A Difficult Week for Stock Markets

Transcription

1 WEEKLY NEWSLETTER A Difficult Week for Stock Markets #1 BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: Modest growth in consumer prices. ff Canada: The number of housing starts declined in. A LOOK AHEAD ff Auto sales should support U.S. retail sales. ff Another drop is expected for U.S. housing starts. ff Canada: should see slightly higher manufacturing and retail sales. FINANCIAL MARKETS ff Stock markets posted significant declines. ff U.S. and Canadian bond yields are down. ff The Canadian dollar dropped back below US$7. CONTENTS Key Statistics of the Week... 2 United States, Canada A Look Ahead... 4 United States, Canada, Overseas Financial Markets... 3 Economic Indicators of the Week... 6 Tables Economic indicators... 8 Major financial indicators...10 François Dupuis, Vice-President and Chief Economist Carine Bergevin-Chammah, Economist Mathieu D Anjou, Senior Economist Benoit P. Durocher, Senior Economist Francis Généreux, Senior Economist Hendrix Vachon, Senior Economist, Economic Studies: or , ext desjardins.economics@desjardins.com desjardins.com/economics NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document s authors and do not represent the opinions of any other person or the official position of Group. Copyright 2018, Group. All rights reserved.

2 Key Statistics of the Week UNITED STATES ff The total consumer price index (CPI) rose just % in, after two successive increases. Considering the other decimals, this is the weakest monthly growth since March. Energy prices made negative contributions to the monthly change in the CPI, and food prices stagnated. The core CPI, which excludes food and energy, grew more slowly than expected, increasing a mere %, like in. Car prices (particularly for used cars) declined. The increase in shelter-related prices (+) was smaller than in previous months. The annual change in the CPI fell from % to %. Core inflation, which excludes food and energy, remained at %. ff The number of housing starts dropped from 198,843 units in to 188,683 units in. This was a significantly steeper tumble than expected. The bulk of the decline was in Alberta and British Columbia, whereas the other provinces saw a total increase of 20,600 units. The six-month moving average for housing starts in Canada as a whole continued its downward slide. At 207,768 units, this is its lowest level since February The gradual rise in interest rates appears to be starting to affect residential construction. Benoit P. Durocher, Senior economist ff Consumer confidence deteriorated slightly in October according to the preliminary version of the University of Michigan index, which moved from 10 to This is still higher than its levels between April and. The decline stems more from consumer expectations than current conditions. Francis Généreux, Senior economist The housing starts trend continues to slide Number of housing starts In thousands Trend according to a six-month moving average JAN 2017 APR JUL OCT JAN 2018 APR JUL Sources: Canada Mortgage and Housing Corporation and, Economic Studies 2

3 Financial Markets Investors are getting nervous about apparent risks The world s markets have been rocked by a wave of anxiety as investors appear worried about an overly rapid rise in interest rates, tensions between China and the United States and high oil prices. Stock markets saw a sharper drop on Wednesday and Thursday. They perked up again on Friday, but not enough to offset previous losses. The S&P 500 index was heading for a weekly drop of about 5.0% at the time of writing. The Canadian stock market was on the same bandwagon with a weekly loss of around 3.5%. It was mainly affected by the overall decrease in oil prices and, more particularly, by problems on the Canadian oil market. The price of Western Canadian Select (WCS) is now some $50 below the price of West Texas Intermediate (WTI), which is the largest gap ever recorded. The greatest risk aversion spilled over to the bond market, with rates declining on Wednesday. U.S. 2- and 10-year bond yields were back on track on Thursday, stabilizing at around 5% and 3.15%, respectively, at the time of writing. In Canada, yields kept on dropping until Friday, settling at around 5% for the 2-year bond and 2.50% for the 10-year bond. Anxiety about Italy s debt kept Italian bond yields high, as the gap with German yields widened by week s end. The U.S. dollar did not manage to capitalize on investors risk aversion. The effective U.S. dollar exchange rate index declined in step with bond yields. Disappointing inflation figures released in the United States on Thursday kept a rein on the greenback, although it did rebound slightly on Friday. The euro was worth US$6 on Thursday, but tensions related to Italy s debt kept it from maintaining all its gains. The pound fared better, climbing to nearly US$2. The yen capitalized on the stronger risk aversion to get back to around 112 yen/us$. The Canadian dollar headed downward as the week went by. It seems to have been mainly affected by the decrease in oil prices, more specifically by the greater discount on Canadian oil prices. GRAPH 1 Stock markets Index Index 2,950 16,500 2,900 16,250 16,000 2,850 15,750 2,800 15,500 2,750 2, /08/30 15,250 15, /09/ /09/ /09/25 S&P 500 (left) 2018/10/ /10/11 S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 10-year yield In % points In % /08/ /09/07 Spread (left) 2018/09/ /09/25 United States (right) 2018/10/ /10/11 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets Hendrix Vachon, Senior Economist Carine Bergevin-Chammah, Economist US$/C$ US$/ /08/ /09/ /09/ /09/2018 Canadian dollar (left) 03/10/ /10/2018 Euro (right) Sources: Datastream and, Economic Studies 3

4 A Look Ahead UNITED STATES MONDAY 15 october - % Retail sales () Retail sales were quite low in, with a monthly gain of only %. Better growth is expected in, notwithstanding the possible impact of Hurricane Florence. The main positive contribution will come from one of the negative factors that affected : the decline in auto sales. Based on the new vehicle sales figures released at the beginning of the month, there should be a definite rebound in that field. Gas prices should also have a modest positive effect. Food services are expected to stagnate. Not including automobiles and gas, s job losses for retailers (-20,000) and food services (-18,200) do not augur well, despite the high level of household confidence. A increase is expected for total sales, whereas the increase for sales excluding cars should reach. TUESDAY 16 october - 9:15 % % Industrial production () After three monthly increases in a row, including gains of % in both and, industrial production should not move in. The ravages of Hurricane Florence may have had something to do with that flatline. Automobile manufacturing will catch its breath after a 4.0% jump in. But the drop in hours worked in the manufacturing sector in, the first since May, means there was only modest growth in the rest of the sector. The solid reading of the ISM manufacturing index is a good sign, however. Lower energy production is expected, as is temporary stagnation in the natural resources sector after several months of healthy growth. WEDNESDAY 17 october - ann. rate 1,210,000 1,200,000 1,282,000 Housing starts () Housing starts shot up in after declining two months in a row. Another downturn is forecast for, however, judging by s 4.4% drop in building permits. Hurricane Florence also probably shook things up. brought job losses in the residential building sector. Home sales remained relatively low. Bottom line: housing starts should reach 1,200,000 units. There could be an increase in building permits in, but not up to the levels seen in the first half of the year. THURSDAY 18 october - 10:00 % % Leading indicator () The leading indicator rose % in. We expect stronger growth in, however. All the components except for hours worked should make a positive contribution to the index s monthly growth. The main impetus will come from the ISM index and consumer confidence. A % gain is expected. FRIDAY 19 october - 10:00 ann. rate 5,300,000 5,250,000 5,340,000 Sales of existing homes () Resales remained stable in, but the downward trend is real. That stagnation comes on the heels of four monthly declines in a row, which means that sales have plummeted 4.6% since March s 2018 peak. Another downtick is expected for. The new decline in pending home sales points in this direction, and Hurricane Florence could also have a negative effect. Mortgage applications in view of a purchase were up in, however. Bottom line: we expect a retreat to 5,250,000 units, which would be a new low for this year. WEDNESDAY 17 october - - % Manufacturing sales () Merchandise exports declined % in, which should put a damper on the manufacturing sector for the month. Automobile product exports were down 6.2% and aeronautical product exports fell 7.7%. That said, the trend is still fairly positive for most of the other industries, like energy products. Overall, sales should go up slightly for the month. 4

5 FRIDAY 19 october - % % -% Consumer price index () Weekly surveys at the pump put gas prices down % in, which will barely make a dent in the total CPI monthly change. Seasonal price fluctuations are usually flat at this time of year. In the circumstances, the total CPI monthly change should be quite low, around %, in line with the trend of recent months. The total annual inflation rate could fall from % to %. FRIDAY 19 october - Retail sales () Preliminary figures show that new automobile sales rose 2.5% in, wiping out part of the previous month s shortfall. Seasonally adjusted gas prices were down 0.8% for the month, which should dampen service station sales. Conditions remain favourable for the other sectors, however, with low unemployment and high household confidence. That means total retail sales could rise in. OVERSEAS THURSDAY 18 october - 22:00 Q y/y 6.6% Q % China: real GDP (Q3) After ending 2017 and starting 2018 with an annual change of 6.8%, China s real GDP was up 6.7% in the spring, although there was a slight acceleration in the quarterly change. The consensus expects a slower pace for Q Escalating protectionism against the United States and the broader problems of the emerging economies suggest that the Chinese economy will grow more slowly now. Other indicators to be released in China this week will include s CPI on Monday evening. Retail sales and industrial production will be revealed on Thursday evening. 5

6 Economic Indicators Week of October 15 to 19, 2018 Day Hour Indicator Period Previous data UNITED STATES MONDAY 15 Empire manufacturing index Retail sales Total () Excluding automobiles () 10:00 Business inventories () % % % TUESDAY 16 9:15 9:15 10:00 16:00 Industrial production () Production capacity utilization rates NAHB housing market index Net foreign security purchases (US$B) 78.2% 67 % 78.0% % 78.1% WEDNESDAY 17 14:00 Housing starts (ann. rate) Building permits (ann. rate) Minutes of the Federal Reserve meeting 1,210,000 1,280,000 1,200,000 1,275,000 1,282,000 1,249,000 THURSDAY 18 9:05 10:00 12:15 Initial unemployment claims Philadelphia Fed index Speech of the St. Louis Fed President, J. Bullard Leading indicator () Speech of a Federal Reserve Vice Chairman, R. Quarles 210, , ,000 2 % % 10:00 12:00 Existing home sales (ann. rate) Speech of the Atlanta Fed President, R. Bostic 5,300,000 5,250,000 5,340,000 MONDAY 15 9:00 10:30 10:30 Existing home sales Release of the Bank of Canada Senior Loan Officer Survey Release of the Bank of Canada Business Outlook Survey TUESDAY 16 International transactions in securities ($B) 1 1 WEDNESDAY 17 Manufacturing sales () - % THURSDAY % % % % 2.5% -% % % % % % FRIDAY FRIDAY 19 Consumer price index Total () Excluding food and energy () Total (y/y) Excluding food and energy (y/y) Retail sales Total () Excluding automobiles () Note:, Economic Studies are involved every week in the Bloomberg survey for Canada and the United States. Approximately 15 economists are consulted for the Canadian survey and a hundred or so for the United States. The abbreviations, q/q and y/y correspond to monthly, quarterly and yearly variation respectively. Following the quarter, the abbreviations f, s and t correspond to first estimate, second estimate and third estimate respectively. The times shown are Daylight Saving Time (GMT - 4 hours). Forecast of, Economic Studies of the Group. 6

7 Economic Indicators Week of October 15 to 19, 2018 Country Hour Indicator Period (q/q) y/y Previous data (q/q) y/y OVERSEAS MONDAY 15 Japan China China 0:30 21:30 21:30 Industrial production final Consumer price index Producer price index TUESDAY 16 United Kingdom Euro zone Germany Germany Italy 4:30 5:00 5:00 5:00 6:00 ILO unemployment rate Trade balance ( B) ZEW survey Current situation ZEW survey Expectations Trade balance ( M) 4.0% % ,676 WEDNESDAY 17 South Korea United Kingdom United Kingdom Euro zone Euro zone Japan --4:30 4:30 5:00 5:00 19:50 Bank of Korea meeting Consumer price index Producer price index Construction Consumer price index Trade balance ( B) 1.75% 2.6% % % % -19 THURSDAY 18 United Kingdom Japan China China China 4:30 19:30 22:00 22:00 22:00 Retail sales Consumer price index Real GDP Industrial production Retail sales -% 3.6% 3.3% % % Q3 % 6.6% 1.8% 6.7% 6.0% 6.1% 9.0% 9.0% FRIDAY 19 Euro zone Italy 4:00 4:00 Current account ( B) Current account ( M) 2.5% 3.6% % % 4.1% % % 2.6% 2.0% 2 8,607 Note: In contrast to the situation in Canada and the United States, disclosure of overseas economic fi gures is much more approximate. The day of publication is therefore shown for information purposes only. The abbreviations, q/q and y/y correspond to monthly, quarterly and yearly variation respectively. The times shown are Daylight Saving Time (GMT - 4 hours). 7

8 UNITED STATES Quarterly economic indicators REF. QUART. Gross domestic product (2009 $B) Consumption (2009 $B) Government spending (2009 $B) Residential investment (2009 $B) Non-residential investment (2009 $B) Business inventory change (2009 $B)1 Exports (2009 $B) Imports (2009 $B) Final domestic demand (2009 $B) GDP deflator (2009 = 100) Labor productivity (2009 = 100) Unit labor cost (2009 = 100) Employment cost index (Dec = 100) Current account balance ($B)1 1 VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year ,512 12,842 3, , ,574 3,415 19, Statistics representing the level during the period; * New statistic in comparison with last week. UNITED STATES Monthly economic indicators REF. MONTH Leading indicator (2010 = 100) ISM manufacturing index1 ISM non-manufacturing index1 Cons. confidence Conference Board (1985 = 100)1 Personal consumption expenditure (2009 $B) Disposable personal income (2009 $B) Consumer credit ($B) Retail sales ($M) VARIATION (%) LEVEL -1 month -3 months -6 months -1 year * ,953 14,398 3, , , * , ,551 1,950 1,282 1, ,340-53, , ,174 1, ,340-50, ,329 1, ,410-42, ,290 1, ,540-54,963 1, ,172 1, ,420-44,163 2, * Excluding food and energy Producer price (2009 = 100) Export prices (2000 = 100) Import prices (2000 = 100) * * * Excluding automobiles ($M) Industrial production (2007 = 100) Production capacity utilization rate (%)1 New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k)1 Building permits (k)1 New home sales (k)1 Existing home sales (k)1 Commercial surplus ($M)1 Nonfarm employment (k)2 Unemployment rate (%)1 Consumer price ( = 100) Excluding food and energy Personal cons. expenditure deflator (2009 = 100) 1 Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. 8

9 Quarterly economic indicators REF. QUART. Gross domestic product (2007 $M) Household consumption (2007 $M) Government consumption (2007 $M) Residential investment (2007 $M) Non-residential investment (2007 $M) Business inventory change (2007 $M)1 Exports (2007 $M) Imports (2007 $M) Final domestic demand (2007 $M) GDP deflator (2007 = 100) Labour productivity (2007 = 100) Unit labour cost (2007 = 100) Current account balance ($M)1 Production capacity utilization rate (%)1 Disposable personal income ($M) Corporate net operating surplus (2007 $M) 1 VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year , , , , , ,891,153 1,083, , , ,622 14, , ,979 1,882, , ,248, ,584 Statistics representing the level during the period; * New statistic in comparison with last week. Monthly economic indicators REF. MONTH Gross domestic product (2007 $M) Industrial production (2007 $M) Manufacturing sales ($M) Housing starts (k)1 Building permits ($M) Retail sales ($M) Excluding automobiles ($M) Wholesale trade sales ($M) Commercial surplus ($M)1 Exports ($M) Imports ($M) Employment (k)2 Unemployment rate (%)1 Average weekly earnings ($) Number of salaried employees (k)2 Consumer price (2002 = 100) Excluding food and energy Excluding 8 volatile items Industrial product price (2002 = 100) Raw materials price (2002 = 100) Money supply M1+ ($M) 1 VARIATION (%) LEVEL -1 month -3 months -6 months -1 year 1,789, ,151 58, ,148 50, , , ,692-2, ,872 50,549 50, , , , * * Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. 9

10 UNITED STATES,, OVERSEAS Major financial indicators PREVIOUS DATA LAST 52 WEEKS IN % (EXPECTED IF INDICATED) ACTUAL month -3 months -6 months -1 year Higher Average Lower United States Federal funds target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years S&P 500 index (level) DJIA index (level) Gold price (US$/ounce) CRB index (level) WTI oil (US$/barrel) ,768 25,350 1, ,886 26,447 1, ,905 26,155 1, ,801 25,019 1, ,656 24,360 1, ,553 22,872 1, ,931 26,828 1, ,734 24,873 1, ,557 22,957 1, Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years Spread with the U.S. rate (% points) Overnight target -5 Treasury bill 3 months -2 Treasury bonds 2 years Treasury bonds 5 years -3 Treasury bonds 10 years -7 Treasury bonds 30 years S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 15, , , , , , , , , Ov erseas Euro zone ECB Refinancing rate Exchange rate (US$/ ) United Kingdom BoE Base rate Bonds 10 years FTSE index (level) Exchange rate (US$/ ) 5 4 7, , , , , , , , , Germany Bonds 10 years DAX index (level) , , , , , , , , ,539 Japan BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 22, , , , , , , , , CRB: Commodity Research Bureau; WTI: West Texas Intermediate; ECB: European Central Bank; BoE: Bank of England; BoJ: Bank of Japan Note: Data taken at markets closing, with the exeption of the current day where they were taken at 11:00 a.m. 10