Dear valued client,
After a week of key inflation data and a Presidential debate, markets ended in positive territory.
U.S. inflation data released Wednesday showed a CPI reading of 2.5% (compared to 2.9% in June and 3% in July), bringing inflation back to 2021 levels. However, core inflation, which excludes volatile items like food and gas, increased by 0.3%, exceeding expectations due to persistently high housing prices. This uptick may lead the Federal Reserve to opt for a smaller 25 basis point rate cut in September, rather than the 50 basis points some had expected. Jerome Powell, the Fed Chair, has stressed decisions will be driven by economic indicators, including recent signs of labor market weakness. EY Senior Economist Lydia Boussour noted, “Overall, the combination of softer demand for goods and services due to increased pricing sensitivity, reduced markups, moderating wage growth, and moderating rent inflation will continue to provide a healthy disinflationary impulse heading into 2025.” Investors now wonder not only about the size of the upcoming rate cut but also how many cuts might follow before the end of 2024.
Justin Trudeau is in survivor mode as the countdown to a federal election begins, with the minority Liberal government facing a likely non-confidence vote due to the withdrawal of NDP support. While the timing of this vote remains uncertain, opposition parties, particularly the Conservatives, have limited windows to introduce a motion to bring down the government. The Liberal government, however, has some control over the scheduling of these opposition days, offering opportunities to delay or influence the timing of a potential election. The Liberals could gamble that the NDP and Bloc Québecois, currently disinclined to rush into an election, will hesitate to support an immediate vote. Alternatively, they could stall until December, potentially triggering a holiday-season election, a rare but not unprecedented scenario. Delaying until spring would give the Liberals more time to reverse their poor polling, plan their campaign, and possibly replace Justin Trudeau if needed. Meanwhile, the Conservatives are expected to push for non-confidence votes, painting themselves as the only viable alternative to Trudeau’s government while the pre-election maneuvering and political scheming intensifies in Ottawa.
In their only scheduled debate which drew more than 57 million viewers, Vice President Kamala Harris and former President Donald Trump sparred over key issues, with Harris challenging Trump on extremism and abortion stance, where she defended women’s rights. Trump leaned heavily on topics atop most voters’ minds, most notably illegal immigration and the economy. Despite the heated exchanges, the debate is unlikely to shift polls significantly, though Harris secured a notable endorsement from Taylor Swift soon after. The American electorate has roughly 50 days left to weigh both candidates’ resumes and make a decision on November 5th.
“He who knows only his side of the argument knows little of that.” – John Stuart Mill
Have a terrific weekend,
PW
