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[Quick Facts]

1. U.S. manufacturing slips into contraction as production falls.

2. Canada's retail sales edged down 0.2% in June.

3. Europe's gas price is expected to spike as strikes could begin as early as Sept. 2.

4. Bullard says a stronger economy needs higher interest rates.

[News Details]

U.S. manufacturing slips into contraction as production falls

With economic activity across the private sector nearly stagnating, U.S. businesses saw slower output growth in August. Manufacturing slipped into contraction as production fell again, while service providers saw growth slow to the weakest since February.

Subdued client demand drove the slowdown across the economy, as total new orders declined for the first time in six months. Contractions in new orders were seen by manufacturers and service providers alike. Meanwhile, cost pressures regained some momentum as the rate of input price inflation quickened on the back of greater fuel, wage and raw material costs. Efforts to remain competitive and drive sales stifled the pace of selling price inflation, however, which softened from that seen in July.

Canada's retail sales edged down 0.2% in June

Retail sales in volume terms in Canada edged down 0.2% in June, with only three of the nine sub-sectors posting sales gains: motor vehicle and parts dealers, sporting goods stores, and gasoline stations. Retail sales excluding motor vehicles slipped 0.8%, below expectations for a 0.3% increase. The report shows that Canadians continued to spend money on big-ticket items such as automobiles, likely the result of pent-up demand and delayed shipments during the pandemic. While sales of sporting goods continued to grow, spending on other interest rate-sensitive products, including clothing and furniture, contracted in June.

Europe's gas price is expected to spike soon as strikes could begin as early as Sept. 2

European benchmark gas futures fell 4.1% before regaining lost ground. Yesterday, it hit its highest closing level since April on the recent threat of a possible strike by Australian LNG workers. Traders are awaiting the outcome of key negotiations to confirm whether a strike will occur at Australia's largest gas export facility.

Woodside Energy and officials representing workers at its North West Shelf LNG facility are in Perth for talks that could last into the night. A strike could begin as early as Sept. 2 if no progress is made. Also, employees at some Chevron plants are considering striking. These could disrupt 10% of the global liquefied natural gas (LNG) supply.

Bullard says a stronger economy needs higher interest rates

There were a lot of heavy predictions of recession, but I think those were just overblown, former St. Louis Fed President James Bullard said in an exclusive interview with The Wall Street Journal's Nick Timiraos. There was a risk of recession, but it wasn't as high as it was made out to be on Wall Street, Bullard added. The faster growth is a bit of a threat because the forecast was that you'd have very weak growth or even a recession, he said.

But now that doesn't really look like it is materializing. This also means that the Fed will probably continue to hike rates at some point this fall, And this has already been written in the June dot plot.

Based on this alone, the Fed will have to update its inflation outlook in accordance with the latest situation, Bullard said. You still have a very tight labor market, and now you have a reacceleration in the U.S. economy.

For the market, the big question is whether the U.S. economy will really speed up significantly in the second half of this year, and at the same time whether the Fed feels the need to raise the policy rate above 6%, partly due to a reversal or sudden rise in inflation data. Bullard emphasized that he didn't think the market was really prepared for this, but that risk is becoming higher.

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