AGF Weekly Perspectives – November 6th Update
Author: Portfolio Specialist Group
November 6, 2017
“A recap of last week’s top economic news and what’s to come”
Weekly Market Review
Canadian GDP pulls back
• The Canadian economy’s rapid pace of growth through the first half of 2017 paused in August with GDP contracting by 0.1%, the first negative month in nearly a year.
• Positively, declines were concentrated to select areas, as 12 of 20 major industries recorded expansion during the month. A pullback in goods-producing industries, particularly resources and manufacturing, more than offset a strong month in the services sector, which recorded its 17th straight month of expansion.
• Midway through third quarter reporting, Canadian GDP remains on track for close to 2% growth and in line with the Bank of Canada’s forecast.
A busy week in Washington
• The House Republicans announced their tax reform bill with a number of market-friendly proposals, including lowering the corporate tax rate to 20%, from 35%, and a one-time reduction in the tax rate on existing foreign earnings (12% on cash, 5% on other assets). Republicans will now fine-tune the bill in the coming weeks before facing the significant challenge of getting it through the Senate.
• President Trump appointed Jerome Powell to serve as the next Chair of the Board of Governors of the U.S. Federal Reserve (Fed). With the announcement unfolding as expected, and Powell’s policy views similar to Janet Yellen’s, the market’s reaction was fairly muted.
• At the most recent meeting, the Fed held interest rates unchanged, though kept an upbeat tone for continued, gradual hikes. A third rate hike of 2017 is widely expected at the Fed’s December meeting.
Canada, U.S. report employment data
• Canada added a better-than-expected 35,300 jobs in October, a strong month that added 88,700 full-time jobs, while part-time employment fell. Encouragingly, average hourly earnings rose to 2.4%, from 2.2%. Quebec led the gains with seven of 10 provinces reporting growth in October.
• U.S. payrolls added 261,000 positions in October, below the consensus forecast of 310,000. However, there was not as much disappointment when factoring in the upward revision of 90,000 positions in the preceding two months. As opposed to the 33,000 positions that were lost in September, the new estimate shows that employment actually rose by 18,000, suggesting hurricane-related losses were smaller than initially estimated.
• Canada’s unemployment rate ticked marginally higher to 6.3%, though this was a result of a large increase in the labour force. Conversely, the U.S. unemployment rate fell to 4.1%, a 17-year low, due to a sizable reduction in the labour force.
Other economic news
• The Bank of England (BoE) raised its benchmark rate for the first time since July 2007. The 25 basis point hike (to 0.5%), erases last year’s emergency rate cut in response to the Brexit referendum. The BoE was noticeably cautious in their comments, however, indicating further rate hikes will come “gently” and only “to a limited extent”. The announcement was widely expected with inflation at five-year highs and unemployment at multi-decade lows, yet Brexit remains a top concern for the BoE, admitting it is “having a noticeable impact on the economic outlook”.
• The eurozone unemployment rate fell to 8.9% in September, a near nine-year low and a full percentage point lower than a year ago. Third quarter GDP expanded 0.6%, a slight slowdown from the prior period, though still on pace for 2.5% annualized growth. Inflation missed expectations, however, falling to 1.4% year over year in October.
What’s to come
Canadian Housing Update
• An update on Canadian housing will be reported on Wednesday, including housing starts and building permits, in an otherwise quiet week for global economic data. Overseas, China will report October’s inflation numbers as well as trade data.
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