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The Canadian economy grew by 2.1% quarter/quarter annualized (q/q) in 2024 Q2, while 2024 Q1 was revised higher (+0.1% q/q from +1.7%). Stripping out external factors, final domestic demand came in at a very strong 2.4% q/q. The flash estimate for July showed effectively no growth.

Government spending (+6.7% q/q) was a key driver of growth, as higher compensation of employees (an expense for governments) and purchases of goods and services came in well above expectations.

Business spending on non-residential structures and machinery & equipment rose by a massive 11.1% q/q. Higher spending on aircraft equipment/parts and engineering structures in the oil and gas sector drove the gain. Residential investment on the other hand fell by a whopping 7.3% q/q, on lower construction and renovation activity.

Consumer spending slowed in the quarter (+0.6% q/q from 3.6% q/q in Q1). While Canadians still had to shell out for 'need to haves' like rent, food, and electricity, there was a notable decline in big ticket items like trucks and SUVs.

Net trade subtracted 0.4 percentage points from growth, as "lower exports of unwrought gold, silver, and platinum group metals as well as of passenger cars and light trucks and refined petroleum energy products were moderated by higher exports of crude oil and bitumen". We expect trade to bounce back significantly in Q3, as the ramp-up of Transmountain causes a leg-up in oil exports.

Key Implications

Canadian economic growth surprised higher in 2024 Q2. While the headline print was encouraging, the details were less so. Most of the growth surprise was driven by government spending and aircraft purchases, which should come back down to earth in the Q3 data. Made worse is that the engine of Canadian growth – the consumer – has slowed the pace of spending in the face of still high rates. Combine this with the fact that momentum stumbled in June and July, and the outlook for the remainder of the year has become less rosy.

The Bank of Canada is scheduled to meet next week and another cut seems like a forgone conclusion. Importantly, markets have solidified around a 25 basis point per meeting pace through the rest of this year, which would bring the policy rate to 3.75% by December 2024. While this will provide some relief to consumers and businesses, we don't expect a meaningful acceleration in economic growth until late 2025 – when rates finally start moving closer to our target of 2.5%.

Daily Pivots: (S1) 1.1043; (P) 1.1091; (R1) 1.1127; More....

EUR/USD's retreat continues to extend lower today, but downside is contained well above 1.1007 resistance turned support. Intraday bias remains neutral and larger rally is still expected to continue. On the upside, break of 1.1200 will resume recent rally to 161.8% projection of 1.0665 to 1.0947 from 1.0776 at 1.1232, and then 1.1274 high.

In the bigger picture, break of 1.1138 resistance indicates that corrective pattern from 1.1274 has completed at 1.0665 already. Decisive break of 1.1274 (2023 high) will confirm whole up trend from 0.9534 (2022 low). Next target will be 61.8% projection of 0.9534 to 1.1274 from 1.0665 at 1.1740. This will now be the favored case as long as 1.0947 resistance turned support holds.

Dollar is showing mild strength in early US session despite slightly disappointing PCE inflation data. While the data reinforces the likelihood of a 25bps rate cut by the Fed in September, it does little to support the case for a more aggressive 50bps cut.

The greenback is getting a slightly boost from modest recovery in Treasury yields, which is also contributing to the slight weakness seen in Yen and Swiss Franc.

However, overall trading remains relatively subdued as in the final trading day of August. GDP data from Canada and CPI figures from Eurozone have largely been ignored by the markets.

For the week, New Zealand Dollar remains the strongest performer, followed by Canadian Dollar and Dollar. Meanwhile, Euro continues to lag as the worst, followed by Yen and Sterling. Swiss Franc and Australian Dollar are positioned in the middle of the performance chart.

In Europe, at the time of writing, FTSE is up 0.21%. DAX is up 0.18%. CAC is up 0.26%. UK 10-year yield is down -0.0331 at 3.960. Germany 10-year yield is down -0.007 at 2.275. Earlier in Asia, Nikkei rose 0.74%. Hong Kong HSI rose 1.14%. China Shanghai SSE rose 0.68%. Singapore Strait Times rose 1.13%. Japan 10-year JGB yield rose 0.0035 to 0.893.

US PCE core unchanged at 2.6% yoy, vs exp 2.7% yoy

US personal income rose 0.3% mom or USD 75.1B in July, above expectation of 0.2% mom. Spending rose 0.5% mom or USD 103.8b, matched expectations.

PCE price index rose 0.2% mom, while core PCE (excluding food and energy)rose 0.2% mom, both matched expectations. Prices for goods decreased by less than -0.1% and prices for services increased 0.2%. Food prices increased 0.2% and energy prices increased by less than 0.1%.

From the same month one year ago, PCE price index rose 2.5% yoy, unchanged from June's reading, below expectation of 2.6% yoy Core PCE price index rose 2.6% yoy, unchanged from June's reading, below expectation of 2.7% yoy. Prices for goods decreased by less than -0.1% and prices for services increased 3.7%. Food prices increased 1.4% and energy prices increased 1.9%

Canada's GDP grows 0.5% qoq in Q2, flat in June

Canada's economy posted growth of 0.5% qoq in Q2, slightly up from the 0.4% seen in Q1. This growth was driven by higher government consumption, increased business investment in engineering structures and machinery, and a rise in household spending on services. However, these gains were somewhat offset by declines in exports, residential construction, and household spending on goods. Notably, on a per capita basis, GDP declined by -0.1% in the second quarter, marking the fifth consecutive quarterly decline.

For June, GDP remained essentially flat, failing to meet expectations of a 0.1% mom increase. Goods-producing industries contracted by -0.4%, the largest decline since December 2023, with manufacturing and construction being the primary drags. In contrast, services-producing industries saw a modest 0.1% increase, continuing their growth streak for the third month in a row. Overall, 12 out of 20 sectors experienced expansion.

Advance information suggests that real GDP by industry remained unchanged in July. Declines in construction, mining, quarrying, and oil and gas extraction sectors were balanced by gains in finance, insurance, and retail trade, signaling a mixed economic outlook.

Eurozone CPI falls to 2.2%, core down to 2.8%, services up to 4.2%

Eurozone CPI slowed from 2.6% yoy to 2.2% in August. CPI core (ex-energy, food, alcohol & tobacco) ticked down from 2.9% yoy to 2.8% yoy. Both matched expectations.

Looking at the main components, services is expected to have the highest annual rate in August (4.2%, compared with 4.0% in July), followed by food, alcohol & tobacco (2.4%, compared with 2.3% in July), non-energy industrial goods (0.4%, compared with 0.7% in July) and energy (-3.0%, compared with 1.2% in July).

ECB's Schnabel: Rate cuts can't be mechanical amid stubborn domestic inflation

In a speech today, ECB Executive Board member Isabel Schnabel addressed the recent declines in inflation across parts of the Eurozone, describing them as "welcome developments." However, she cautioned that the "current level of headline inflation understates the challenges monetary policy is still facing."

Schnabel highlighted that domestic inflation remains elevated at 4.4%, driven largely by "persistent price pressures in the services sector," where disinflation has stalled since last November. She pointed out that the continued high inflation momentum, particularly the annualized three-month-on-three-month change, indicates that services prices are still rising at a significant pace of almost 5%.

Schnabel noted that while incoming data broadly supports ECB's baseline outlook, caution is needed as policy rates approach the upper band of the neutral rate, "the less certain we are how restrictive our policy is"

The pace of policy easing, she emphasized, "cannot be mechanical" and must be guided by data and analysis to ensure that monetary policy does not itself become a factor hindering disinflation.

Swiss KOF rises to 101.6, signaling hesitant economic recovery

Swiss KOF Economic Barometer edged up to 101.6 in August, slightly above expectations of 100.6, signaling a modest improvement in economic activity. The indicator remains just above its medium-term average, suggesting that Swiss economy is on what KOF describes as a "hesitant recovery path."

The upward movement in the Barometer was driven primarily by gains in the other services sector, consumer demand, and construction industry. Additionally, the manufacturing and hospitality sectors saw modest improvements.

Meanwhile, the indicators for foreign demand remained nearly stable, while the financial and insurance services sector faced a slight decline.

Japan's Tokyo inflation accelerates in Aug as production and retail sales miss estimates in Jul

Japan's Tokyo CPI data for August shows further acceleration in inflation, with core inflation (excluding food) rising to 2.4% yoy, above the expected 2.2%. CPI core has been climbing steadily every month since hitting a bottom of 1.6% yoy in March.

Core-core CPI, which excludes both food and energy, also ticked up to 1.6% from 1.5%, while headline CPI surged to 2.6% from 2.2%.

These figures are often seen as a leading indicator for nationwide trends. Some economists noted that rise in prices growth was primarily driven by the phase-out of government subsidies on utility bills and a spike in rice prices. Underlying inflation trends may moderate in the coming months as these one-time factors dissipate.

Also released today, Japan's industrial production rose by 2.8% mom in July, slightly below the expected 3.3%. Looking ahead, manufacturers surveyed by the Ministry of Economy, Trade, and Industry anticipate 2.2% increase in output for August, followed by -3.3% contraction in September.

Retail sales growth also slowed to 2.6% yoy in July, down from 3.7% in June, and below the expected 2.9%.

Additionally, the unemployment rate rose to 2.7% from 2.5%, surpassing expectations of it remaining steady at 2.5%. The jobs-to-applicants ratio, however, edged slightly higher to 1.24.

Australia's retail sales stagnate in Jul as spending momentum stalls

Australia's retail sales turnover for July showed no growth on a monthly basis, falling short of the expected 0.2% mom increase. This flat result comes after consecutive 0.5% mom increases in both June and May, driven by mid-year sales events.

According to Ben Dorber, head of retail statistics at the Australian Bureau of Statistics, "After rises in the past two months boosted by mid-year sales activity, the higher level of retail turnover was maintained in July."

However, the detailed breakdown reveals a mixed picture across industries, with most sectors either seeing declines or remaining flat. The only industry to post an increase was food retailing, which managed a modest 0.2% rise.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1043; (P) 1.1091; (R1) 1.1127; More....

EUR/USD's retreat continues to extend lower today, but downside is contained well above 1.1007 resistance turned support. Intraday bias remains neutral and larger rally is still expected to continue. On the upside, break of 1.1200 will resume recent rally to 161.8% projection of 1.0665 to 1.0947 from 1.0776 at 1.1232, and then 1.1274 high.

In the bigger picture, break of 1.1138 resistance indicates that corrective pattern from 1.1274 has completed at 1.0665 already. Decisive break of 1.1274 (2023 high) will confirm whole up trend from 0.9534 (2022 low). Next target will be 61.8% projection of 0.9534 to 1.1274 from 1.0665 at 1.1740. This will now be the favored case as long as 1.0947 resistance turned support holds.

Economic Indicators Update

Canada's economy posted growth of 0.5% qoq in Q2, slightly up from the 0.4% seen in Q1. This growth was driven by higher government consumption, increased business investment in engineering structures and machinery, and a rise in household spending on services. However, these gains were somewhat offset by declines in exports, residential construction, and household spending on goods. Notably, on a per capita basis, GDP declined by -0.1% in the second quarter, marking the fifth consecutive quarterly decline.

For June, GDP remained essentially flat, failing to meet expectations of a 0.1% mom increase. Goods-producing industries contracted by -0.4%, the largest decline since December 2023, with manufacturing and construction being the primary drags. In contrast, services-producing industries saw a modest 0.1% increase, continuing their growth streak for the third month in a row. Overall, 12 out of 20 sectors experienced expansion.

Advance information suggests that real GDP by industry remained unchanged in July. Declines in construction, mining, quarrying, and oil and gas extraction sectors were balanced by gains in finance, insurance, and retail trade, signaling a mixed economic outlook.

Full Canada's GDP release here.

US personal income rose 0.3% mom or USD 75.1B in July, above expectation of 0.2% mom. Spending rose 0.5% mom or USD 103.8b, matched expectations.

PCE price index rose 0.2% mom, while core PCE (excluding food and energy)rose 0.2% mom, both matched expectations. Prices for goods decreased by less than -0.1% and prices for services increased 0.2%. Food prices increased 0.2% and energy prices increased by less than 0.1%.

From the same month one year ago, PCE price index rose 2.5% yoy, unchanged from June's reading, below expectation of 2.6% yoy Core PCE price index rose 2.6% yoy, unchanged from June's reading, below expectation of 2.7% yoy. Prices for goods decreased by less than -0.1% and prices for services increased 3.7%. Food prices increased 1.4% and energy prices increased 1.9% .

Full US personal income and outlays release here.

The AUD/USD pair shows signs of potential resurgence as it trades near 0.6802, consolidating within a sideways range at its local peaks towards the end of August. The Australian dollar has appreciated by almost 4% over the month, bolstered by high consumer price index figures that underline persistent inflationary pressures in Australia.

In July, Australian inflation was recorded at 3.5% year-over-year, slightly decelerating from June's figures but still surpassing expectations of 3.4%. This has supported the Reserve Bank of Australia's (RBA) decision to maintain a tight monetary policy stance. Despite the challenges in effectively curbing high inflation, the RBA has adopted a watchful rather than aggressive approach, which could yield favourable outcomes over a longer horizon.

During the last RBA meeting, discussions were held regarding a potential rate hike, though it was ultimately decided to keep rates unchanged. The RBA's cautious approach, combined with the earlier general weakness of the US dollar, has provided a solid backdrop for the Australian dollar's strength.

AUD/USD technical analysis

On the H4 chart, AUD/USD recently completed an upward wave to 0.6822, followed by a downward impulse to 0.6784. Currently, a corrective movement to 0.6816 is anticipated, potentially establishing the upper limits of the consolidation range. A downward exit from this range could initiate a new decline to 0.6760. A break below this level might signal the start of a new downward trend towards 0.6640, with a potential continuation to 0.6575. The MACD indicator supports this bearish scenario, with its signal line at the highs and trending downward.

On the H1 chart, the pair is forming a correction to 0.6816. Following this correction, a downward movement to 0.6764 is expected, potentially extending to 0.6757. The Stochastic oscillator, currently above 80, indicates a likely decline to 20, supporting the possibility of continued downward momentum after the correction.

Gold keeps firm tone and holding near new all-time high on Friday, awaiting release of US PCE data (due later today) for fresh signals.

The metal remains well supported by strong demand (as safe haven as well as large purchases by central banks), geopolitical tensions and strong expectations for Fed’s first rate cut in September.

The yellow metal gained around 22% since the beginning of the year and is on track to register another monthly gain, in extension of steep rally in past six months.

The latest triangular consolidation under new record high ($2531) is bullishly aligned, as dips were contained by rising 10DMA, with series of higher lows (tracked by 10DMA) pointing to still strong bids.

US Federal Reserve’s policy decision will be gold’s key driver in the near term with markets fully pricing for 25 basis points rate cut in September, but with growing bets that the central bank may opt for more aggressive action (50 basis points cut).

Today’s release of US PCE Index, Fed’s preferred inflation gauge, will shed more light on key points – the size and pace of policy easing.

The Core PCE Index (fine-tuned indicator, stripped by volatile components) is expected to remain unchanged (0.2%) month on month and annualized figure to tick higher to 2.7% in July from 2.6% in June.

Forecasts signal that values remain within required parameters which signal that inflation in the US stays under control and further opens the door for the central bank’s widely expected rate cut.

Gold would rise further if PCE data came mainly in line with expectations but may come under fresh pressure in case of hotter than expected July PCE numbers.

Bullish scenario sees gold price rising through current peak at $2531 and focusing targets at $2551 and $2574 (Fibo projections).

On the other hand, stronger unexpected inflation rise would deflate metal’s price with loss of initial supports at $2511/00 (10DMA / psychological) to risk deeper drop and test of pivotal supports at $2475/70 (20DMA / Aug 22 trough) and $2432 (Aug 15 higher low in extension.

Traders are also looking for next week’s key economic data (release August report from the US labor sector).

Res: 2531; 2551; 2574; 2600.
Sup: 2511; 2500; 2470; 2452.

The USD/CHF pair tested its yearly low slightly below 0.84100 yesterday but has since recovered to just above 0.84800 today.

The bullish sentiment was supported by positive news about the U.S. economy—data released yesterday showed GDP growth for the second quarter at 3.0%, surpassing the expected 2.8%.

Bulls may find further encouragement from events earlier this year when the head of the Swiss National Bank (SNB) warned that an excessively strong franc could pressure the country's economy. Following this, USD/CHF rose by more than 8% over four months.

Technical analysis of the USD/CHF chart indicates that since June, the price has been forming a downward channel (shown in red). However, several factors may support a bullish reversal:

→ The price is near the lower boundary of a larger channel that began in 2022, which could act as support.

→ The RSI on the 4-hour chart not only shows a bullish divergence but also spiked above the 50 level after hovering near the lower boundary since 20 August.

→ Comparing the downward impulses A→B and C→D reveals that the first drop was more aggressive, while the second showed a less steep decline—signalling weakening selling pressure. There's also another bullish divergence between the lows at B and D.

Given these factors, there's reason to believe that the median line of the current red downward channel is at risk of a bullish breakout, potentially paving the way for USD/CHF to move towards the upper boundary of the channel.

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Eurozone CPI slowed from 2.6% yoy to 2.2% in August. CPI core (ex-energy, food, alcohol & tobacco) ticked down from 2.9% yoy to 2.8% yoy. Both matched expectations.

Looking at the main components , services is expected to have the highest annual rate in August (4.2%, compared with 4.0% in July), followed by food, alcohol & tobacco (2.4%, compared with 2.3% in July), non-energy industrial goods (0.4%, compared with 0.7% in July) and energy (-3.0%, compared with 1.2% in July).

Full Eurozone CPI flash release here.

Market Picture

The cryptocurrency market failed to move significantly from the previous day’s levels, losing 0.5% to $2.07 trillion. Crypto followed the stock market but was noticeably weaker. Smooth growth during the day was wiped out by a late sell-off, taking capitalisation back to the local lows of recent days. Sentiment in the crypto market remains in the fear zone, with the index at 34 (+5 for the day).

Bitcoin approached $61K on Thursday, buoyed by hopes that the equity market would be able to digest the fall in Nvidia shares. However, a sell-off in the second half of the session showed that the bears were in control and the breakout was false. In early trading on Friday, BTC rolled back to $58.8K, an area of lows since August 28th.

The technical picture didn’t change much during the day: the ability to consolidate above $60K will open the way for sustained buying, while a sustained dip below $59K will accelerate selling. There could be many false signals between these levels.

News Background

Another recalculation showed that the first cryptocurrency’s mining difficulty increased by 2.99% to 89.47 T. The average Hash Rate reached a maximum value of 718.28 EH/s, indicating the continued connection of high-performance equipment.

OpenSea, one of the largest NFT trading platforms, received a warning from the US SEC about possible legal action for securities trading.

The team behind an L2 solution for Bitcoin called Stacks announced the start of the Nakamoto upgrade process. This process decouples the block production schedule from the cryptocurrency’s network. The activation will increase transaction speeds and provide a foundation for smart contracts using the BTC network as a base layer.

Donald Trump has promised to make the US the ‘crypto capital of the planet’. He announced a plan to help the US strengthen its leadership position in cryptocurrencies. Sales of Donald Trump’s fourth NFT collection exceeded $2 million. He earned ~$7.16 million in royalties from the previous three collections.

The TON team fixed the second blockchain outage in 24 hours. The outage was apparently caused by the heavy load associated with the DOGS meme token issue.