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Global equity markets finished largely unchanged over the week ended August 14. Signs of easing inflationary pressures in the U.S. lowered bets the U.S. Federal Reserve Board (Fed) may need to raise interest rates this year. However, sentiment was relatively muted in response to ongoing tensions in the Middle East. In Canada, the S&P/TSX Composite Index reached a new record high, getting a strong performance from the energy sector. U.S. equities moved higher. Yields on 10-year government bonds in Canada increased. In the U.S., auctions for 10- and 30-year Treasury bonds were sold at their highest interest rates since 2007 and 2001, respectively, largely in response to the U.S. government’s high deficit. The price of oil and gold finished higher over the week.
Canada’s manufacturing sales unexpectedly increase
Statistics Canada reported manufacturing sales rose 0.1% to $78.8 billion in June, a modest gain that masks weakness in key industries.
The transportation equipment sector saw sales increase by 2.8% over the month, driven by a 6.2% increase in sales for motor vehicles. Chemical sales increased at their fastest pace since October 2022, benefiting from strong sales of pharmaceutical products.
These gains were partially offset by a sharp drop in sales for petroleum and coal products.
U.S. tariffs remain a drag on the sector. Many industries are being negatively impacted by trade tensions with the U.S. Steel, aluminum and auto producers remain hardest hit by trade tensions.
Canada and U.S. officials are working to present U.S. President Donald Trump with a trade deal framework before the August 19 deadline for the new U.S. tariffs, which cover autos, alcohol and dairy.
U.S. inflationary pressures cool off
The annual inflation rate in the U.S. slowed to 3.4% in July from 3.5% in June, matching expectations. This was a welcome sign that price pressures are easing, albeit at a moderate pace.
Core inflation, which strips out food and energy, softened to 2.5% year-over-year in July, its slowest pace since 2021, though shelter costs remain the stubborn holdout behind most of July’s increase.
A separate producer price report showed wholesale prices were flat in July, but a jump in underlying core producer costs, tied partly to tariffs, hints some cost pressures are still working their way toward consumers.
The two reports paint a mixed picture of cooling inflationary pressures on the surface, but still sticky underneath.
This now has markets leaning toward the Fed holding interest rates steady in September rather than cutting, meaning the road back to the Fed’s 2% target for inflation may still take patience.
International Energy Agency expects even lower demand for oil
The International Energy Agency’s (IEA) latest monthly report shows global oil demand is expected to shrink by 1.6 million barrels a day in 2026, largely due to disruptions in supply tied to the Middle East conflict and restrictions to passage through the Strait of Hormuz.
Global supply has pulled back, too, with the IEA expecting the oil market to be short by roughly 1.8 million barrels a day in the third quarter, though the IEA expects a swing back to surplus by year-end.
Separately, the U.S. Strategic Petroleum Reserve has fallen below 300 million barrels of oil, its lowest level since 1983, after being tapped heavily to help offset those same supply disruptions.
With the reserve this depleted, the U.S. has a much thinner cushion to lean on if global oil supplies continue to be disrupted.
Tighter oil markets paired with a shrunken safety net could keep energy prices more volatile ahead, adding another wildcard to the inflation and economic growth picture.
FIFA World Cup helps boost U.K. economy
The U.K. economy grew by 0.4% in the second quarter of 2026, nudging annual growth up to 1.2%, a touch better than economists had expected.
Much of the strength showed up in June alone, which grew 0.3%, lifted by a mix of FIFA World Cup viewing, a summer heatwave and strong information technology and communication services sectors.
Some of that boost looks temporary as warmer weather and FIFA World Cup-related spending lifted hospitality, retail and entertainment, but economists caution this isn’t necessarily a sign of steady, lasting momentum.
Manufacturing and construction also contributed to growth, helped by pharmaceutical output and infrastructure spending.
The stronger-than-expected economic growth, paired with inflation still running above the Bank of England’s target, raises the odds policymakers could raise interest rates rather than cut them at their September meeting. However, there is concern some of the economic growth momentum could stall.
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