AGF Weekly Perspectives – January 22nd Update
Author: Portfolio Specialist Group
January 22, 2018
“A recap of last week’s top economic news and what’s to come”
Weekly Market Review
Bank of Canada hikes rates
- The Bank of Canada (BoC) raised interest rates by 25 basis points, as expected. The central bank’s key policy rate now stands at 1.25%, breaking above the 1.00% level for the first time in nine years.
- The BoC noted that slack in the labour market has been absorbed “more quickly than anticipated” as reason for the rate hike, though was decidedly cautious in its messaging towards future rate moves. NAFTA uncertainty was cited as a key risk “weighing increasingly on the outlook”.
- In its accompanying Monetary Policy Report, the BoC increased growth forecasts in its final estimate for 2017 as well as its look ahead to 2018 and 2019, all improved by 0.1%.
Canadian existing home sales advance
- Canadian existing home sales rose 4.5% higher in December, marking a fifth straight monthly increase. All provinces expect for Nova Scotia reported positive growth as activity was likely pulled forward, ahead of OSFI qualification rules implemented on January 1st.
- New listings rose to the highest level on record after a 3.3% jump during the month, suggesting robust activity in the housing market. Average home prices rose 0.8% in December, though are still roughly 3% below peak levels reached in April 2017.
- Despite a strong end to the year, existing home sales declined 4.0% in 2017, the first pullback in five years. Prices rose only 4.1% over the same period, also the slowest pace in five years.
U.S. housing starts miss estimates
- U.S. housing starts disappointed with an 8.2% decline in December, the largest monthly drop in over a year, as a slight rise in multi-family starts was more than offset by a decline in single-family starts.
- The decline was worst felt in the South, as activity slowed following a rush of post-hurricane building. For 2017 as a whole, housing starts increased 2.5% from the prior year.
- Also reported, building permits remained elevated at 1.3 million units in December, roughly in line with the prior month.
Other economic news
- Eurozone inflation slowed in December to 1.4% annualized, down 0.1%. Excluding volatile components, core inflation held unchanged at 0.9% in December. Prices continue to fall well below the central bank’s 2% target, last reached in February 2017.
- China’s economy grew at a 6.8% annualized pace in the fourth quarter, driven by a rebound in commodity prices and improved consumer spending. For 2017 as a whole, GDP rose 6.9%, the first time in seven years that GDP has outpaced the prior year.
What’s to come
Central banks meet
- The European Central Bank and Bank of Japan will hold policy meetings during the week. While rates are widely expected to remain unchanged, comments made will be closely monitored for a potential adjustment in tone. On Friday, the U.S. will report its advance estimate of Q4 GDP, while Canada will release December’s inflation data.