Finally, Canada has more to cheer about than the U.S.

• U.S. housing starts in May were below expectations, while Canada’s surged.
• U.S. retail sales rose by only 0.1% in May, following a 0.2% decline in April, indicating continued weak consumer spending.
• U.K. inflation data hit the Bank of England’s 2% target, but rate cuts were delayed due to upcoming elections.

In a twist we don't see often when it comes to macroeconomic data, Canada's housing market saw booming numbers, while the U.S.’s struggled. In May, U.S. housing starts were nearly 100,000 below expectations at 1.277 million, down from 1.352 million in April. Single-family home starts fell below one million for the first time since November 2023, and multi-family home starts continued their decline, marking the second month they were below 300,000 in the last three months. These drops brought U.S. housing starts and permits to levels not seen since the COVID-19 lockdown, with multi-family permits hitting their lowest since October 2018. Conversely, Canada's housing starts surged to a seven-month high, with an annualized 264,506 units in May, a 9.7% increase from the previous month (which exceeded expectations). Ontario and Quebec led this growth, with starts rising 18% and 67% respectively, while British Columbia saw a 16% decline. Housing starts are especially important these days, since they are not only a barometer of the economy but also give a clue for future shelter inflation. For both, an increase in starts is a good sign.

The May U.S. retail sales report showed a modest increase of 0.1%, falling short of economists' expectations. This followed a 0.2% decline in April, indicating a continued softness in consumer spending. However, the market didn’t make an especially big deal of these numbers since most of the drop was attributed to lower gasoline prices, which reduced gasoline spending.

U.K. inflation finally dipped to the Bank of England’s (BoE) 2% target for the first time in almost three years. Normally, this would have prompted the BoE to cut rates on Thursday. However, with the upcoming election, it opted to hold off. This situation might mirror what we will see in the U.S., where the U.S. Federal Reserve (the Fed) might also refrain from cutting rates around the election this fall.

Recent speeches from Fed officials this week backed up this notion. On Tuesday, a chorus of Fed officials stressed the need for more proof of cooling inflation before considering a rate cut (and the world collectively sighed). Fed Governor Adriana Kugler mentioned that a rate cut might be appropriate “some time later this year” if the economic conditions unfold as she expects. Meanwhile, St. Louis Fed President Alberto Musalem indicated in his first major policy speech that it might take “months, or more likely quarters” before the data supports a cut.

It seems that although Fed Chair Powell has historically been friendly to the markets, his governors are staunchly restrictive and won’t budge until they see that 2% inflation figure. Time will tell who has the last word.

Listen to this week’s podcast for further insights.