A busy week of tariffs, budgets and economic growth

Author: Portfolio Specialist Group

March 5, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

U.S. announces tariffs on steel and aluminum

  • U.S. President Donald Trump unexpectedly announced a 25% tariff on steel imports and a 10% tariff on aluminum. Details around the ruling were not immediately available and it is not yet clear which countries, if any, will be exempt. Canada is currently the largest supplier of foreign steel.
  • Fears of a potential trade war sparked a selloff in markets, with the S&P 500 falling below its 100-day moving average and the Dow closing 1.7% lower.
  • Trump did not back away from his comments on Friday, instead tweeting that “trade wars are good, and easy to win”, sending financial markets even lower to close the week.

Canadian economy expanded at a slower-than-expected pace in the fourth quarter

  • Canada’s economy grew 1.7% in the fourth quarter of 2017, building on 1.5% GDP growth in the prior quarter. Growth for 2017 as a whole totaled 3.0%, precisely meeting the Bank of Canada’s initial estimate.
  • A 9.6% gain in investment led growth higher, while consumption slowed to 2.1% from 3.7% in the prior quarter. Trade also negatively impacted headline growth as the 3.0% expansion in exports was outweighed by a 6.3% advance in imports.
  • Monthly GDP growth for December rose a modest 0.1%, suggesting little momentum entering the first quarter of 2018.

Canada’s Federal Budget announced

  • Finance Minister Bill Morneau tabled Canada’s 2018 Federal Budget with few legislative changes impacting investors directly, instead focusing on economic equality, opportunity and diversity.
  • The budget introduces legislation to close the gap in income inequality between men and women with a Women Entrepreneurship Strategy to empower women in leadership. The budget also includes new incentives in adding five additional weeks of EI benefits when both parents share leave time.
  • The Liberal government has also earmarked $2.6 billion towards continuation of the Innovation and Skills Plan and $447 million to create an Indigenous Skills and Employment Training Program, among other initiatives.
  • In total, approximately $20 billion has been allocated towards new measures over six years.

Other economic news

  • The U.S. ISM Manufacturing Index gained 1.7 points in February, reaching a cycle high of 60.8. 15 of 18 industries reported growth, driven higher by employment, inventories and supplier delivery time components. The Eurozone Manufacturing PMI decelerated to a four-month low of 58.6, though broad-based expansion continues across the region. In China, the Caixin Manufacturing PMI reached a six-month high of 51.6.
  • U.S. durable goods orders fell 3.7% in January, partly caused by a drop in Boeing orders. Excluding transportation, orders fell 0.3%. New home sales fell to a five-month low after slowing 7.8% in January, as sales in the Northeast region recorded a 33% slump during the month. On an annualized basis, new home sales are down 1.0% from a year ago. Despite disappointing data, U.S. consumers remain positive. The Conference Board Consumer Confidence Index jumped 6.5 points to 130.8, a near 18-year high.

What’s to come

  • The Bank and Canada and European Central Bank will meet during the week. No changes are expected to policy rates, though comments made will be closely scrutinized after recent market volatility. U.S. nonfarm payrolls will be reported on Friday, while overseas the eurozone and Japan are set to report fourth quarter GDP during the week.

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Written by

Portfolio Specialist Group

AGF Investments Inc.

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