Making sense of the markets this week: June 30, 2024

If the summer heat doesn’t get you, inflation will

Canadians hoping for interest rate relief will likely have to wait a bit longer. The Consumer Price Index (CPI) reading for May came in at 2.9%, according to Statistics Canada.

The money markets predict a 45% chance that the Bank of Canada (BoC) will cut rates at its July 24 meeting. Lowering interest rates after a month of renewed inflation worries would carry a large credibility risk for the BoC, after it raised rates so quickly to restore faith that it would tame inflation over the long term.

CPI May 2024 highlights

Here are some notable takeaways from the CPI report:

May’s overall 2.9% CPI increase was 0.2% higher than April’s 2.7% CPI increase.
Renters in Canada continue to get slammed, as the year-over-year increase in rent was 8.9%.
Mortgage interest costs also massively grew, by 23.3%.
Core CPI (stripping out volatile items such as gas and groceries) was 2.85%.
The cost of travel also jumped, with airfare up 4.5% and tours up 6.9%.
Gasoline costs were up 5.6%.
In slightly better news, grocery prices were only up 1.5% year-over-year, but they’re up 22.5% since May 2020.
Cell phone services continue to be a bright spot for deflation, as they are down 19.4% since May 2023.

We’re sure the BoC was hoping for inflation to be closer to 2.5%, which would allow it to justify cutting interest rates and point to a stronger downward trend for inflation. Continuing to balance long-term growth and full employment versus controlled inflation isn’t going to get easier anytime soon for BoC governor Tiff Macklem and his team.

For now, savers will continue to benefit from higher interest rates, like those of guaranteed investment certificates (GICs) and high-interest savings accounts (HISAs), while borrowers keep hoping for relief sooner rather than later. And, of course, to read about how to invest in a high-inflation world, see our article on the best low-risk investments at MillionDollarJourney.com.

FedEx delivers, Nike just doesn’t do it

It was a tale of two extremes in U.S. earnings this week as FedEx shareholders became quite happy, while Nike investors were down in the dumps.

U.S. earnings highlights

This is what came out of the earnings reports this week. Both Nike and FedEx report in U.S. dollars.

Nike (NKE/NYSE): Earnings per share of $1.01 (versus $0.83 predicted). Revenue of $12.61 billion (versus $12.84 predicted).
FedEx (FDX/NYSE): Earnings per share of $5.41 (versus $5.35 predicted). Revenue of $22.11 billion (versus $22.08 billion predicted).

Nike finance chief Matthew Friend found himself in an odd position on his earnings call with analysts on Thursday. On one hand, Nike’s effort to reduce costs by shedding 1,500 jobs is paying off, and earnings per share came in substantially higher than experts predicted. On the other hand, declining sales in China and “increased macro uncertainty” were cited as reasons for a predicted sales drop of 10% in the next quarter. Investors chose to see the half-empty part of the glass, as shares plunged more than 12% in after-hours trading.

Friend attempted to put the downward forecast in perspective: “While our outlook for the near term has softened, we remain confident in Nike’s competitive position in China in the long term.” Nike highlighted running, women’s apparel and the Jordan brand as growth areas to watch going forward.

FedEx had a much better day, as shares were up more than 15% after it announced earnings on Tuesday. Future earnings projections were up on the news of increased cost-cutting efforts that will save the company about $4 billion over the next two years. FedEx announced possible increased profit margins as a result of consolidating its air and ground services.