The Week in Review

Weekly Market Recap: U.S. and Canada

The TSX, Dow, Nasdaq & S&P 500 all climbed more than 1% for the week, extending their strong comeback following a rough start to August. Things looked a bit dicey on Thursday, but following Fed Chair Jerome Powell’s comments Friday, the markets reacted to what was heard as Powell’s positive tone.
(FYI, the top individual stock Gainers & Losers are listed later in this Newsletter.)

S&P 500 Returns | Week At-a-Glance

TSX Returns | Week At-a-Glance

Major Economic Stories This Week

Canadian Inflation Eases to 2.5%

Canada’s inflation rate dropped to 2.5% in July, the lowest since March 2021, and in line with analysts’ expectations. Declines in shelter costs and food prices contributed to the slowdown, reinforcing expectations for the Bank of Canada to maintain a dovish stance.

• Shelter inflation declines significantly.

• Core inflation measures lower than expected.

• Monthly CPI rose by 0.4%.

Powell All But Confirms September Rate Cut

Jerome Powell signaled a likely rate cut in the upcoming Federal Reserve meeting citing a cooling labor market and signs of slowing inflation. The Fed now sees a need to adjust monetary policy towards less restrictive conditions, and as the minutes from the last FOMC meeting show, many policymakers are backing the move.

• Powell indicates a probable rate cut in September.

• US labor market shows signs of cooling.

• Inflation is moving closer to the Fed's 2% target.

• Fed minutes reveal broad support for easing monetary policy.

US Payroll Growth Revised Down by 818,000, Weakening Labor Market Outlook

The US Labor Department revised down nonfarm payroll growth by 818,000 for the year ending March 2024, showing the job market is weaker than initially reported. This adjustment no doubt further supports the case for the Federal Reserve to lower interest rates soon. 

• Nonfarm payroll growth revised down by 818,000.

• Biggest revisions in professional services, leisure, and hospitality.

• Job creation still over 2 million despite revisions.

• Unemployment rate rises to 4.3%.

Key Takeaways From this Week’s Economic News

Canadian Inflation Eases to 2.5%

Canada's inflation dipping to 2.5% is a big deal because it aligns with the Bank of Canada's target range, and this gives the central bank more room to breathe. With core inflation also coming in lower than expected, it pretty much kills any realistic possibility of rate hikes for the foreseeable future. Also, this easing could stabilize consumer confidence and spending, which are vital for sustained economic growth.

Powell Hints at September Rate Cut

Jerome Powell’s signal that a rate cut are on the horizon reflects the Fed's growing confidence in inflation control and concerns over a cooling labor market. A rate cut will mark a definite shift in the Fed’s strategy, and will potentially boost business investment and consumer spending. However, it also raises questions about the underlying strength of the US economy if the labor market is softening more than expected. It’s a bit of doubled-edged sword.

US Payroll Revisions Highlight Labor Market Weakness

The sharp revision in US payroll numbers, particularly in sectors like professional services and manufacturing, paints a picture of a labor market that's not as robust as previously thought. This revision not only adds pressure on the Fed to lower rates but also suggests that the economic slowdown might be deeper than anticipated. If job creation continues to slow, we could see reduced consumer spending and further economic deceleration

THIS WEEK’S POLL QUESTION
(Results in Next Week’s Newsletter)

Comments of the Week

✅ TD Bank

“I still think TD is a good investment for long term. I've been DCA in my position. Once the fines/penalties are announced from the money laundering scandal, things can start moving forward and work its way back to normal. ” - christinejodointwins

❌ Royal Bank or Other

“TD Bank has not dropped significantly enough to be considered a recovery play in my mind. There are better banks without the drama and turmoil.” - maverick_83a

THE ECONOMY
Powell Signals Upcoming Interest Rate Cuts

• Powell indicates the Federal Reserve will soon lower interest rates.

• Inflation has largely subsided, approaching the Fed’s 2% target.

• A rate cut is expected in mid-September, possibly by a quarter-point.

• Economic growth and job market stability remain central to Fed policy.

Federal Reserve Chair Jerome Powell announced that the time has come for the Fed to start reducing its key interest rate, which currently stands at a 23-year high. Speaking at the annual economic conference in Jackson Hole, Powell highlighted that inflation has significantly decreased, with the rate now at 2.5%, close to the Fed's 2% target. The Fed's shift in focus from fighting inflation to sustaining economic growth and employment is a significant policy change. 

Anticipated Rate Cuts

While Powell didn’t specify the timing or size of the cuts, a quarter-point reduction is widely expected at the Fed’s mid-September meeting. This move would aim to support continued economic growth and a strong labor market, helping to achieve a "soft landing" where inflation stabilizes without triggering a recession.

Future Economic Considerations

Powell acknowledged concerns about the slowing job market but emphasized that the Fed will make data-driven decisions. He also reflected on the Fed's success in reducing inflation without causing a recession, noting that this outcome defied many economists' predictions.

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THE ECONOMY & THE BANK OF CANADAA
Canada's Inflation Rate Falls to 2.5% in July, Lowest in Over Three Years

• Canada's inflation rate dropped to 2.5% in July, the lowest since March 2021.

• Decreases in passenger vehicle prices and electricity costs contributed to the slowdown.

• Grocery prices continue to rise, with a 2.1% increase year over year.

• Experts predict further interest rate cuts by the Bank of Canada.

Canada's annual inflation rate fell to 2.5% in July, down from 2.7% in June, marking the slowest pace of inflation since March 2021. The decline is partly due to lower prices for travel-related expenses, such as airline tickets and accommodation, compared to last year's post-pandemic surge. Additionally, passenger vehicle prices and electricity costs also saw year-over-year decreases, helping to bring the inflation rate down.

Persistent Challenges Despite Slowdown

While the overall inflation rate has slowed, the cost of groceries and shelter continues to rise. Groceries saw a 2.1% increase, and shelter costs rose by 5.7%, with rent up 8.5% and mortgage interest 21% higher compared to last year. Economist David MacDonald noted that despite the slowdown, consumers are still feeling the pinch as prices remain elevated, reflecting the "base-effect," where past price increases continue to affect the current inflation rate.

Outlook for Interest Rates

So now that the inflation rate is easing, we can look for the Bank of Canada to continue cutting interest rates. The central bank has already lowered its key interest rate to 4.5% and is expected to announce another rate cut on September 4.

According to TD Bank Analyst James Orlando, the bank will almost certainly cut again as inflation risks diminish and the focus shifts to other economic concerns.

TRANSPORTATION
Teamsters Union Escalates Strike Action Against CN Rail Amid CPKC Dispute

• Teamsters union serves CN Rail with a 72-hour strike notice.

• The Canada Industrial Relations Board (CIRB) is now involved in the dispute.

• Ongoing work stoppage at CPKC continues to disrupt industries and commuter services.

• The economic impact could be significant, affecting various sectors

The Teamsters Canada Rail Conference served Canadian National Railway (CN) with a 72-hour strike notice, signaling a potential escalation in the ongoing labor dispute. This move comes shortly after the union had indicated it would pull back from picketing. The union, representing 6,500 members, stated that it remains willing to negotiate with CN to avoid further disruption.

 Legal Challenges and CIRB Involvement

The labor dispute has been referred to the Canada Industrial Relations Board (CIRB) by the federal Labour Minister, a decision the union is contesting. The Teamsters argue that the minister's actions infringe on their right to strike and are prepared to take legal action if necessary. CN, in turn, accused the union of aiming to "shut down the economy" rather than negotiate in good faith.

 Economic Impact and Broader Implications

The ongoing strike at Canadian Pacific Kansas City (CPKC), which began after both major rail companies locked out workers, has already started to impact the transportation of goods across Canada. Industries such as agriculture, automotive, and retail are feeling the strain, and commuter services in major cities have been disrupted. The union's increased pressure, coupled with mounting concerns from industry groups, increases the potential for significant economic fallout if they don’t get a resolution to this dispute in short order.

AVAIATION
Air Canada Pilots Approve Strike Mandate with Overwhelming Support

• Air Canada pilots vote 98% in favor of strike mandate.

• Potential strike could commence as early as September 17.

• Key issues include wages and scheduling disputes.

• Union highlights compensation differences with U.S. counterparts

Air Canada pilots have overwhelmingly voted to approve a strike mandate, with an impressive 98% in support. This decision puts the pilots in a position to walk off the job as soon as September 17, following the completion of ongoing negotiations and a mandated 21-day cooling-off period. The Air Line Pilots Association, representing over 5,400 pilots, emphasized that this vote sends "a clear message to management" about their readiness to take action for a better deal.

Sticking Points: Wages and Scheduling

Union leader Charlene Hudy says that the current collective agreement feels "stale" and outdated, with elements dating back to after Air Canada's 2003 bankruptcy. One of the main grievances is the disparity in compensation compared to U.S. pilots.

She stressed the importance of fair and honest bargaining, highlighting that while some areas have seen consensus, wages and scheduling remain contentious issues.

Looking Ahead: Negotiations and Potential Impact

As negotiations wrap up this Monday, both sides face a 21-day cooling-off period before any strike can officially begin. Arielle Meloul-Wechsler, Air Canada's chief human resources officer, mentioned that many articles of the collective agreement have been agreed upon, but acknowledged the necessity to "refresh that agreement" after a decade-long contract.

The outcome of these negotiations will obviously have a huge impact not only the pilots and the airlines, but will also disrupt passengers with existing or future travel plans, and the broader aviation industry overall.

OTHER NEWS FROM THE PAST WEEK

Couche-Tard Makes Bold Bid for 7-Eleven Operator

Canada's Alimentation Couche-Tard Inc. is making a move to dominate the global convenience store market with a preliminary bid to acquire Japan's Seven & i Holdings Co. Ltd., the owner of 7-Eleven. If successful, this acquisition would create a retail giant with significant market share, but the deal faces potential regulatory hurdles and complexities, especially in Japan. Couche-Tard also announced a separate acquisition of 270 GetGo outlets in the U.S., further expanding its reach.

Canada’s Productivity Crisis May Demand Structural Overhaul

Canada's productivity struggles are reaching critical levels, with TD Bank's chief economist, Beata Caranci, warning that structural changes may be necessary to address the issue. As productivity continues to lag, particularly in the construction sector, the risk of these inefficiencies becoming entrenched in the economy grows. Caranci's report underscores the urgency for policymakers to act, as prolonged productivity declines threaten living standards and economic growth.

Skip the Dishes Lays Off Hundreds Amid Restructuring

Skip the Dishes and its parent company, Just Eat Takeaway.com, are laying off about 800 Canadian employees in a major workforce reduction. The layoffs include around 100 Skip the Dishes workers and 700 operations employees, as the company seeks to streamline operations for sustainable growth. This move comes as the food delivery industry faces post-pandemic challenges, including inflation and higher interest rates. This could signal broader issues within the industry, potentially leading to more layoffs in similar organizations.

And, to wrap things up for this week….

Mornings Determine the Fate of Your Day

Is your day doomed by 8:36 a.m.? A recent survey reveals that many Americans can tell by that early hour if they're in for a bad day, with common morning mishaps like waking up sick or losing keys leading the charge. In fact, nearly half admit to canceling plans or calling out of work when their morning starts off on the wrong foot. Check out the surprising triggers for these bad days and learn how prioritizing sleep and self-care might just save your day from disaster.

Market Movers

Top 10 Weekly Gainers

Top 10 Weekly Losers

10 Most Overbought Stocks

10 Most Oversold Stocks

The Relative Strength Indicator (RSI) can provide a signal that suggest a stock is either overbought or oversold.
📈A stock that has an RSI over 70 is considered to be in “overbought” territory. This might suggest that the stock is due for a pullback, however it is not a recommendation to sell.
📉A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

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