Business Brief: How to mix U.S. inflation into a recipe for economic clarity

This morning’s U.S. inflation report will give investors and policy makers more to chew on amid rising concerns of a recession. Today, as markets digest the data, we turn to comfort food.

🔅 First, I’d like to take a moment to thank you for reading. We’re still experimenting – I will now enter our recipe for bellwether stew, below, into evidence – and I’d love to hear from you. What would you like to see more of? Less? Don’t forget to share your story ideas and recipes: cws@globeandmail.com

Up top

• Japanese PM exits: Japanese Prime Minister Fumio Kishida said he will step down in September, paving the way for a new premier to address the impact of rising prices. His decision to quit triggers a contest to replace him as leader of the world’s fourth-biggest economy.
• Gold retirement watch: Barrick Gold Corp. chief executive Mark Bristow is opening up the possibility that he might retire in 2026.
• Sharing is caring: Canada’s telecom regulator is broadening a directive that large telephone companies provide rivals with access to their fibre networks in an effort to improve competition in the internet market.
• Testing Teachers’ patience: Ontario Teachers’ Pension Plan is polishing up its portfolios to get ready for a pickup in deal-making, but a slow market for mergers dominated by bargain-hunting buyers is making it hard to sell assets.
• Let’s get Chipotle: Starbucks named Chipotle Mexican Grill head Brian Niccol as its new CEO, poaching a successful fast-food executive known for reviving the burrito chain.

In focus

Bellwether stew

Open this photo in gallery:

First, one of those annoying personal backstories:

A dash of Walmart earnings for consumer sentiment, a sprinkling of Cisco to bring out the tech industry’s complex taste, all mixed into a rich economic broth: I can smell my grandmother’s bellwether stew even now as I type. It’s during heady weeks like this – days filled with key earnings reports that could send stocks skyward or southbound, economic indicators that threaten months of uncertainty ahead of the U.S. presidential election, and cooler nights as fall approaches – that I crave that dish the most. No wonder investors have been stewing for decades.

Protein

• 1 key consumer inflation report (Today)
• 1 producer price index (Tuesday)
• 1 question over the Federal Reserve’s rate-cut timing (Possibly too late)

Spices and seasonings

• Thursday’s U.S. initial jobless claims, retail sales, industrial production and import price index; Friday’s consumer sentiment figures and the Home Builder Confidence Index.

Broth

• Home Depot (Tuesday)
• Cisco (Today)
• Walmart (Thursday)
• Alibaba (Also Thursday)

Instructions

• While bringing market sentiment to a boil – that shouldn’t take long – shape Home Depot earnings into worrisome signs of weakened discretionary spending.
• Peel back tomorrow’s Walmart earnings until they reveal a wider range of consumer trends at the retail level.
• Place Cisco and Alibaba results in a saucepan and hold over the extreme heat of tech-tense investors.
• Fold in economic indicators. Stir together until confusing. That’s normal.
• Add spices and seasoning. While stirring, occasionally taste until a full flavour of the economic outlook emerges.
• Best served before a recession.

If the results are unpalatable, you can always try Chipotle. It’s under new management!

💡 Food for thought: The term “bellwether” has nothing to do with the weather. Neither does it suggest alternative decisions or outcomes. “Wether” refers to the sheep chosen by shepherds or farmers to wear a bell so they could keep an ear out for their flock. Over time, it has come to mean an indicator of health or direction. Taken together, this week’s key economic reports and earnings might give us a clearer view into the future. But whether a wether cares about the weather, we might never know.

Charted

Production value

A recent opinion piece in our pages observes the proportion of Canadian capital invested in the oil sector has increased to more than 30 per cent, up from 15 per cent, coinciding with an oil-price boom and the commercialization of oil-sands technology.

But the writers argue the oil sands are less productive than traditional oil sources. “As a result, we have more capital to produce increasingly less oil (the share of oil in Canada’s economy has not moved at nearly the same pace), and this reduces productivity.”

It’s an interesting way to look at trends in multi-factor productivity – the efficiency in capital and labour used. Economist Trevor Tombe, meanwhile, recently argued the oil and gas sector has some of the highest levels of productivity and wages, and is a “boon” to Canadian productivity.

A report from ATB Financial released yesterday that examines “productive diversification” shows a high, but narrowing, productivity advantage in Alberta. Among its findings:

• Alberta shows higher labour productivity compared to other provinces. While it’s primarily driven by the energy sector, this advantage spans most major sectors.
• The gap between Alberta’s productivity and the national average has narrowed alongside a decrease in energy investment and a shift towards service employment.
• The province’s energy sector has faced numerous shocks over the past decade, leading to a challenging period. The number of workers in the oil and gas industry has decreased, and Alberta’s wage premium relative to the rest of Canada has narrowed.
• New sectors such as hydrogen, aerospace, food manufacturing, and technology are showing promise.

The outlook

Today: We’ve covered off the big stuff in our stew. But we’re also following Canada wholesale trade and new motor vehicle sales for June, existing home sales for July, China industrial production and retail sales for July, and Japan GDP.

Next week: Toronto-Dominion Bank kicks off bank earnings season when it reports on Thursday.

In the vending machine: Family-owned packaged food giant Mars, whose candy brands include M&M’s and Snickers, says it is buying Pringles and Cheez-It maker Kellanova for nearly US$36-billion in the biggest deal in the packaged food sector.

On the campaign trail: U.S. Vice-President Kamala Harris is trying to outmanoeuvre former president Donald Trump and address vulnerabilities on her policy positions as she starts to fill in how she would govern if elected in November. The Globe’s Tony Keller says her relatively low public profile is a political superpower.

On the rails: Canada’s two main railways are starting to block shipments ahead of a possible strike or lockout next week.

Morning markets

Global markets saw modest gains ahead of key U.S. inflation data this morning that could signal whether the Federal Reserve stays on track for an interest rate cut next month. Wall Street and TSX futures are little changed ahead of the release.

Overseas, the pan-European STOXX 600 was 0.2 per cent higher in morning trading. Britain’s FTSE 100 rose 0.22 per cent, Germany’s DAX gained 0.4 per cent and France’s CAC 40 advanced 0.36 per cent.

In Asia, Japan’s Nikkei closed 0.58 per cent higher, while Hong Kong’s Hang Seng slid 0.35 per cent.

The Canadian dollar traded at 72.93 U.S. cents.