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Recently, there has been cooler data on inflation and jobs in the market. The Consumer Price Index (CPI) showed a slower than expected inflation rate of +2.7% in June, down from May’s +2.9%. This data has kept inflation hovering around the upper limit of the BoC’s target range of 1%-3%. Additionally, the unemployment rate in June rose to 6.4%, the highest it has been since the beginning of the year, with an employment change decline of -1,400.
Despite these economic indicators, Canada’s GDP has shown minimal growth this year. Real GDP increased by +0.3% in April and +0.4% in Q1, following a flat reading in Q4 2023. The latest Business Outlook Survey revealed that firms’ sentiment remained unchanged, with some noting weaker activity in discretionary sales. However, businesses tied to essential items have seen an increase in sales, especially with the recent rise in Canada’s population.
Looking ahead, market expectations suggest that the Bank of Canada (BoC) may reduce the Overnight Rate by 25 basis points in the upcoming meeting, bringing it down to 4.50%. The Overnight Index (OIS) market is pricing in a 95% chance of a rate cut, with approximately two rate cuts expected for the entire year.
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