, it strikes us as likely a potential Harris administration, should it come to pass, would support many of the same economic policy positions of the current Biden administration.

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