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Canada annual inflation gallops to near 40-year high of 7.7% in May

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© Reuters. FILE PHOTO: A Canadian dollar coin, commonly known as the “Loonie”, is pictured in this illustration picture taken in Toronto, January 23, 2015. REUTERS/Mark Blinch

TORONTO (Reuters) – Canada’s annual inflation rate accelerated to 7.7% in May, the highest since January 1983, on gasoline prices, as well as services like hotels and restaurants, Statistics Canada said on Wednesday.

Analysts polled by Reuters had expected the annual rate to rise to 7.4% in May from 6.8% in April.

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Market reaction: CAD/

Link: https://www150.statcan.gc.ca/n1/daily-quotidien/220622/dq220622a-eng.htm?HPA=1

COMMENTARY

ANDREW KELVIN, CHIEF CANADA STRATEGIST AT TD SECURITIES

“It’s a bit alarming, particularly the breadth of inflation we’re seeing, I think it really reinforces that Bank of Canada needs to take drastic actions to bring inflation under control. I think it explains why they have sounded suddenly so alarmed about the inflation outlook over the last three weeks or so. And it reinforces our expectation for the Bank of Canada with rates by 75 basis points at its next meeting.”

“I don’t know if there will be another 75-basis-point rate hike (after) July. But certainly we do expect additional 50-basis-point moves. And if we’re already looking for 50-basis-point moves, it’s a fine line between arguing for 50 and arguing for 75. So while it’s not our expectation that we will see 75-basis-point moves beyond July, certainly you can’t rule it out, particularly if CPI inflation continues to move higher in the third quarter.”

JAY ZHAO-MURRAY, MARKET ANALYST AT MONEX CANADA

“That’s a very scary print for (Bank of Canada Governor) Tiff Macklem and the rest of the Bank of Canada’s governing council, as the continued momentum in price pressures will become increasingly entrenched in people’s inflation expectations. We think the debate about whether the BoC will follow the Fed and deliver 75 bps (basis points) is now over. The Bank will need to deliver at least 75 bps to reassert to markets and Canadians that it has the fortitude to deliver sufficiently substantive monetary tightening to wrestle inflation down.”

DOUG PORTER, CHIEF ECONOMIST AT BMO CAPITAL MARKETS

“Clearly, this is well north of most expectations. Way beyond what the Bank of Canada was expecting in the second quarter and what’s particularly notable, it wasn’t just the 12% rise in gasoline prices, which was well known, it’s the fact that every measure of core took a big step up from upwardly revised levels … It is fairly clear that the pressures are spreading out and risking becoming much more entrenched.”

“It certainly seems extremely likely at this time that the Bank of Canada will fall in the Fed’s footsteps (and hike interest rates by 75 basis points next month).”

JIMMY JEAN, CHIEF ECONOMIST AT DESJARDINS GROUP

“We’re seeing a pickup in clothing that had been a dormant area. So with the reopening, people are buying more clothes, and that reflects in the report, also, we see a good pickup in the household operations. So you see acceleration, just about everywhere. This is a story of broad-based inflation. So it’s clear that central banks have been losing sleep over inflation, but if anything with this report, they’ll need to renew their sleeping-pill prescriptions, because this is still red hot.”

“Transitory is dead and buried now… We’ve started to see wage growth pick up quite a bit. And we know that, given these high job vacancies – we saw that report yesterday – it is only likely to continue. So we’re really in persistent mode. And that’s what has central banks on high alert. That’s why the Fed decided to move 75 basis points. And we think the Bank of Canada will be doing the same.”

“We have the beginnings of a housing market correction. So we see prices starting to fall, but I think we’re still too much in the early innings. And the other thing is that, in terms of affordability, it doesn’t really fix anything in the near term, because we’re going to see more pressure in rent. So you know, and that’s a another factor that might be persistent. So……we’re not seeing those signs yet that inflation is peaking… We’re continuing to see that those overshoots versus the bank’s forecast versus anybody’s forecast… The danger here, of course, is that the central banks overdo it and we have a recession as a result.”

Economy

Futures rise as easing China COVID curbs lift travel, leisure stocks

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© Reuters. A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 22, 2022. REUTERS/Brendan McDermid

By Shreyashi Sanyal

(Reuters) – Travel and leisure shares propped up U.S. stock index futures after China relaxed some COVID-19 quarantine requirements for international travelers, raising hopes of a revival in global growth.

Airlines, cruises, casinos and hotels were among the gainers in premarket trading after China’s slashing of the quarantine time for inbound travelers by half boosted hopes of a big jump in international travel and spending.

Shares of Walt Disney (NYSE:DIS) Inc rose 2.5% to top the list of gainers on the Dow Jones Industrial Average, after the company’s Shanghai Disney Resort said it would reopen the Disneyland theme park on June 30 after being shut for more than three months.

Spirit Airlines (NYSE:SAVE) and American Airlines (NASDAQ:AAL) Group Inc were the biggest gainers in the sector, rising 4% and 2% respectively.

Melco Resorts jumped 10% and led the rise in the casino sector, closely followed by Wynn Resorts (NASDAQ:WYNN), MGM Resorts (NYSE:MGM) International.

Wall Street’s main indexes started the week on soft footing after worries of surging inflation and an aggressive Federal Reserve dominated sentiment amid few market moving catalysts till the start of earnings season in two weeks.

Investors are now looking at data to determine whether the economy can withstand large interest rate hikes by the U.S. central bank to stamp out inflation.

A survey from the Conference Board is expected to show its consumer confidence index slipped to a reading of 100.4 in June, from 106.4 in May, at 10 a.m. ET.

The S&P 500 and the Nasdaq are set to post losses in June and are on course to log two straight quarterly declines for the first time since 2015.

At 6:49 a.m. ET, Dow e-minis were up 175 points, or 0.56%, S&P 500 e-minis were up 20 points, or 0.51%, and Nasdaq 100 e-minis were up 52.25 points, or 0.43%.

Nike Inc (NYSE:NKE) shed 2.8% as it forecast first-quarter revenue below estimates on expectations of more discounts and pandemic-related disruptions in China, its most profitable market.

Occidental Petroleum Corp (NYSE:OXY) climbed 3.1% after top investor Warren Buffett raised stake in the shale producer.

China ADRs also rose on Beijing easing its COVID curbs, with e-commerce firms Alibaba (NYSE:BABA).com, JD (NASDAQ:JD).com and Pinduoduo (NASDAQ:PDD) up between 1.2% and 1.4%

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Economy

Euro below $1.06 as Lagarde keeps July policy options open

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© Reuters. A shopper pays with a ten Euro bank note at a local market in Nice, France, June 7, 2022. REUTERS/Eric Gaillard

By Saikat Chatterjee

LONDON (Reuters) – The Aussie and the Canadian dollar climbed on Tuesday on firmer oil prices while the euro held below $1.06 as European Central Bank (ECB) President Christine Lagarde offered no fresh insight on the central bank’s policy outlook.

The ECB is widely expected to follow its global peers by raising interest rates in July to check soaring inflation though economists are divided on the magnitude of the rate hike to protect a struggling economic recovery due to high oil prices.

Oil prices are up 10% in barely a week on supply constraint concerns with Brent crude holding above $117, pushing the Canadian dollar and the Australian dollar up 0.3% and 0.4% respectively. [O/R]

“Oil is helping the Norwegian crown and the Canadian dollar to outperform and the euro is again running into resistance at the 1.06 level,” said Kenneth Broux, an FX strategist at Societe Generale (OTC:SCGLY) in London.

The euro held below $1.06 after the ECB’s Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations.

Money markets are pricing in about 238 basis points (bps) of cumulative rate hikes by mid-2023 compared to around 280 bps two weeks ago.

Broader currency market moves were contained in a big week for markets in economic data terms. German inflation figures are due on Wednesday, French data on Thursday and euro zone numbers on Friday.

At the other end of the dial, higher oil prices caused the partially convertible Indian rupee to open at a record low, and fall further to 78.67 per dollar.

The U.S. dollar index struck a two-decade high of 105.79 this month and was last steady at 103.93.

Elsewhere, the offshore Chinese yuan moved higher after China reduced COVID quarantine for international travellers.

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Economy

China’s economy recovering but foundation not solid, premier says

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© Reuters. FILE PHOTO: Chinese Premier Li Keqiang is seen on a screen as he attends a news conference via video link after the closing session of the National People’s Congress (NPC) in Beijing, China March 11, 2022. REUTERS/Ryan Woo

BEIJING (Reuters) -China’s economy has recovered to some extent, but its foundation is not solid, state media on Tuesday quoted Premier Li Keqiang as saying.

China will strive to drive the economy back onto a normal track and bring down the jobless rate as soon as possible, Li was quoted as saying.

“Currently, the implementation of the policy package to stabilise the economy is accelerating and taking effect. The economy has recovered on the whole, but the foundation is not yet solid,” Li was quoted as saying.

“The task of stabilising employment remains arduous.”

China’s economy showed signs of recovery in May after slumping the previous month as industrial production revived, but consumption remained weak and underlined the challenge for policymakers amid the persistent drag from strict COVID-19 curbs.

China’s nationwide survey-based jobless rate fell to 5.9% in May from 6.1% in April, still above the government’s 2022 target of below 5.5%.

In particular, the surveyed jobless rate in 31 major cities picked up to 6.9%, the highest on record. Some economists expect employment to worsen before it gets better, with a record number of graduates entering the workforce in summer.

Li vowed to achieve reasonable economic growth in the second quarter, although some private-sector economists expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter’s 4.8% growth.

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