AGF Weekly Perspectives – November 27th Update
Author: Portfolio Specialist Group
November 27, 2017
“A recap of last week’s top economic news and what’s to come”
Weekly Market Review
Canadian retail sales disappoint
- Canadian retail sales disappointed in September. Retail sales rose 0.1% in September, after dropping 0.1% in August. Expectations were for a 1% gain during the month. Automobile and clothing sales fell, while higher gasoline station receipts were supported by rising gas prices.
- Receipts for retailers have been flat over the past four months, following one of the strongest years on record, suggesting that the strong economic impact from consumption during the first half of the year will cool during the second half. Economic activity is expected to slow to a 1.8% annualized growth rate during the third quarter, following 4.5% recorded during the second quarter.
- Cooling growth and the fact that the Bank of Canada has already raised rates twice this year should place the central bank on hold until the spring of 2018.
Mixed U.S. economic data
- U.S. existing home sales rose more than expected in October as hurricane-related effects dissipated. The ongoing shortage of housing has pushed prices higher and beyond the reach of some first-time buyers, which remains an obstacle going forward. Existing home sales climbed 2.0% in October to a seasonally adjusted annual rate of 5.48 million units.
- Durable goods orders were weak last month, following three strong months of gains. Overall orders for durable goods fell 1.2% in October due to a decline in demand for transportation equipment. New orders for U.S.-made capital goods for non-defense capital goods excluding aircraft, which is watched to gauge business spending, fell 0.5%. Still, core capital goods orders rose 4.4% over the year.
- Surveys of American companies showed that businesses grew at the slowest pace in four months in November. The IHS market manufacturing PMI declined to 53.8 in November, from 54.6 in October. The services PMI also fell, to 54.3 from 54.6 in October. Still, both indices are still in expansion territory and are broadly in-line with GDP growing at an annualized rate of just over 2%.
Eurozone economy continues to shine
- The eurozone showed continued strength in October as both the services and manufacturing industries performed stronger than even the most optimistic expectations. Broad-based strength helped support factory activity, which had the second strongest month in the index’s history.
- The IHS Markit composite flash PMI jumped to 57.5 in November, the highest since April 2011. As well, a business index rose to 56.9 from 56.6 during the prior month, close to a seven-year high.
Other economic news
- The U.S. Federal Open Market Committee minutes from its October 31 – November 1 meeting indicated that Committee members maintained a positive view on growth, including a strong labour market, consumer spending and manufacturing. There was disagreement on the pace of inflation, though there was agreement that the pace of growth could improve if tax reform is passed. The Committee also stated concerns about financial market prices, which they felt were getting out of hand and potentially poses risks to the economy.
- Japan’s manufacturing sector grew at its fastest pace in more than three years in November. The Nikkei-Markit Manufacturing PMI rose to 53.8 in November, from 52.8 in October, the fastest pace since March 2014. New orders increased strongly as businesses have benefited from the weaker yen. However, due to the weak yen and higher materials prices, cost pressures have increased as input price inflation increased to a 35-month high in November.
What’s to come
- In Canada, October’s employment report will be released on Friday as well as GDP data for September and Q3. In the U.S., third quarter GDP will be released on Wednesday, while a second reading of November’s manufacturing report will be released on Friday. In the eurozone, key data on inflation will be released on Thursday, as well as the employment report, while manufacturing data will be released on Friday. In China, manufacturing and services data will be released on Wednesday.