Morning Market Brief: August 2, 2024

Day 2 of key central bank decisions

Yesterday was the Bank of England’s (BoE) turn to announce its interest-rate decision. The third major central bank decision in the past 48 hours showed how carefully banks are reacting to elevated inflation while ensuring their economies avoid a hard landing. Meanwhile, closer to home, manufacturing activity in Canada and the US took centre stage to get a read on the health of each economy.?

• The BoE lowered its policy interest rate by 25 basis points to 5.00%. This was the BoE’s first rate cut since 2020 and was expected by economists, based on a survey by Bloomberg.
• The BoE believes economic conditions would benefit from less restrictive rates. While inflation has come down, economic growth and the labour market have slowed, signalling the need for lower interest rates to help support business activity. The BoE is likely not done cutting interest rates, but it will be mindful of the path of inflation.
• In Canada, manufacturing activity for the month of July was announced yesterday, and the results were not positive. The S&P Global Canada Manufacturing Index fell from 49.3 to 47.8 in July, marking its steepest contraction in 2024. Falling new orders and output continue to weigh on this critical sector of Canada’s economy.
• Manufacturing activity in the US did not fare much better. The ISM Manufacturing Purchasing Managers Index showed a fourth straight contraction in US manufacturing activity.

The BoE followed the path of the Bank of Canada and European Central Bank by starting to lower interest rates, with more cuts likely to come. Comments from the US Federal Reserve Board on Wednesday signalled its intentions to soon begin lowering rates. Most of the global economy is moving into a period of looser monetary policy, albeit at a relatively gradual pace. This will help reduce borrowing costs, potentially lifting demand.

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