Insights and Market Perspectives

Geopolitics back in the spotlight

Author: Portfolio Specialist Group

August 13, 2018

AGF Weekly Perspectives

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

Tensions flare between Canada and Saudi Arabia

  • A tweet from Global Affairs Canada expressing concern over the arresting of women’s rights activists in Saudi Arabia escalated into a full-on diplomatic dispute last week. In a string of retaliatory measures, Saudi Arabia expelled Canada’s ambassador, froze all new trade and investment in Canada, pulled exchange students from Canadian institutions and sold off Canadian assets.
  • Prime Minister Justin Trudeau held firm on his stance following Saudi Arabia’s response, promising he will continue to defend human rights and oppose Saudi aggression.
  • Market reaction was relatively benign, as only 10% of Canada’s oil imports come from Saudi Arabia, and overall, the country ranks as Canada’s 17th largest trading partner.

U.S. price pressures remain elevated

  • U.S. inflation rose 0.2% in July to maintain an annualized pace of 2.9% and six-and-a-half-year highs. Energy prices decelerated 0.5% in the month, while food prices rose 0.1%.
  • Core inflation also rose 0.2%, raising the annualized rate to 2.4%, which is the fastest pace since September 2008.
  • The steady pace of higher prices is supportive of higher interest rates, with markets largely pricing in a 25 basis points hike set for September.

Canada labour market surges

  • Canada’s labour market posted its strongest monthly gain of 2018 with 54,100 jobs added in July, more than doubling the trailing 12-month average of around 20,000.
  • However, part-time positions accounted for all of the gain, as net full-time positions were negative. Labour gains were confined largely to education, which accounted for two thirds of the total gain, and concentrated in Ontario, while five of 10 provinces reported net job losses.
  • Canada’s unemployment rate fell to 5.8%, matching four-decade lows reached earlier this year and average hourly earnings also cooled to 3.2% annualized, from 3.6%.

Other economic news

  • Canadian housing starts fell sharply in July, particularly condo activity, though some pullback was expected after the prior month saw near-decade high levels. The decline was concentrated in Ontario’s multi-family starts. Also reported, new house prices in Canada rose 0.8% year over year, with Montreal leading prices higher.
  • Japan’s economy returned to positive growth after contracting in the first quarter. GDP rose 0.5% in the second quarter, to a 1.9% annualized pace. Consumer spending and business investment drove activity, while net trade was negative.

What’s to come

A busy week for economic data

  • Several countries are set to report industrial production data this week, including China, the U.S. and the eurozone. Canada will update inflation numbers on Friday, while the U.S. reports retail sales and housing starts.

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Written by

Portfolio Specialist Group

AGF Investments Inc.

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