WEEKLY NEWSLETTER International Data Heighten Doubts as to the Strength of the Economy #1 BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: Inflation edges up due to energy. ff United States: A rebound in retail sales at last! ff Canada: Manufacturing sales slightly went up in. ff Canada: A slight drop in existing home sales in. A LOOK AHEAD ff United States: Did housing starts and resales climb in? ff Canada: The total annual inflation rate should again slow down in. ff Canada: Retail sales could stagnate in, whereas wholesale sales are expected to edge up. FINANCIAL MARKETS ff Stock markets return to negative territory. ff A re-emergence of risk aversion pulls down bond yields again. ff The risk of a no-deal Brexit penalizes the pound sterling. 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 Mathieu D Anjou, Deputy Chief Economist Carine Bergevin-Chammah, Economist Benoit P. Durocher, Senior Economist Francis Généreux, Senior Economist Hendrix Vachon, Senior Economist, Economic Studies: 514 281 2336 or 1 866 866 7000, ext. 5552336 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.
Key Statistics of the Week UNITED STATES ff The total consumer price index (CPI) rose % in after climbing only % in. This marks the strongest monthly growth since January 2018. A large part of the increase came from energy prices, with leaps of % for gas, 3.7% for fuel oil and % for electricity. Food prices were down %, however, the first significant drop since March 2016. The core CPI, which excludes food and energy, gained % in. Used car prices have bounced back. The annual change in CPI accelerated slightly from % to %. Core inflation, which excludes food and energy, inched down from % to 2.1%. ff Manufacturing sales rose % in. The spike in automobile products (+4.4%) offset the losses in several other sectors. In real terms, sales declined %, while inventories increased %. ff Sales of existing homes dropped 1.6% in after falling % in. The main downturns were in Ontario (-%), Alberta (-5.3%), Saskatchewan (-%) and Atlantic Canada (-2.4%). At $623,000, the existing home prices index for Canada as a whole remained practically unchanged from. ff Retail sales rose 0.8% in after dropping % (revised from +%) in. Auto sales jumped %, their strongest growth since March. Buoyed by higher gas prices, the value of service station sales leaped 3.5%. Excluding motor vehicles and gas, sales increased %. This comes on the heels of s stagnation and a % decline in August. Sales were up mainly in renovation centres, electronics stores and department stores. Furniture stores and food services saw declines in. Benoit P. Durocher, Senior economist ff Industrial output increased only % in on the heels of s % rise. Manufacturing production was up % despite a 2.8% drop in the automobile sector. Mining activity decreased %, while energy production retreated 0.5%. ff The Philadelphia Fed s manufacturing index was way down in November, falling from 2 to 1. It is now close to its lowest 2018 rate, recorded in August. The New York Fed s Empire index, meanwhile, rose from 2 to 2. Francis Généreux, Senior economist The existing home sales market is still in difficulty Canada Existing properties In units In $ 47,000 650,000 45,000 600,000 43,000 41,000 550,000 39,000 500,000 37,000 35,000 2015 2016 Number of units sold (left) 2017 2018 450,000 Home Price Index (right) Sources: Canadian Real Estate Association and, Economic Studies 2
Financial Markets Investors Are More Worried about the U.S. Economy The U.S. stock market lost last week s gains. Investors are beginning to doubt the strength of the U.S. economy after other countries published disappointing GDP data. The drop in oil prices also sapped investor morale. The price per barrel of WTI (West Texas Intermediate) oil was close to US$55 at the start of the week, a decrease of more than 25% from its most recent peak. A subsequent uptick in oil prices and reduced trade tensions between China and the United States gave the stock market somewhat of a breather Thursday. The S&P 500 index was slightly up Friday morning, for a cumulative weekly loss of about 1.5%. In Canada, the stock market did not fare much better and was heading for a weekly drop of about 1% at the time of writing. Low oil prices and the uncertainty surrounding the ratification of the new free trade agreement between the United States, Mexico and Canada (USMCA) fuelled uncertainty on the Canadian market. U.S. bond yields declined significantly, as the robustness of U.S. economic growth is being called into question. As a result, the 2 year and 10 year yields were around 2.80% and 3.10% Friday morning. Renewed risk aversion also affected the Canadian bond market, with the 2 year and 10 year yields dropping back down to 0% and 5%, respectively. Following in the footsteps of U.S. bond yields, the greenback depreciated against most currencies this week. It did not benefit as much from investors low risk aversion, as concerns began to shift more towards the United States. One exception is the U.S. dollar s appreciation against the pound sterling, which was penalized by the British government s struggles to reach an agreement on Brexit. The British currency fell below US$1.28 Wednesday. The euro is less affected by the uncertainty surrounding Brexit and climbed to close to US$4 during the week. The Canadian dollar was worth a little over US$6 Friday morning, a gain of about half a cent from its low this week. The loonie s trajectory coincided with the slight rebound in oil prices. GRAPH 1 Stock markets Index Index 2,925 16,250 2,875 16,000 15,750 2,825 15,500 2,775 15,250 2,725 15,000 2,675 14,750 2,625 14,500 2018/10/04 2018/10/12 2018/10/22 2018/10/30 2018/11/07 2018/11/15 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 10-year yield In % points -0.55 In % 3.1-0 -5 2.7-0 -5 2018/10/04 2018/10/12 Spread (left) 2018/10/22 2018/10/30 United States (right) 2018/11/07 2018/11/15 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets Hendrix Vachon, Senior Economist Carine Bergevin-Chammah, Economist US$/C$ US$/ 75 6 70 5 65 4 60 3 55 50 04/10/2018 2 12/10/2018 22/10/2018 30/10/2018 Canadian dollar (left) 07/11/2018 15/11/2018 Euro (right) Sources: Datastream and, Economic Studies 3
A Look Ahead UNITED STATES TUESDAY November 20 - ann. rate 1,230,000 1,255,000 1,201,000 Housing starts () The upturn in housing starts, with two successive increases in July and August, was short-lived, as ultimately saw a 5.3% decline. However, a slight increase is expected for. Part of s pullback probably stemmed from Hurricane Florence, and despite Hurricane Michael in, new construction was likely up. The number of building permits in also suggests an increase. The 30,000 jobs created in construction in are a good sign as well. Bottom line: housing starts could be just over 1,250,000 units. WEDNESDAY November 21 - -% -2.7% % New durable goods orders () New durable goods orders were up % in owing to the defence sector, particularly with a 118.7% jump in military aircraft orders. This type of increase should be followed by a retreat in. Boeing data also suggest a drop in civil aircraft orders. Durable goods orders not including transportation should rise about 0.5% judging by the ISM manufacturing index level. Total durable goods orders should decline 2.7%. WEDNESDAY November 21-10:00 % % 0.5% Leading indicator () The leading indicator rose 0.5% in, but slower growth is expected in. Although other positive contributions from consumer confidence and interest rates are anticipated, they will be partially offset by initial employment insurance claims and the stock market. A % gain is expected, which would be the lowest since May. WEDNESDAY November 21-10:00 ann. rate 5,200,000 5,250,000 5,150,000 Sales of existing homes () Home resales have not seen a positive month since March. This negative trend brought a total contraction of 8.0%. An increase is expected for, however. While not convincing, the slight increase (+0.5%) in pending home sales is pointing in that direction. Given that part of the decline is likely due to Hurricane Florence, some sectors could rebound. All in all, an upward movement to 5,250,000 units is forecast. WEDNESDAY November 21 - % % August -% Wholesale sales () The increase in exports observed in some sectors, combined with fairly lively domestic demand, should bring wholesale sales back into positive territory in. That said, certain sectors might still encounter difficulties, thus limiting total sales growth. FRIDAY November 23-0.0% -% August -% Retail sales () According to preliminary data, the number of new motor vehicles sold dropped about 3.5% in, which should lower the value of sales at car dealerships. In addition, after seasonal adjustments, gas prices were down % in, which will negatively impact the value of service station sales. Even if we assume that a number of other sectors might see an increase during the month owing to the vitality of the job market and high consumer confidence, all signs points to total sales edging slightly down in. 4
FRIDAY November 23 - % 0.0% -% Consumer price index () According to prices at the pump, gas prices were down about 3% in, which will lead to a contribution of -% to the monthly change in the total consumer price index (CPI). In terms of seasonal fluctuations, a drop of % in the monthly change in total CPI is usually recorded in. Even when we factor in the slight upward trend for the other components, the total change in the total CPI should be virtually nil during the month. The annual inflation rate could therefore fall from % to 2.1%. OVERSEAS FRIDAY November 23-4:00 November 5 53.1 : PMI index (November preliminary) Like many other indicators of Euroland s economy, the PMI indexes have decidedly been pointing down for the past few months. In, the composite index reached its lowest level since 2016. However, at 53.1, it continues to suggest growth in the euro zone s economy; but another retreat in November would further fuel concerns, particularly since the publication of the decline in s real GDP. Although it was up slightly in, the euro zone s consumer confidence index is also showing a negative trend. Its preliminary November version will be released on Thursday. 5
Economic Indicators Week of November 19 to 23rd, 2018 Day Hour Indicator Period Previous data UNITED STATES MONDAY 19 10:00 10:45 NAHB housing market index Speech of the New York Fed President, J. Williams 67 68 TUESDAY 20 Housing starts (ann. rate) Building permits (ann. rate) 1,230,000 1,260,000 1,255,000 1,290,000 1,201,000 1,270,000 WEDNESDAY 21 10:00 10:00 10:00 Initial unemployment claims Durable goods orders () Leading indicator () Michigan s consumer sentiment index final Existing home sales (ann. rate) 12-16 215,000 -% % 98.3 5,200,000 215,000-2.7% % 98.3 5,250,000 216,000 % 0.5% 98.3 5,150,000 THURSDAY 22 Markets closed (Thanksgiving Day) FRIDAY 23 MONDAY 19 TUESDAY 20 12:45 Speech of the Bank of Canada Senior Deputy Governor, C. Wilkins WEDNESDAY 21 16:00 Wholesale sales () Wholesale inventories () Federal Government s 2018 Economic and Fiscal Update % % % -% -0.5% THURSDAY 22 % % 0.0% % 2.1% 1.8% -% -% % 1.8% 0.0% % -% % -% -% FRIDAY 23 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 Eastern Standard Time (GMT - 5 hours). Forecast of, Economic Studies of the Group. 6
Economic Indicators Week of November 19 to 23rd, 2018 Country Hour Indicator Period (q/q) y/y Previous data (q/q) y/y OVERSEAS SUNDAY 18 Japan 18:50 Trade balance ( B) -48.3-238.9 MONDAY 19 Italy 4:00 4:00 5:00 Current account ( B) Current account ( M) Construction 23.9 4,994-0.5% TUESDAY 20 Japan 1:30 2:00 23:30 ILO unemployment rate Producer price index All industry activity index Q3 9.2% % % -% 9.1% 0.5% 0.5% 3.2% WEDNESDAY 21 Japan 1 Consumer price index 1.4% 1.2% THURSDAY 22 Japan 2:45 2:45 10:00 19:30 Business confidence Production outlook Consumer confidence preliminary PMI manufacturing index preliminary 103-104 7-2.7 5 FRIDAY 23 2:00 3:15 3:15 3:15 3:30 3:30 3:30 4:00 4:00 4:00 Real GDP final PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary Q3 -% % 53.9 51.3 55.0 53.1 5 54.5 5 52.0 53.6 -% 54.1 51.2 55.3 53.4 5 54.7 53.1 52.0 53.7 % % 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 Eastern Standard Time (GMT - 5 hours). 7
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 $B) GDP deflator (2009 = 100) Labor productivity (2009 = 100) Unit labor cost (2009 = 100) Employment cost index (Dec. 2005 = 100) Current account balance ($B)1 1 VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year 2017 2016 2015 3.5 4.0-4.0 0.8 3.5 9.1 3.1 1.7 1.2 2.4 6.4 --3.9 5.7 1.3 1.5 2.8-5.3 2 4.6-449.1 1.6 2.7 1.4 6.5 0.5 23.4 - -43 3.7 1 1.8 129.0 5.5 1.3 1.7 2.1-407.8 18,671 12,969 3,197 607.0 2,716 76.3 2,551 3,490 19,481 11 105.7 109.7 134.3-101.5 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 ($M) VARIATION (%) LEVEL -1 month -3 months -6 months -1 year * 111.8 57.7 6 137.9 13,006 14,412 3,950 511,488 0.5 59.8 61.6 135.3 0.8 1.6 58.1 55.7 127.9 0.5 1.3 2.8 57.3 56.8 125.6 2.8 7.0 58.5 59.8 126.2 4.8 4.6 * 408,438 3.2 5.9 * * * * 109.1 78.4 515,334 262,010 1,967 1,201 1,270 55 5,150-54,019 149,750 3.7 252.8 78.5 1,268 1,249 585.0 5,330-53,309 250.0 3.7 78.0 2.7 4.2 1.5 1,177 1,292 612.0 5,380-45,739 654.0 3.9 1.3 78.2 3.4 3.7 1,327 1,377 672.0 5,600-46,693 1,295 3.9 4.1 76.8 7.9 7.8 4.4 1,158 1,254 637.0 5,370-44,407 2,516 4.1 * 258.9 108.6 2.0 Excluding food and energy 11 2.0 Producer price (2009 = 100) Export prices (2000 = 100) Import prices (2000 = 100) * * 117.2 127.8 128.4 0.5 1.5 3.1 3.5 Excluding automobiles ($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 (1982 1984 = 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
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 $M) VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year 2017 2016 2015 Current account balance ($M)1 1,891,153 1,083,677 366,209 128,092 182,622 14,112 607,635 621,979 1,882,843 117.6 110.0 116.8-15,876 2.6 1.6 --1 6.5 2.1 2.1 2.7-1.6 6.7 -- 4.9 2.1 0.0 3.5 2.8 13,921 3.6-63,267 1.4 2.4-9.4 978.0 - - -65,372 2.1 1.6 3.8-11.3 4,711 3.5-0.8-0.5-71,526 Production capacity utilization rate (%)1 Disposable personal income ($M) Corporate net operating surplus (2007 $M) 85.5 1,248,172 283,584 --2.8 11.8 --3.9 4.6 8 4.9 19.9 8-80.5 4.7-19.8 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) 1 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 ($M) Employment (k)2 1 Unemployment rate (%) Average weekly earnings ($) 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+ ($M) 1 VARIATION (%) LEVEL -1 month -3 months -6 months -1 year 1,789,683 390,922 58,481 205.9 8,056 50,758 189.7-0.8 202.1-0.0 1.2 2.4 215.8-1.8 3.9 7.8 22-3.6 37,241-4.3 63,639-416.3 - -55-807.2-3,961 3.5-3,259 50,375 50,791 - - - -1.4 5.0-15.7 8.5 18,705 11.2 7.6 16.9 17.2 5.8 1,006 16,658 133.7 5.9 24.6-5.8 19.3 5.8 29.2 6.2 25.3 128.1 13-0.0 1.8 1.5 118.9 11 992,223-0.5 - -4.9 1.8 1.8 6.2 14.6 4.7 * Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. 9
UNITED STATES,, OVERSEAS Major financial indicators PREVIOUS DATA ACTUAL LAST 52 WEEKS IN % (EXPECTED IF INDICATED) 16 9-1 month -3 months -6 months -1 year Higher Average Lower United States Federal funds target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years S&P 500 index (level) DJIA index (level) Gold price (US$/ounce) CRB index (level) WTI oil (US$/barrel) 5 5 2.81 2.89 8 4 2,725 25,304 1,221 186.52 56.88 5 1 4 5 3.19 9 2,781 25,989 1,211 188.45 69 5 6 1 5 3.20 8 2,768 25,444 1,227 197.18 69.16 2.00 2.01 2.61 2.75 2.88 3 2,850 25,669 1,179 188.74 65.93 1.75 1.87 4 2.89 7 3.20 2,713 24,715 1,292 203.69 71.23 1.25 1.26 1.72 2.06 7 2.79 2,579 23,358 1,288 199 56.57 5 5 7 9 3.23 3.45 2,931 26,828 1,359 206.38 77.41 1.79 1.81 2.42 2.68 2.85 7 2,750 25,061 1,273 194.90 65.88 1.25 1.25 1.72 2.04 2 2.69 2,581 23,430 1,179 186 55.63 Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years 1.75 1.68 2 0 7 2.43 1.75 1.71 3 2.43 0 3 1.50 1.66 9 2.40 2.49 2 1.50 1.48 2.11 2.19 6 7 1.25 1.26 2.03 9 2.48 2.49 0 0.87 1.45 1.66 4 8 1.75 1.73 6 2.48 2.60 8 1.32 1.28 3 2.11 5 5 0 0.87 1.42 1.59 1.83 2.10 Spread with the U.S. rate (% points) Overnight target -0.50 Treasury bill 3 months -7 Treasury bonds 2 years -0.59 Treasury bonds 5 years -0 Treasury bonds 10 years -1 Treasury bonds 30 years -2-0.50-0 -1-2 -9-0.86-5 -0-2 -5-1 -0.86-0.50-0.53-0.50-0.56-2 -6-0.50-1 -0.51-0 -0.59-1 -5-9 -7-0 -3-0.51-5 -9-8 -1-2 -5-8 -0.53-9 -0.57-0 -2-5 -4-7 -9-8 -3 S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 15,116 1.3173 1.5022 15,274 1.3211 1.4976 15,470 1.3099 1.5083 16,324 1.3060 1.4939 16,162 1.2882 1.5172 15,999 1.2763 1.5054 16,567 1.3339 1.6130 15,906 1.2888 1.5284 14,722 1.2268 1.4771 Overseas ECB Refinancing rate Exchange rate (US$/ ) 403 336 515 439 778 795 1.2510 864 218 United Kingdom BoE Base rate Bonds 10 years FTSE index (level) Exchange rate (US$/ ) 5 1.41 7,014 1.2838 5 1.50 7,105 1.2977 5 1.56 7,050 1.3072 5 1.28 7,559 1.2753 0.50 1.54 7,779 1.3474 0.50 1.34 7,381 1.3214 5 1.72 7,877 1.4338 0.57 1.42 7,432 1.3431 0.50 8 6,889 1.2698 Bonds 10 years DAX index (level) 7 11,341 1 11,529 3 11,554 1 12,211 0.57 13,078 6 12,994 2 13,560 6 12,501 7 11,192 Japan BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 21,680 112.78 22,250 113.83 22,532 115 22,270 110.51 22,930 116 22,397 112.09 24,271 114.54 22,483 117 20,618 104.74 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