Weekly Economic Update

For the week of March 21 to 25

Analyzing electronic documentCanada’s Finance Minister Bill Morneau will be delivering the Federal Budget on Tuesday afternoon; not a lot of expected surprises to come from it however much different than previous year’s small surpluses or balanced budgets. The major question is whether Ottawa will decide on more or less stimulus in comparison to the Liberal election platform. RBC’s Economic Budget preview expects the budget deficit to range between $25 billion to $30 billion in each of the next two fiscal years. Other highlights include the personal tax changes that have already been implemented for the current tax year which is a basis tax decrease for Canadians earning between $54,300 to $90,600 and a tax rate increase for those earning over $200,000. The Canada Child Benefit initiative will replace existing programs and create one larger program in order to help families with annual income below $150,000. Infrastructure spending is expected to cost approximately $17 billion in the next four years and $125 billion over the next 10 years with allocations toward public transportation, social and green infrastructure. Other scheduled economic releases this week for Canada include just the Bloomberg Nanas Confidence survey for the week of March 18 released later this morning.

The loonie is trading slightly weaker after Friday’s break below 1.30 USDCAD. With the short week ahead, oil is expected to be the major risk to CAD alongside the Federal Budget release. Scotia’s FX Strategy group highlights “the potential for further CAD upside as market participants consider the growth-supportive impact of fiscal stimulus and its influence on expectations for relatively monetary policy.” Furthermore, markets are pricing in a 20% change of a 25 basis point cut over the next 12 months, “with a fade in the market’s dovish bias… expected to provide for CAD strength.” Today’s expected range: USDCAD 1.2980 – 1.3080.

Oil prices fell slightly on Friday after a three month high now trading around $39.60/bbl. U.S. rig counts increased (by 1 rig…) after falling for 12 weeks straight. Markets took this as a sign that producers can and will continue amid the global cut.

In the U.S., The Chicago Federal National Activity Index fell short of expectations for the month of February posting a decline of -0.29 in comparison to January’s revised +0.41 and market expectations of 0.25. Twenty-seven out of the 85 monthly individual economic indicators made positive contributions with 58 indicators posting modest deterioration. A reading below zero indicates below-trend growth in U.S. economy. Later today Existing Home Sales will be released with February expected to have decreased 3.0% from January posting 5.31 million new sales. Weather is expected to have caused the slight downturn.

Focus later this week resides around new home sales on Wednesday which will hope to erase the 9.2% decline in January and post an increase of 3.2%. Durable Goods Orders released Thursday morning is expected to decline -3.0% on weakness in aircraft orders but excluding all transportation expecting just a 0.3% decline. Rounding out the week, final revisions will be completed to post the 2015 fourth quarter GDP final number.

Source: Bloomberg

Posted by Concentra Financial Markets

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