Meantime, the TSX added 0.8% on the week, with most sectors posting gains. Consumer discretionary lagged, down 3%, as a stark warning from Canadian Tire on the state of the consumer sounded less soft in the landing department north of the border. While the S&P 500 has jumped 8% in the last three months, the TSX has been just about flat.
Inflation data were front and centre this week in what was an otherwise quiet one for economic releases. U.S. headline inflation accelerated to 3.2% y/y in July from 3.0% y/y in the prior month, but challenging base effects played a large role in driving the uptick. Core inflation was much better behaved, with the headline rate slowing to 4.7% y/y from 4.9% y/y in the prior month, and rising at an even more benign 3.1% annualized clip over the latest three months. In fact, the latest two months saw month-to-month core inflation rise at less than 2% annualized, a sudden return back into the Fed’s comfort zone. Even the ‘supercore’ measure that the Fed is zeroed in on (core services excluding housing) is running at less than 2% annualized over the latest three months. While wage pressure is still strong and gas prices could be a nuisance, there’s a lot for the Fed to like—we see them on hold for the rest of the year.
Treasury yields, however, didn't catch much relief from the soft inflation print, and have held high after sharp upward moves in recent weeks. Rate sensitives continue to struggle, while that backdrop makes equity valuations look a bit rich.