FEBRUARY 6, 208 WEEKLY NEWSLETTER Price Increases Shows More Bite in the United States # BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: Prices climb while retail sales and industrial production disappoint. ff Big jump in housing starts in the United States in January. ff U.S. consumer confidence improved despite stock market troubles. ff Canada: Manufacturing sales declined slightly in. ff Canada: Sales of existing homes fell sharply in January. A LOOK AHEAD ff A slight increase in home resales is predicted for the United States. ff Canada: The total annual inflation rate is expected to fall in January. ff Canada: Retail sales might inch up in. FINANCIAL MARKETS ff The stock market correction appears to be over. ff Inflationary pressures in the United States lead investors to expect more federal funds rate increases. ff Renewed confidence hurts the greenback. 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... 5 Tables Economic indicators... 7 Major financial indicators... 9 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: 54 28 2336 or 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 208, Group. All rights reserved.
Key Statistics of the Week ff Retail sales dipped % in January after stagnating in (revised from +). Motor vehicle sales declined.3%, but the value of service station sales increased.6%. Excluding autos and gas, sales contracted 0.2% after idling in (revised from +). ff Sales of existing homes slumped 4.5% in January 208 for all of Canada. This drop coincides with the introduction of tighter mortgage rules. Virtually all regions saw a substantial pullback, including -26.6% in Toronto, - in Vancouver and -4.0% in Montréal. The average price of existing homes decreased % in January. ff The consumer price index (CPI) jumped in January after a 0.2% gain in (revised from 0.%). Energy prices rose %. The core index, which excludes food and energy, edged up %. With respect to prices, the increase recorded in January is striking. This is the strongest monthly growth since February 203 for the total CPI and since March 2005 for the core index. The annual change in the total and core CPI held at 2.% and.8%, respectively. However, the annual change in the total and core CPI held at 2.% and.8%, respectively. ff After increasing 3.8% in November, manufacturing sales paused for breath in with a % decline. A retreat was observed in of the 2 main industries. Moreover, sales in the petroleum and coal products manufacturing industry shrank 4.%, ending five consecutive months on the rise. In real terms, total sales were down 0.%, while inventories remained virtually the same. Benoit P. Durocher, Senior economist ff For the first time since August 207, industrial production was down in January. The 0.% decrease is due primarily to a surprising contraction of.0% in the mining sector (including oil and gas extraction). Manufacturing idled for a second month in a row. After strong growth of 4.6% in due to cold weather, energy production rose %. ff Regional manufacturing indexes went their separate ways in February. The New York Fed s Empire index dropped from 7.7 to 3., its lowest level since July 207, while the Philadelphia Fed s index improved, going from 2 to 25.8. ff After dropping 6.9% in, housing starts jumped 9.7% in January. This stronger monthly growth since 206 saw annualized new construction numbers go up from,209,000 to,326,000 units, the highest since October 206. The gain is stronger for multi-unit housing (+9.7%) than for single-family homes (+%). Building permits increased 7.4% to,396,000 units, a peak not seen since June 2007. ff The University of Michigan consumer confidence index rose in February according to its preliminary version. Despite fears tied to the stock market s nosedive at the beginning of the month, the index edged up from 95.7 to 99.9, its highest level since October. The trade balance deteriorated further in the fourth quarter International merchandise trade balance in real terms In 2007 $B 5 Quarterly averages 4 3 2 Francis Généreux, Senior economist 0 - -2 205 206 207 Sources: Statistics Canada and, Economic Studies FEBRUARY 6, 208 2
Financial Markets Optimism Returns to the Markets The main stock markets reversed last week s drop. In the United States, the S&P 500 posted a weekly gain of almost 4.5% at time of writing, with optimism ramping back up. The U.S. stock market volatility index (VIX) stabilized at a lower level closer to 9. Solid corporate earnings and favourable outlooks for the U.S. and global economy pushed the stock market higher despite disappointing economic data for January and strong inflation. Canada s stock market followed U.S. movements, with a more modest increase of about % since last Friday. U.S. bond yields reached four-year peaks before Thursday s session, with inflation exceeding expectations. However, the decline in industrial production brought down the 0 year yield closer to last Friday s level of about 7%. The 2 year yield held onto its gains from Wednesday, settling at around 0%. While inflation headwinds are getting stronger, investors appear to be anticipating more increases to the federal funds rate. The bond market in Canada echoed the U.S. trend. The 2 year yield was up significantly on Wednesday, on news of the U.S. inflation rate. The 0 year yield fell back to last Friday s level of about 2%, after briefly flirting with 0% before Thursday s session. The contraction in manufacturing sales in Canada announced on Friday may have had a slightly negative impact on short-and long-term yields. GRAPH Stock markets Index Index 2,875 6,350 2,825 6,50 2,775 5,950 2,725 5,750 5,550 2,675 5,350 2,625 5,50 2,575 4,950 208/0/04 208/0/2 208/0/22 208/0/30 208/02/07 208/02/5 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 0-year yield In % points -0 In % -5-0 After capitalizing on its role as a safe-haven currency last week, renewed investor optimism punished the greenback in the last few sessions. The U.S. dollar seemed intent on erasing part of its losses at Friday s open, however, supported by a strongerthan-expected increase in housing starts and import prices in the United States. The drop of the U.S. dollar helped the euro and the pound climb back above US$.25 and US$.4, respectively, overnight from Thursday to Friday. Even the yen, another safehaven currency, rose sharply against the greenback. With a boost from rising oil prices, the Canadian dollar also rose as of the middle of the week. However, it fell back to below US$0 Friday morning. Mathieu D Anjou, Senior Economist Carine Bergevin-Chammah, Economist 2.6-5 -0-5 -0 208/0/04 2.0 208/0/2 Spread (left) 208/0/22 208/0/30 United States (right) 208/02/07 208/02/5 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ 20.26 5.25.24 0.23 05.22 00.2 95 90 208/0/04.20.9 208/0/2 208/0/22 208/0/30 Canadian dollar (left) 208/02/07 208/02/5 Euro (right) Sources: Datastream and, Economic Studies FEBRUARY 6, 208 3
A Look Ahead WEDNESDAY February 2-0:00 January ann. rate 5,60,000 5,60,000 5,570,000 Sales of existing homes (January) In, sales of existing homes declined for the first time since August 207, but the 3.6% drop did not wipe out the cumulative gain of 8.0% for the previous three months. That said, a slight uptick is forecast for January. That is what the increase in pending sales of existing homes suggests. We have also noted higher demand for mortgage loans in anticipation of purchases in the first month of 208. All told, a level of a little over 5,600,000 units is expected. THURSDAY February 22-0:00 January m/m %.% % Leading indicator (January) The leading indicator continued to rise satisfactorily in. After gains of.3% in October and in November, it was up % in. We expect slightly stronger growth in January. Growth will be mainly bolstered by building permits, the ISM index, the stock exchanges (before the correction, which should have an effect on February s number) and interest rates. A.% monthly gain is expected. TUESDAY February 20 - m/m November % Wholesale trade () The strength of consumer spending across Canada should boost wholesale trade in. Wholesale trade should also benefit from higher exports in recent months, particularly in the automobile products sector. Bottom line: we expect an increase of about in sales for. THURSDAY February 22 - m/m -0.% November 0.2% Retail sales () According to preliminary data, sales of new vehicles were down for the second month in a row in. Seasonally adjusted gas prices were practically unchanged in, which will mean more or less zero growth for service station sales. However, conditions look more positive for the other components due to the vitality of the labour market and high consumer confidence. The total value of retail sales could grow about in. FRIDAY February 23 - January m/m % - Consumer price index (January) According to prices at the pump, gas went up 3.% in January, which could lead to an increase of about 0.% in the consumer price index (CPI) monthly change. As a rule, there are hardly any seasonal adjustments in January. Factoring in the uptick of the other components, stimulated particularly by the gradual absorption of excess production capacity, the total CPI monthly change should be close to % in January. The total annual inflation rate could drop from.9% to.3%, however, due to a base effect linked to a surge in gas prices at this time in 207. OVERSEAS WEDNESDAY February 2 - February 58.4 January 58.8 : PMI indexes (February) The euro zone s composite PMI index reached a new record high of 58.8 in January. That high level suggests that the euro zone s GDP could post a strong increase in real GDP during Q 208 after last fall s non-annualized gain of %. For that to happen the PMI indexes will have to stay up throughout the quarter, starting in February. Among other euro zone indicators to be released this week, Tuesday will bring the preliminary version of the consumer confidence index for February. That index also hit a new cyclical high in January. The German Ifo business confidence indexes will be released on Thursday, while the second estimate of German real GDP for Q4 will come out on Friday. FEBRUARY 6, 208 4
Economic Indicators Week of February 9 to 23, 208 Day Hour Indicator Period Previous data MONDAY 9 Markets closed (President s Day) TUESDAY 20 WEDNESDAY 2 THURSDAY 22 FRIDAY 23 9:00 0:00 Speech of the Philadelphia Fed President, P. Harker Existing home sales (ann. rate) Minutes of the Federal Reserve meeting 0:5 0:00 0:00 2:0 Speech of a Federal Reserve Governor, R. Quarles Initial unemployment claims Leading indicator (m/m) Speech of the New York Fed President, W. Dudley Speech of the Atlanta Fed President, R. Bostic 0:5 5:40 Speeches of the New York Fed President, W. Dudley, and of the Boston Fed President, E. Rosengren Speech of the San Francisco Fed President, J. Williams 2-6 5,60,000 5,60,000 5,570,000 230,000 % 233,00.% 230,000 % MONDAY 9 TUESDAY 20 -- % % -.2% THURSDAY 22 Retail sales Total (m/m) Excluding automobiles (m/m) -0.% -0.% 0.9% 0.2%.6% FRIDAY 23 Consumer price index Total (m/m) Excluding food and energy (m/m) Total (y/y) Excluding food and energy (y/y).5% % 0.%.3%.% - -.9%.7% WEDNESDAY 2 Wholesale sales (m/m) Wholesale inventories (m/m) 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 Eastern Standard Time (GMT - 5 hours). Forecast of, Economic Studies of the Group. FEBRUARY 6, 208 5
Economic Indicators Week of February 9 to 23, 208 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS SUNDAY 8 8:50 Trade balance ( B) 43.9 86.8 MONDAY 9 Italy 5:00 Current account ( B) Current account ( M) Construction 3 4,88 TUESDAY 20 2:00 5:00 5:00 0:00 9:30 23:30 Producer price index ZEW survey Current situation ZEW survey Expectations Consumer confidence preliminary PMI manufacturing index preliminary All industry activity index.8% 94.0 6.0.0 0.2% 95.2 2.3 54.8.0% WEDNESDAY 2 United Kingdom 3:00 3:00 3:00 3:30 3:30 3:30 4:30 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 ILO unemployment rate 59.2 58.0 59.0 58.5 6 57.0 58.4 59.2 57.6 4.3% 59.6 58.4 59.2 59.0 6. 57.3 58.8 59.6 58.0 4.3% THURSDAY 22 United Kingdom United Kingdom 2:45 2:45 2:45 4:30 4:30 Business confidence Consumer price index final Production outlook Ifo survey Business climate Ifo survey Current situation Ifo survey Expectations Index of services Real GDP preliminary Consumer price index 0 0-0.%.4% -0.% 33 34 7.0 7.6 07.9 08.4 27.0 27.7 % Q4.5%.3%.5%.0% FRIDAY 23 2:00 5:00 Real GDP final Consumer price index Q4 2.9%.4% % -0.9% 2.9%.3% % % %.4% 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 Eastern Standard Time (GMT - 5 hours). FEBRUARY 6, 208 6
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 $B) GDP deflator (2009 = 00) Labor productivity (2009 = 00) Unit labor cost (2009 = 00) Employment cost index ( 2005 = 00) Current account balance ($B) VARIATION (%) LEVEL 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q4 207 Q3 ANNUAL VARIATION (%) Quart. ann. year 207 206 205 2.6 3.8.6 6.8 --6.9 3.9 4.3-0. 2.0 6.3 --4.9 4.6.9..3 0..7 4.7 3.6 3.4 3.9.8.2 0.2-45.7.5 5.5-33.4 -.3 2..3. -434.6 2.9 3.6.4 0.2 0 5.0..2.8 2. -373.8 7,272 2,028 2,92 603.4 2,366 9.2 2,229 2,882 7,89 4.3 08.8 08.9 3.4-0 Statistics representing the level during the period; * New statistic in comparison with last week. 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 ($M) VARIATION (%) LEVEL - month -3 months -6 months - year 59.3 56.0 23. 0.2-58.5 59.8 26.2 0.9.9 3. 56.5 54.3 2.7 3.2 5.7 55.6 56.8.6 2. 5.4 3.6 * 07.0 59. 59.9 25.4 2,07 2,839 3,84 492,003 * 39,635.3 3.6 4.2 * * * * * * 07.2 77.5 498,229 249,32,902,326,396 625.0 5,570-53,8 47,80 4. 249.2-0. 77.7.7,209,300 689.0 5,780-50,435 20 4. 77.3 3.8 4.2,26,36 639.0 5,370-44,830 576.0 4.. 2. 76.4.5.8,85,230 69.0 5,50-45,626,082 4.3 2. 75.7 8.4.5 3.2,236,300 548.0 5,50-44,607 2,4 4.8 2. * 255.3.3.8 3.6 0..2.7 Excluding food and energy 3.9 0.2.5 Producer price (2009 = 00) Export prices (2000 = 00) Import prices (2000 = 00) * * * 4.9 25.7 26.7.0.4 2..9 2.9 2.6 3.4 3.6 Excluding automobiles ($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 (982 984 = 00) Excluding food and energy Personal cons. expenditure deflator (2009 = 00) 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. FEBRUARY 6, 208 7
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) Exports (2007 $M) Imports (2007 $M) Final domestic demand (2007 $M) GDP deflator (2007 = 00) Labour productivity (2007 = 00) Unit labour cost (2007 = 00) Current account balance ($M) Production capacity utilization rate (%) Disposable personal income ($M) Corporate net operating surplus (2007 $M) VARIATION (%) LEVEL 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 207 Q3 ANNUAL VARIATION (%) Quart. ann. year 206 205 204.7 4.0 -.4 0.2-0.2-4.8-3.4-4.0 2.6 3.2.9-4.6.4-9.4 978.0.0 -.0. -0. -65,372 80.2 -.9.0 2..6 3.8 -.3 4,7 3.5 - - -7,526 8 4.7-9.8 2.9 4.8 8,662 5.9 2. 2.0-47,779 8 0.,860,679,07,880 358,066 27,395 7,508 7,065 579,899 594,543,847,387 5.2 09.0 4.9-9,346 85.0,208,252 269,708 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+ ($M) VARIATION (%) LEVEL - month -3 months -6 months - year,759,223 379,929 55,58 26.2 8,059 50,056. - 26.3 4.8 0.2 0.9 2.4 2.0.0 225. -.8 3.5 4.6 205.5.5 6.5 36,998.6 2.9 6.7 63,552-3,86-2,70.3-3,344-3,022 249.7 46,50 49,696.5 6.9 6. 7.8 8,557 5.9 988.3 6,367 3-88.0 5.8 6. - 9.3 6.2.2 6.4 20. 6.3.9 3 24. 6.7 27..9 25.6 29.6 - - -0.2-0.2-0.2.7.2 4.7 04.3 965,358-0. -0.9. 8.5 2..0 8.4 6.2 7.7 * Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. FEBRUARY 6, 208 8
,, OVERSEAS Major financial indicators PREVIOUS DATA ACTUAL LAST 52 WEEKS IN % (EXPECTED IF INDICATED) 6 9 - month -3 months -6 months - year Higher Average Lower United States Federal funds target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years S&P 500 index (level) DJIA index (level) Gold price (US$/ounce) CRB index (level) WTI oil (US$/barrel).50.60 2.9 2.62 6 3. 2,739 25,34,356 99 6.27.50.53 2.07 2 4 3.4 2,620 24,9,33 88.5 59.20.50.42 2.07 4 2.64 2.9 2,80 26,072,333 95.50 68.25.26.72 2.06 7 9 2,579 23,358,288 99 56.57.25.00.32.76 0 7 2,426 2,675,296 77.50 48.59 5 2.20.9 4 4 2,35 20,624,238 9 53.4.50.6 2.9 2.65 2.94 3.9 2,873 26,67,359 202 66.27.20.06.5.98 6 8 2,5 22,472,275 84.37 52 5 0.4.64 2.05 2.67 2,329 20,404,200 66.50 48 Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years.25.4.82 2 6.25.7.79 2.08 5 0.25.8.80 2.03 4 8.00 7.46.66.94 8 5 3.24.49.87 9 0 8 8.7.7.25.2.86 2.6 8 3 9 7.23.49.86 8 0 6 6 0.9.39.96 Spread with the U.S. rate (% points) Overnight target Treasury bill 3 months -6 Treasury bonds 2 years -7 Treasury bonds 5 years - Treasury bonds 0 years -5 Treasury bonds 30 years -5-6 -0.28-4 -9-4 -0.24-0.27-0 -0-4 -9-0.26-0 -3-2 -0-0.27-7 -0.27-3 -8-4 -2-5 -3-3 0 0.25 8-7 -2 - -0.29-0.28-8 -0-0 -5-0 -3-9 -4-7 S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 5,443.253.5605 5,035.2578.5389 6,353.2489.5263 5,999.2763.5054 4,952.2586.4804 5,839.3099.3903 6,43.3749.5605 5,602.2887.482 4,952.20.3828 Overseas ECB Refinancing rate Exchange rate (US$/ ) 0.2453 0.2235 0.2222 0.795 0.762 0.064 0.250 0.56 0.0507 United Kingdom BoE Base rate Bonds 0 years FTSE index (level) Exchange rate (US$/ ) 0.58 7,297.4063 0.6 7,092.3838 0.38 7,73.3852 0.34 7,38.324 0.25.3 7,324.2876 0.25.2 7,300.245 0.67 7,779.4265 2.22 7,425.3086 0.25 7 7,092.254 Bonds 0 years DAX index (level) 2,446 9 2,07 0 3,434 6 2,994 4 2,65 0,757 2 3,560 9 2,624,804 BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) - 2,720 06.06-2,383 08.80-23,808 8-22,397 2.09-9,470 09.20-9,235 8-24,24 4.95-20,79.60-8,336 06.06 CRB: Commodity Research Bureau; WTI: West Texas Intermediate; ECB: European Central Bank; BoE: Bank of England; BoJ: Bank of Note: Data taken at markets closing, with the exeption of the current day where they were taken at :00 a.m. FEBRUARY 6, 208 9