Are U.S. rate cuts on the way?
While Canada’s inflation rate is obviously at the forefront around decision making for the Bank of Canada (BoC) in setting the key interest rate, inflation below the border is also a major consideration. Arguably, policymakers are loath to devalue the Canadian dollar beyond a certain level. Consequently, if U.S. inflation stays high—and U.S. interest rates correspondingly stay high—it will likely impact just how quickly the BoC can cut our interest rates.
“The Canadian and American economies are very closely intertwined, especially when it comes to the cost of borrowing. Historically the BoC and the Fed have mirrored each other in terms of monetary policy (the act of cutting, holding, or hiking their benchmark interest rates).”
—Penelope Graham, mortgage expert
Markets were mostly flat on Thursday after the U.S. Bureau of Labor Statistics announced that headline CPI was down 0.1% from May, and the 12-month inflation reading was now 3%.
U.S. inflation highlights
The CPI report included the following details:
- Core CPI (excluding food and energy) increased 0.1% and up 3.3% from a year ago.
- Gas prices were down 3.8%.
- Food prices were up 0.2%.
- Shelter prices were up 0.2%.
- Used vehicles prices were down 1.5%.
- Real hour earnings were up 0.4% for the month.
Overall, the down-trending inflation rate, as well as Fed Chairman Jerome Powell’s comments about holding interest rates too high for too long this week, both seem to indicate a probable rate cut in September. CME Group’s FedWatch tracker uses futures contracts to predict the likelihood of interest rate movements, and it currently shows a strong likelihood of two interest rate cuts before the end of 2024. There is even a 40% probability of three cuts before year end.
Obviously this is welcome news to indebted Americans, but also to Canadian consumers who want to see interest rates come down here sooner rather than later.
—Kyle Prevost
Pepsi’s revenues taste flat
Beverage-and-snack behemoth PepsiCo released lukewarm earnings news on Thursday. For those who aren’t familiar with Pepsi’s corporate structure, it long ago ceased to be a single-beverage entity. With brands ranging from numerous snack and soft drink choice to breakfast cereals, Pepsi is a diversified food conglomerate, including FritoLay and Quaker.
Pepsi earnings highlights
All figures in U.S. dollars.
- PepsiCo (PEP/NASDAQ): Earnings per share came in at $2.28 (versus $2.16 predicted) on revenues of $22.50 billion (versus $22.57 billion predicted). Shares were down nearly 2% in early trading on Thursday.
The company cited a declining demand in North America as the main factor in slowing revenue growth. Company executives explained that North American consumers were becoming more price conscious after failing to “push back” on significant price increases over the last few years. Low-income shoppers were highlighted as being the most willing consumer group to shift to cheaper private-label options. As well, increasing agricultural commodity costs were cited as an increasing operating expense. It’s worth noting that some market watchers believe weight-loss drugs, such as Ozempic and Wegovy, may curb demand for snack foods in the North American market.
FritoLay’s North America sales were down 4% year over year, while North American beverages were down 3%. Those sales declines were offset by international revenue increasing by 7% year to date. Management highlighted that this was the 13th straight consecutive quarter with at least mid-single-digit organic revenue growth for international operations.
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