At the close of business last Friday, global equities were lower on the week amid a sharp backup in global bond yields. The yield on the US 10-year note rose to 4.04% from 3.81% a week ago. The price of a barrel of West Texas Intermediate crude oil increased $2.65 to $72.10. Volatility, as measured by the Cboe Volatility Index (VIX), rose to 15.4 from 13.3.

MACRO NEWS

Hawkish FOMC minutes, tight labour markets and fears that inflation is falling too slowly (and risks becoming entrenched) sent bond yields soaring this past week. The yield on the US 10-year note broke above the 4% level and made a new 2023 high this week, overtaking the highs posted just before the banking crisis erupted in March. Similarly, German bund yields have risen to their highest level of the year and are only about 10 basis points below the highest levels of the cycle, 2.75%. UK 10-year gilt yields reached 4.70%, their highest level since 2008, amid growing expectations that the Bank of England may need to hike rates as high as 6.5% in the coming months from 5% today.

CANADIAN ECONOMIC NEWS

In contrast to weaker US numbers, Canadian employment data showed unexpected strength in June. Nearly 60,000 jobs were created, more than reversing the 17,000-job decline in May. A rise in the participation rate saw the unemployment rate increase to 5.4% from 5.2%. Our annual rate of inflation is expected to continue to cool over the summer however when the Bank of Canada makes its next interest rate decision on Wednesday, and after such strong job creation, we are expecting our central bank to once again increase rates by .25%.

US ECONOMIC NEWS

For the first time in over a year, US June non-farm payrolls fell short of economists’ expectations, rising 209,000, below the 230,000 consensus forecast. The prior two months’ gains were revised down by 110,000 jobs while the unemployment rate ticked down to 3.6% from 3.7% in May. Average hourly earnings held steady at an upwardly revised 4.4% year over year. While the data are an improvement from the US Federal Reserve’s perspective, they are not expected to derail an anticipated 0.25% rate hike at the Fed’s July 26th meeting. Fed Chair Jerome Powell expressed hope that there would be an economic soft landing, but the Federal Reserve is still forecasting a recession late this year. Officials noted that declines in inflation were slower than they had expected and that labor markets remain tight.

The Institute for Supply Management’s non-manufacturing purchasing managers’ index rebounded to 53.9 in June after dipping to 50.3 in May. With services making up the vast bulk of US economic activity, the data only added fuel to the bond market fire. The much smaller manufacturing sector continued to struggle, with the PMI slipping to 46 from 46.9.

EUROPEAN ECONOMIC NEWS

European Central Bank President Christine Lagarde said that inflation in the euro zone may stay above-target in 2024 and 2025.

JAPAN, CHINA and EMERGING MARKETS ECONOMIC NEWS

When China’s President Xi Jinping paid a state visit to Moscow in March, he warned Russian President Vladimir Putin against using nuclear weapons in Ukraine, indicating that Beijing harbours concerns about Russia’s war even as it offers tacit backing. Deterring Putin from using such weapons has been central to China’s campaign to repair damaged ties with Europe.

Beginning in August, China will impose export controls on two metals used in chip making. The European Union urged China to narrow the scope of the gallium and germanium export controls.

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