Around the World – Week of October 16th Update

Author: Portfolio Specialist Group

October 16, 2017

“A recap of last week’s top economic news and what’s to come”

Weekly Market Review

CANADIAN HOUSING PAUSES, THOUGH REMAINS STRONG

  • Canadian housing starts grew by 217,100 annualized units in September, down slightly from the prior month, though overall it was a strong third quarter. Multi-unit starts pulled back in the month, more than offsetting a rebound in single-unit starts.
  • Regionally, housing declines were concentrated in Ontario. Quebec, British Columbia and Atlantic Canada saw slightly positive growth, while the prairies were relatively flat, as Alberta’s gain was more than offset by losses in the other two central provinces.
  • Canadian existing home sales rose 2.1% in September, though remain 11% lower from year-ago levels. Also, building permits fell more than expected in August, down 5.5%.

U.S. INFLATION AND RETAIL SALES IMPACTED BY WEATHER

  • U.S. prices rose 0.5% in September, following a 0.4% increase in August, bringing annualized inflation to 2.2%. Importantly, these figures have been heavily distorted by the impacts of Hurricanes Harvey and Irma with gas prices alone accounting for three-quarters of the increase after spiking double-digits in September.
  • Excluding volatile items, price pressures were benign as core inflation rose 0.1% in September and annualized levels held at 1.7% for the fifth consecutive month.
  • Also impacted by weather, U.S. retail sales rose 1.6% in September, the largest monthly increase in over two years. Vehicle sales, gas station receipts and building material purchases all spiked in the Gulf region. Excluding auto and gas categories, sales rose 0.5% in the month.

FED MINUTES POINT TO AN ADDITIONAL HIKE

  • Minutes of the U.S. Federal Reserve’s (Fed) September meeting affirmed a commitment to raising rates, suggesting that a December hike is “likely to be warranted” provided the economy maintains its steady pace.
  • A larger number of Fed members raised concern over inflation and that low levels may not be “transitory” as originally expected, which could impact the pace of rate hikes into 2018.
  • The Fed expressed little concern over the long-term effects of the recent hurricanes, stating that rebuilding is “underway and economic activity in the affected areas (has) resumed”.

OTHER ECONOMIC NEWS

  • The eurozone continues with strong manufacturing activity as industrial production rose 1.4% in August, well ahead of expectations for a 0.5% gain, which improved the annualized pace to 3.8%. Robust growth was widespread across the region, as Germany led with a 2.6% increase in August. The U.K.’s 0.2% monthly increase resulted in 1.6% annual growth, doubling expectations.
  • Geopolitical tensions have eased in Spain after the declaration of independence by Catalonia was halted, as leaders of the movement instead called for talks with central government. In North America, tensions remain elevated over NAFTA talks. In the fourth of seven scheduled rounds of negotiation, the U.S. proposed a sunset clause which would limit the term of a new deal to five years. Given Canada’s and Mexico’s vehement opposition to the clause, its introduction added further uncertainty as to whether an agreement will be reached.

What’s to come

GLOBAL INFLATION AND U.S. HOUSING

  • Canada will report September’s inflation, expected to rise modestly, as well as retail sales on Friday. The eurozone, U.K. and China will also report inflation during the week. In the U.S., data for housing starts, existing home sales and building permits will be released. U.S. industrial output is expected to rebound after its worst month since 2009.

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Written by

Portfolio Specialist Group

AGF Investments Inc.

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