Tough Negociations on NAFTA

Transcription

1 WEEKLY NEWSLETTER Tough Negociations on NAFTA # BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: The Conference Board s consumer confidence index hit its highest point since October ff U.S. real GDP growth was slightly upgraded for the second quarter. ff Canada: Real GDP rose % in the second quarter. A LOOK AHEAD ff United States: Better job growth than the 57,000 new hires in is expected for August. ff United States: An upward movement by ISM indexes is anticipated. ff The Bank of Canada should opt for the status quo at its meeting next week. ff Canada: Worker productivity could improve in the second quarter. ff Canada: Employment will likely continue to expand in August. FINANCIAL MARKETS ff The Canadian stock market posts a slight loss for the week. ff Softer-than-expected Canadian GDP data weakened bond yields. ff The loonie was unable to hold on to the gains made earlier in the week. 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...0 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 208, Group. All rights reserved.

2 Key Statistics of the Week UNITED STATES ff Real consumption rose % in, a slight slowdown after increasing for three months in a row. A % decrease in durable goods, including a % drop for autos, was offset by an increase of % in non-durable goods and % in services. Real disposable income was up % in, after increasing in and % in May. For the second month in a row, the monthly change in prices according to the consumption expenditure deflator was 0.%. In terms of annual change, the total deflator ticked up from % to % and the core deflator, which excludes food and energy, advanced from % to 2.0%. ff The results for the economic accounts show that real GDP grew % (annualized) in. Domestic demand was up 2.% due to increased spending by households, governments and non-profit organizations (+%). Investments also went up (+0.9%) for the sixth quarter in a row. As predicted, exports of goods and services ballooned (+%) during that time period. Imports also increased significantly (+6.5%), although not as sharply, which led to a net improvement in the trade balance. The outlook for the coming quarters remains favourable, although we should expect real GDP growth to revert to a more sustainable pace, around 2%. The housing market stabilized recently, and non-residential investment will continue to be boosted by the disappearance of excess production capacity. ff The second estimate of national accounts for the second quarter of 208 pegs annualized quarterly growth at 4.2%. This is just a hair above the 4.% gain shown in the advance estimate. ff The Conference Board s consumer confidence index rose considerably in August, from 27.9 in to 33.4 in the month now ending. The 5.5 points gained is the most since February, making it possible for the index to reach its highest level since October The increase stems from both the present consumer situation component (+6. points) and the consumer expectations component (+5.2 points). ff There was practically no growth in real GDP by industry (+0.02%) in, after a % gain in May. In addition, the extraction of oil and gas, affected by temporary setbacks, declined.0% in. ff As expected, the current account balance improved slightly in the second quarter from -$7.5B to -$5.9B. The bulk of this gain comes from trade in goods owing to a spike in exports. ff The S&P/Case-Shiller index of existing home prices in the 20 largest cities rose a mere 0.% in. This marks the weakest monthly growth since 206. The index s annual change went from 6.5% to 6.3%, the lowest this year. Benoit P. Durocher, Senior economist Francis Généreux, Senior economist Growth is quite widespread in Contributions to annualized quarterly change in real GDP In % Net exports Change in inventories and residual error Gross fixed capital formation Consumer spending Total Q3 207 Q4 Q 208 Sources: Statistics Canada and, Economic Studies 2

3 Financial Markets Optimism Fades Surrounding the Resolution of Trade Conflicts The agreement reached with Mexico as part of the North American Free Trade Agreement (NAFTA) negotiations propped up North American stock markets on Monday. Stock markets weakened slightly by the day s end on Thursday, when the Trump administration announced that it could introduce US$200B in tariffs on Chinese goods as of next week. The S&P 500 index still posted a weekly gain of a bit less than.0% on Friday morning. The Canadian stock market did not perform as well this week. Monday s major gain was wiped out on Tuesday, amid many uncertainties about the successful outcome of negotiations for a new NAFTA. Despite an upturn on Wednesday, the news that the Federal Court of Appeal cancelled the Trans Mountain expansion project and the escalating conflict between China and the United States weakened the Canadian stock market on Thursday. The S&P/TSX index was hovering slightly below last Friday s levels at the time of writing. Optimism over international trade early in the week bumped up bond yields. The currency difficulties in some emerging countries also helped this boost. The uptrend switched course on Thursday, however, when uncertainties surrounding NAFTA and relations between China and the United States resurfaced. Friday morning, the U.S. 2 year yield was around 2.65% while the U.S. 0 year yield was below 5%. Canadian bond yields suffered a much more sudden and steeper decline on Thursday. Real GDP data that came in somewhat weaker than expected slashed any expectations of a key rate hike in Canada this September. At the time of writing, the 2 year yield and the 0 year yield in Canada were at 2.0% and 5%, respectively. The U.S. dollar started the week down against several currencies and later stabilized. The loonie rose to above US$75, but shed its gains on Thursday and Friday due to renewed trade concerns and softer-than-expected real GDP data in Canada. At the time of writing, the loonie was worth about US$65. The euro also wiped out some of the gains made earlier in the week. The common currency was worth less than US$65 on Friday morning, when Donald Trump rekindled his threat to slap trade barriers on European cars. Inflation in the euro zone also disappointed. Hendrix Vachon, Senior Economist Carine Bergevin-Chammah, Economist GRAPH Stock markets Index Index 2,925 6,600 2,900 6,500 2,875 6,400 2,850 6,300 2,825 6,200 2,800 2,775 6,00 208/07/9 208/07/27 208/08/06 208/08/4 208/08/22 208/08/30 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 0-year yield In % points -0 In % /07/ /07/27 Spread (left) 208/08/06 208/08/4 United States (right) 208/08/22 208/08/30 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ /07/ /07/208 06/08/208 4/08/208 Canadian dollar (left) 22/08/208 30/08/208 Euro (right) Sources: Datastream and, Economic Studies 3

4 A Look Ahead UNITED STATES TUESDAY Sept. 4-0:00 August WEDNESDAY Sept. 5 - THURSDAY Sept. 6-0:00 August FRIDAY Sept. 7 - August ISM manufacturing index (August) After two consecutive increases in May and, the ISM manufacturing index fell 2. points in. This marks the biggest monthly drop since August 206. However, a rebound is expected in August. The leading regional manufacturing indexes posted different monthly changes during the month, but their levels nonetheless point to a higher ISM. We predict that the ISM manufacturing index will rise to US$B Trade balance () After several consecutive months of improvement that brought the trade deficit down from US$55.5B in February to US$43.2B in May, the deficit deteriorated in when it reached US$46.3B. We expect a further decline in the balance in. The preliminary figures for trade in goods point to a.7% drop in exports and a 0.9% increase in imports. The balance of trade in goods and services should go from -US$46.3B to -US$5B ,000 85,000 57,000 ISM non-manufacturing index (August) Just like the manufacturing index, the ISM non manufacturing index fell sharply in from 59. (the highest point since February) to (the lowest point since August 207). This also marks the biggest monthly drop since summer 206. However, we expect a gain in August, as the levels of some other indexes in the services industry suggest. The improvement in the Conference Board confidence index for August is also consistent with this view. A 2 point increase to 57.7 is expected. Job creation according to the establishment survey (August) Job creation in the United States slowed in. The gain of 57,000 positions is well below the average 258,000 increase during the previous two months. We expect a better performance in August. A lower number of jobless claims during the month points in that direction. This is also the case for the Conference Board consumer confidence survey, whose strong results show that households are still very optimistic about the job market. The release of the ISM and ADP indexes will help shape the forecast. However, recent months of August have often shown a bit of a slump in job creation, at least in the advance estimate (often revised upward afterwards). We therefore expect monthly job creation to be below the 200,000 mark at 85,000 hires. Unless there is a large shift in the labour force, the unemployment rate should remain at 3.9%. WEDNESDAY Sept q/q % Q Labour productivity () According to the results of national accounts, business output expressed in real terms rose 0.9% in the second quarter. In relation to hours worked, the Labour Force Survey shows weak growth during the quarter at 0.%. Labour productivity could therefore post a % increase in the second quarter. However, once seasonally adjusted, the average hourly wage increased significantly during the period. Under these conditions, unit labour costs are expected to decrease by just % in the second quarter. WEDNESDAY Sept. 5 - $B International merchandise trade () Once seasonally adjusted and expressed in Canadian dollars, commodity prices were up % in due to a spike in energy prices (+4.6%). That should boost export values for the month. However, crude oil exports could be negatively affected by the temporary interruption in oil production at the Syncrude oil sands complex in Alberta. In non-energy sectors, the sharp rise observed in could be followed by some consolidation. Ultimately, the potential for total export growth seems fairly low for. If we take into account the uptrend in domestic demand and imports, the merchandise trade balance could deteriorate somewhat during the month. 4

5 WEDNESDAY Sept. 5-0:00 September Bank of Canada meeting (September) The rebound in the Canadian economy in the second quarter, with a % increase in real GDP (annualized), and the climb in inflation to the top of the target range call for continued monetary tightening. That said, there is no urgency, and the Bank of Canada (BoC) should be able to wait six more weeks, until October, before again raising its key interest rates. It is worth mentioning that the Monetary Policy Report, detailing the BoC s most recent forecasts, will be released at the October meeting, but not at the September meeting. Under the circumstances, it seems more likely that the monetary authorities will opt for the status quo when they meet next week. FRIDAY Sept. 7 - August Labour Force Survey (August) With the creation of 54,00 positions in, job growth resumed its trajectory. In light of this, job growth should return to a more moderate pace, more in line with the economic growth seen in recent quarters. A gain of around 4,000 jobs is therefore expected. The unemployment rate could stay put at 5.8%. 0 4,000 54,00 OVERSEAS WEDNESDAY Sept. 5-5:00 m/m -0.% : Retail sales () In May and, the monthly change in Euroland retail sales was. This stability conceals a slowdown in the annual change, which went from % to.2%. It s difficult to anticipate an acceleration in sales in. They have also failed to post three consecutive months of increases since winter 207. In, consumption rose just 0.% in and in, retail sales declined 0.4% Among other indicators, the final August versions of the PMI indexes will be released during the week. On Friday, Euroland s third real GDP estimate for the second quarter will also be out, with details on movements in demand components. 5

6 Economic Indicators Week of September 3rd to 7, 208 Day Hour Indicator Period Previous data UNITED STATES MONDAY 3 4:30 Speech of the Chicago Fed President, C. Evans TUESDAY 4 --0:00 0:00 0:30 Total vehicle sales (ann. rate) Construction spending (m/m) ISM manufacturing index Speech of the Chicago Fed President, C. Evans 6,880,000 % ,050,000 % ,680,000 -% 58. WEDNESDAY 5 6:00 Trade balance Goods and services (US$B) Speech of the Minneapolis Fed President, N. Kashkari THURSDAY 6 0:00 0:00 0:00 Initial unemployment claims Nonfarm productivity final (ann. rate) Unit labor costs final (ann. rate) Speech of the New York Fed President, J. Williams ISM non-manufacturing index Factory orders (m/m) ,000 % -0.9% 24,000 3.% -% 23,000 % -0.9% % % % 9:00 2:45 Change in nonfarm payrolls Unemployment rate Weekly worked hours Average hourly earnings (m/m) Speech of the Boston Fed President, E. Rosengren Speech of the Cleveland Fed President, L. Mester Speech of the Dallas Fed President, R. Kaplan 87, % 34.5 % 85, % 34.5 % 57, % 34.5 FRIDAY 7 MONDAY 3 TUESDAY 4 WEDNESDAY 5 0:00 International trade ($B) Labour productivity (q/q) Unit labour costs (q/q) Bank of Canada meeting Sept % -% -3 - % THURSDAY 6 4:30 Building permits (m/m) Speech of the Bank of Canada Senior Deputy Governor, C. Wilkins %.5% -% FRIDAY 7 0:00 Net change in employment Unemployment rate PMI-Ivey index 0 5.9% 4, % 6 54,00 5.8% 6.8 Note:, Economic Studies are involved every week in the Bloomberg survey for Canada and the United States. Approximately 5 economists are consulted for the Canadian survey and a hundred or so for the United States. The abbreviations m/m, 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 September 3rd to 7, 208 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS SUNDAY 2 Japan 20:30 PMI manufacturing index final MONDAY 3 Italy United Kingdom 3:45 3:50 3:55 4:00 4:30 PMI manufacturing index PMI manufacturing index final PMI manufacturing index final PMI manufacturing index final PMI manufacturing index TUESDAY 4 Australia United Kingdom Japan Japan 0:30 4:30 5:00 20:30 20:30 Reserve Bank of Australia meeting PMI construction index Producer price index PMI composite index PMI services index Sept % % WEDNESDAY 5 Italy Italy United Kingdom United Kingdom 3:45 3:45 3:50 3:50 3:55 3:55 4:00 4:00 4:30 4:30 5:00 PMI composite index PMI services index PMI composite index final PMI services index final PMI composite index final PMI services index final PMI composite index final PMI services index final PMI composite index PMI services index Retail sales % % THURSDAY 6 Sweden 2:00 3:30 Factory orders Bank of Sweden meeting Sept..8% % -0% -4.0% -0% FRIDAY 7 China Italy --2:00 2:00 2:00 2:45 2:45 2:45 4:00 5:00 Trade balance (US$B) Trade balance ( B) Current account ( B) Industrial production Trade balance ( M) Current account ( B) Industrial production Retail sales Real GDP final % 2.5% -5,700 % 0.9% 0.4% % % -6,248 - % -% 0.4% %.2% -% 2.5%.7%.5% % 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 m/m, 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) Exports (2009 $B) Imports (2009 $B) Final domestic demand (2009 $B) GDP deflator (2009 = 00) Labor productivity (2009 = 00) Unit labor cost (2009 = 00) Employment cost index (Dec = 00) Current account balance ($B) VARIATION (%) LEVEL 208 Q ANNUAL VARIATION (%) Quart. ann. year ,55 2,84 3,7 6 2, ,573 3,47 9, Statistics representing the level during the period; * New statistic in comparison with last week. UNITED STATES Monthly economic indicators REF. MONTH Leading indicator (200 = 00) ISM manufacturing index ISM non-manufacturing index Cons. confidence Conference Board (985 = 00) Personal consumption expenditure (2009 $B) Disposable personal income (2009 $B) Consumer credit ($B) Retail sales ($M) Excluding automobiles ($M) Industrial production (2007 = 00) Production capacity utilization rate (%) New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k) Building permits (k) New home sales (k) Existing home sales (k) Commercial surplus ($M) Nonfarm employment (k)2 Unemployment rate (%) Consumer price ( = 00) Excluding food and energy Personal cons. expenditure deflator (2009 = 00) Excluding food and energy Producer price (2009 = 00) Export prices (2000 = 00) Import prices (2000 = 00) VARIATION (%) LEVEL - month -3 months -6 months - year * * * ,907 4,372 3, , , ,78 246,852,937,68, ,340-46,348 49, ,58, ,380-43, ,276, ,450-47, ,334, ,380-5,889, ,85, ,420-44,803 2, * * 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 $M) VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. year Current account balance ($M) 208 Q 208 Q,89,53,083, ,209 28,092 82,622 4,2 607,635 62,979,882, , , , , , ,526 Production capacity utilization rate (%) Disposable personal income ($M) Corporate net operating surplus (2007 $M) 208 Q 86.,248,72 283, Business inventory change (2007 $M) Exports (2007 $M) Imports (2007 $M) Final domestic demand (2007 $M) GDP deflator (2007 = 00) Labour productivity (2007 = 00) Unit labour cost (2007 = 00) 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) Building permits ($M) Retail sales ($M) Excluding automobiles ($M) Wholesale trade sales ($M) Commercial surplus ($M) Exports ($M) Imports ($M) Employment (k)2 Unemployment rate (%) Average weekly earnings ($) Number of salaried employees (k)2 Consumer price (2002 = 00) Excluding food and energy Excluding 8 volatile items Industrial product price (2002 = 00) Raw materials price (2002 = 00) Money supply M+ ($M) VARIATION (%) LEVEL - month -3 months -6 months - year,784, ,343 58, ,092 50, , , , ,048-3, ,824 50,699 5, , * * , * * * , * * 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 ACTUAL LAST 52 WEEKS IN % (EXPECTED IF INDICATED) month -3 months -6 months - year Higher Average Lower United States Federal funds target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years S&P 500 index (level) DJIA index (level) Gold price (US$/ounce) CRB index (level) WTI oil (US$/barrel) ,900 25,933, ,875 25,790, ,840 25,463, ,735 24,635, ,69 24,538, ,477 2,988, ,94 26,67, ,69 24,428, ,458 2,753, Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years Spread with the U.S. rate (% points) Overnight target -0 Treasury bill 3 months -7 Treasury bonds 2 years -6 Treasury bonds 5 years -7 Treasury bonds 0 years -2 Treasury bonds 30 years S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 6, , , , , , , , , Overseas ECB Refinancing rate Exchange rate (US$/ ) United Kingdom BoE Base rate Bonds 0 years FTSE index (level) Exchange rate (US$/ ) , , , , , , , , , Bonds 0 years DAX index (level) , , , ,724 5, ,43 2 3, ,726 7,787 Japan BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 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 :00 a.m. 0