AGF Weekly Perspectives – January 29th Update
Author: Portfolio Specialist Group
January 29, 2018
“A recap of last week’s top economic news and what’s to come”
Weekly Market Review
U.S. economy reports strong end to 2017, but misses expectations
- The U.S. economy grew 2.6% annualized in the advance estimate of fourth quarter GDP. While short of consensus expectations, the miss was largely due to a 13.9% annualized surge in imports, the most in over seven years, evidence of solid domestic demand. Business investment and government spending were also strong during the quarter.
- For 2017 as a whole, U.S. GDP advanced 2.3%, a clear improvement from the prior year’s 1.5% growth.
- Also reported during the week, U.S. existing home sales pulled back in December with a 3.6% decline, breaking a streak of three consecutive monthly gains. On an annualized basis, home sales remain 1.1% higher from a year ago.
Canadian inflation slows
- Consumer prices fell 0.4% in December, causing the annualized pace to decelerate to 1.9% from 2.1% in the prior month.
- Positively, seven of eight major categories saw higher prices, as the declines were concentrated to gasoline receipts and telephone services, which recorded the largest single-month drop on record, reflecting discounted wireless plans. Core inflation continued to move higher with two of the three Bank of Canada measures rising, for an average of 1.8%.
- Also reported during the week, Canadian retail sales advanced 0.2% in November. Year over year, sales are up a strong 6.5%.
No changes from the ECB or BoJ
- The European Central Bank (ECB) made no changes at their most recent meeting, stating key interest rates will “remain at their present levels for an extended period of time”. Further confirming their cautious stance, President Mario Draghi confirmed easing measures will continue as scheduled through September “or beyond, if necessary” despite the euro hovering around three-year highs.
- In discussing the stronger euro, Draghi pointed to improvement in the economy and heightened sensitivity to changes in communication around foreign exchange markets.
- The Bank of Japan (BoJ) also met during the week, holding interest rates unchanged, as expected. Like the ECB, Governor Kuroda was upbeat in his comments, stating the Japanese economy is at full employment and showing improvement in reaching its target inflation rate, which measured 0.9% annualized in December.
Other economic news
- The Eurozone Manufacturing PMI improved to 59.6 in January, the highest level since June 2006, as the region continues to lead global activity. Japan’s manufacturing sector has also been strong, reaching four-year highs of 54.4 in the month. The U.S. reported a strong start to the year, with January’s manufacturing PMI rising to 55.5 in January.
- The U.K. economy grew at a 1.5% annualized pace after advancing 0.5% in the fourth quarter. The advance was largely attributed to the service sector, which accounts for nearly 80% of U.K. GDP. The U.K. also delivered a solid employment report for November, holding the jobless rate at a 42-year low of 4.3%. Wage growth also improved to 2.4%, the fastest pace in nearly a year.
What’s to come
U.S. employment, eurozone GDP and inflation
- The U.S. reports nonfarm payrolls and the latest unemployment rate for January on Friday, following the U.S. Federal Open Market Committee’s meeting earlier in the week, in which rates are expected to remain unchanged. In the eurozone, fourth quarter GDP, as well as an update on inflation and jobs data are scheduled to be released.