For week of March 4 – 8, 2019
Canada December GDP fell 0.1 percent vs. consensus of flat growth, according to Statistic Canada. Output fell in seven of twenty industrial sectors, goods-producing sector fell 0.7 percent and service-producing sector rose 0.2 percent over the month of December. Largest upside contributor was agriculture, and largest downside was manufacturing. Canada GDP rose 0.4 percent in Q4 on an annualized basis, vs. estimate of 1 percent. Household consumption growth slows to 0.7 percent over the quarter (weakest since 2015), with investment and housing decline sharply and inventories accumulate. General government consumption climbed 2.0 percent, gross fixed capital formation declined 10.3 percent, inventory rose by $8 billion, and business gross fixed capital formation dropped 9.6 percent. Non-residential investment fell 10.9 percent (largest decline since 2016) and residential structures declined 14.7 percent (biggest decline since 2009). The weak GDP numbers sent the loonie tumbling on Friday, down almost a cent to as low as 1.3307 vs. USD.
U.S. January personal income fell 0.1 percent vs. estimate of 0.3 percent and December personal consumption fell 0.5 percent vs. consensus decline of 0.3 percent, according to a Commerce Department report. December PCE rose 0.1 percent and 1.7 percent over the month and year, respectively. The ISM index fell to 54.2 from 56.6 as four of the five main components (orders, employment, production, and deliveries) all saw decline. This gauge fell to a two-year low, slowing more than expected with a broad decline that suggests economic growth is moderating, although the drop may be related to weather disruption.
This week in Canada we will see data releases include build permits, housing starts, and unemployment rate. Bank of Canada rates decision will be on Wednesday, March 6. The currently implied probabilities of a rate hike are at 10.6 percent. The market expects the BoC to maintain a hiking bias, but less hawkish than in January, due to slow GDP growth and core inflation below 2 percent. Releases out of the United States this week include new home sales, trade balance, the release of U.S. Federal Reserve Beige book, housing starts, and unemployment rate.
Canada and US government yields are trading flat to 1.5bps lower with S&P futures higher (+8.0). The Canadian dollar is trading ~10bps lower against the US dollar this morning, today’s expected range is 1.3261 – 1.3361.