AGF Weekly Perspectives – December 11th Update
Author: Portfolio Specialist Group
December 11, 2017
“A recap of last week’s top economic news and what’s to come”
Weekly Market Review
Another strong U.S. jobs report
- The U.S. added a better-than-expected 228,000 jobs in November, with strong gains in the goods sector (construction and manufacturing) as well as the services sector (business, education and health).
- The strong report assisted in the unemployment rate holding at a 17-year low of 4.1%. Wage growth was subdued, however, with average hourly earnings rising only 0.2%, or 2.5% annualized. Positively, aggregate hours worked jumped 0.5% in November.
- The payrolls report showed little to shift the U.S. Federal Reserve’s position ahead of their December meeting, in which the market has fully priced in a 25 basis points rate hike.
Bank of Canada holds rates
- The Bank of Canada held its monetary policy rate at 1%, in-line with broad consensus, though did so with a noticeably dovish tone, catching markets off guard.
- Despite employment and the participation rate continuing to rise, the central bank noted continuing slack in the labour market, in addition to uncertainty related to geopolitics and ongoing NAFTA negotiations, as reason to warrant caution.
- Canadian bond yields and the Canadian dollar fell following the announcement on expectations for a more optimistic outlook. The Bank of Canada next meets on January 17th, when they will also publish their Monetary Policy Review with updated forecasts and models.
Canadian housing improves
- Canadian housing starts improved 13% from the prior month in November to a level last reached in April 2012. The strong improvement keeps Canadian building activity on pace for the largest number of new units in the last decade. Urban multi-unit starts surged by a record amount in November, up 16.5%, while single-unit starts rose 5.9%.
- Starts advanced in six of 10 provinces, with Ontario leading during the month. Manitoba and Alberta also recorded strong activity. British Columbia pulled back in November, though remains on pace for its strongest year since 1993.
- Building permits rose 3.5% in October on plans for commercial and industrial buildings rising sharply during the month, particularly in Quebec and Ontario. Residential permits rose modestly, ending a streak of three consecutive declines.
Other economic news
- The U.K. and European Union (EU) reached a last minute deal on preliminary Brexit issues, passing a significant hurdle with talks now moving forward to trade and other matters. Three key issues have been agreed upon, including the “divorce bill” outlining the financial settlement owed to the EU, protection rights for EU citizens living, working and studying in the U.K. and vice versa to continue following the separation, and an agreement that there will be “no hard border” between Northern Ireland and the Republic of Ireland.
- A final measure of economic activity confirmed eurozone GDP grew 0.6% in the third quarter, down slightly from the prior period, to a 2.6% annualized pace. Also reported, eurozone retail sales fell 1.1% in October, reversing September’s 0.8% gain. Sales growth is flattening in the region with only 0.4% growth from a year earlier.
What’s to come
Fed expected to hike rates
- The U.S. Federal Reserve is expected to increase interest rates on Wednesday at their final meeting of 2017. The European Central Bank and Bank of England also meet this week, though no policy changes are anticipated. The U.S. and U.K. are both scheduled to report their respective inflation and retail sales data for the month of November.