Weekly Economic Update

For the week of May 24 to 27

iStock_000079775461_LargeThere is little data out of Canada this week with the exception of the Bank of Canada policy decision expected on Wednesday. As of now, the market is pricing in a 1.8% chance of a rate cut, and all surveyed economists are expecting the Bank of Canada to stay on hold at this meeting. Factors in this decision are likely weak trade numbers and the recent economic impact from wildfires in Alberta. Risk to USD/CAD movement is based solely on the BoC announcement this week and with a cautious tone expected, the loonie expected to remain at its current weaker levels. Today’s expected range USD/CAD 1.3095-1.3195.

In the United States, data will be released for New Home Sales today, expected at 523K or a 2.4% increase over the month of April. This should be a reversal after a fourth quarter slow down with Sal Guatieri from BMO Capital Markets noting that, “Lower borrowing costs have lit a fire under new mortgage applications, and a tight supply of low-priced resale homes is pushing buyers into newly-built units. With sales still well below long-run norms, mortgage rates near all-time lows, and the number of potential first buyers (aged 25 to 34 years) rising the fasted in three decades, the outlook for sales is positive.” We’ll also see U.S. goods trade deficit, Durable Goods Orders for April, GDP for the first quarter, Personal Consumption for the first quarter, and the University of Michigan Sentiment for May. Markets will be watching this data closely as minutes released by the Fed last week stated a rate hike on June 15 is a definite possibility but is dependent on economic performance. Currently, the market is pricing in a 32% chance of a rate hike at this meeting and by February 2017, the market has a 79.4% probability of a Fed hike.

Last week wrapped up with data from consumer prices and retail sales that had mixed strength. On one hand, retail sales fell 1.0 percent after expectations called for only a 0.6 percent drop. On the other, core CPI rose to 2.2% on a year-over-year basis, ahead of the Bank of Canada’s target of 2.0%. Much of the weakness in retail sales was attributed to weak automobile sales in March, while some of the strength in consumer prices is attributed to higher than expected gasoline prices and increasing food prices.

Oil prices gained throughout last week on decreasing output out the United States and concerns of more production loss due to renewed concern from wildfires in Alberta. In addition, demand for oil has been increasing. WTI is currently trading at $48.41/bbl.

Source: Bloomberg

Posted by Concentra Financial Markets

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