Insights and Market Perspectives

Bank of Canada set for another rate hike?

Author: Portfolio Specialist Group

July 3, 2018

AGF Weekly Perspectives

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

Stephen Poloz speaks ahead of July policy meeting

  • Bank of Canada Governor Stephen Poloz spoke in Victoria on June 27th, two weeks ahead of the central bank’s highly anticipated policy meeting. Ironically, in a speech titled “Let Me Be Clear”, Poloz made comments both in favour of a July hike and also acknowledged reasons for delaying further.
  • The Governor highlighted three main uncertainties that will factor prominently into upcoming decisions including trade, the housing market and the impact of higher interest rates on household debt.
  • Positively, Poloz spoke to “increased confidence in the economy” and that financial markets are understanding the central bank’s messaging correctly. Market-implied odds of a July 11th interest rate hike increased to around 85% by the end of the week.

Canadian GDP moves higher

  • The Canadian economy expanded marginally in April with a 0.1% GDP advance. While beating expectations, growth appears to be slowing from the prior two month’s strong gains of 0.3% and 0.4%, respectively.
  • 15 of 20 major industries expanded output in April. Manufacturing surprised to the upside with growth of 0.8% in the month, while mining activity slid 9.0% due to a strike at a major iron ore mine.
  • Overall, goods-producing sectors are leading the Canadian economy higher, up 4.4% annualized, while services sectors have gained only 1.8% annualized.

Eurozone inflation moves higher

  • Eurozone inflation was reported at 2.0% in June, up from 1.9% in the prior month and effectively reaching the central bank’s target for the first time in a year.
  • Much of the gain came from positive base effects in energy prices, which are 8.0% higher from a year ago, as well as higher food costs.
  • Removing volatile items, core inflation fell in June to 1.0% with previous increases in recreation prices falling out of the one-year window.

Other economic news

  • Japan’s unemployment rate improved to 2.2% in May, the lowest level since 1992, after falling by 0.3% in the month due to an aging population. In a country roughly the size of California, Japan now employs nearly 67 million people.
  • U.S. durable goods orders declined 0.6% in May as the volatile autos and aircraft category pulled back. Goods exports gained 2.1% in the month, and are now up 12.7% annualized.

What’s to come

North American labour market updates and manufacturing PMIs

The U.S. and Canada both report June’s unemployment and payroll data during the week. Several manufacturing PMIs will be updated as well, including the U.S., Canada, eurozone, China and Japan.

Download summary

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit

© 2018 AGF Management Limited. All rights reserved.

More articles like this.

Inversion perversion: Why the yield curve may not be a surefire signal of the next recession

This time around, the yield curve may not be in such a rush to flip upside down and, because of that, it’s not necessarily the same surefire sign of what’s to come.

Read More

Gains may be tougher as the bull runs into the late cycle

The recent selloff in equity markets may not signal an immediate end to the bull run, in fact markets have largely seen positive returns this week, but further gains are only going to get harder to come by at this late stage in the cycle.

Read More

Stormy weather: Markets are roiled by the hurricane and the thunder created by the Fed

AGF’s Steve Bonnyman gives his perspective on recent market volatility, driven by trade disputes, a president fighting with the Fed, and how investors should position themselves going forward.

Read More