Around the World – Week of September 25th Update

Author: Portfolio Specialist Group

September 25, 2017

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

Weekly Market Review

U.S. FED SET TO BEGIN BALANCE SHEET REDUCTION IN OCTOBER

  • The U.S. Federal Reserve (Fed) announced it will begin reducing its US$4.5 trillion balance sheet in October. As telegraphed in prior statements, the Fed will begin with a gradual runoff of maturing Treasuries and mortgage backed securities worth US$6 billion and US$4 billion, respectively.
  • The Fed kept interest rates unchanged as expected, though remained firm on intentions to hike rates once more before year-end, triggering a spike in U.S. Treasury yields and strengthening of the U.S. dollar.
  • In its Summary of Economic Projections, the Fed expects a “moderate” pace of growth with GDP rising 2.4% this year and hovering around 2.0% through 2020. Forecasts for U.S. unemployment were lowered to 4.1% in 2018 and 2019 before rising to 4.2% in 2020. The Fed also reduced its median estimate for core PCE inflation to 1.5% this year, from 1.7%, and 1.9% in 2018, down from 2.0%. The Fed lowered its long-term outlook for policy rates by reducing its estimate for the terminal rate to 2.75% from 3.0%. From an investment standpoint, this is positive for bonds and equities but negative for the U.S. dollar.

CANADIAN INFLATION IMPROVES

  • Canadian inflation rose to 1.4% annualized in August, up from 1.2% in the prior month, led by a 2.9% rise in gas prices. Food deflation appears to have turned after nearly a year of decline with grocery prices posting a 0.3% increase year over year.
  • Two of the three Bank of Canada core inflation measures increased in August, bringing core inflation to 1.5% annualized, a third consecutive monthly increase.
  • Regionally, prices rose in nine of 10 provinces. Manitoba was the lone province where prices held steady in August.

U.S. HOUSING TRENDS LOWER

  • S. housing starts fell for a fifth time in the last six months, down 0.8% in August. Multi-family starts weighed negatively on starts, falling 5.8%, offsetting a 1.6% advance for single family starts. Weather played a factor towards the end of the month with activity falling nearly 8% in the South and is expected to impact September’s report as well.
  • Positive for future activity, building permits rose 5.7% in the month, matching the highest level this year.
  • Also reported, U.S. existing home sales fell 1.7% in August to 2017 lows. A strong month for condos was more than offset by weak single-family home sales. Similar to housing starts, the hurricane’s impact was evident in existing home sales figures, as sales rose 1.3% in August when excluding the South.

OTHER ECONOMIC NEWS

  • Canadian retail sales rose 0.4% in July, far better than expectations for a 0.1% gain. However, this was fully a result of higher prices, as volumes fell marginally in the month. Auto sales rose 1.4% and remain on track for another record-breaking year. Food and beverage sales rose 0.9%, a fourth monthly increase. Regionally, the Yukon led sales, with Quebec and British Columbia also posting strong sales growth.
  • Eurozone manufacturing PMI reached its highest level since 2011 with a 0.8 jump to 58.2 in September, coming on the back of consumer confidence reaching a 16-year high. Within the region, Germany’s manufacturing PMI reached a six-and-a-half year high of 60.6. In the U.S., manufacturing activity continued at a subdued pace in September, up slightly to 53.0.

What’s to come

CANADIAN GDP

  • Canada’s strong economic growth through the first half of 2017 is expected to continue in July, with GDP reported on Friday. Overseas, both the eurozone and Japan will release latest inflation data during the week. U.S. durable goods orders, reported on Wednesday, will likely rebound after a sharp drop in the prior month.

‘Download the Summary’  for additional market data

Written by

Portfolio Specialist Group

AGF Investments Inc.

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