WEEKLY NEWSLETTER Oil at Lowest Point in Nearly a Year # BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: Slight increase in housing resales in. ff Canada: Wholesale and retail sales continue to climb in. A LOOK AHEAD ff United States: Another modest rise in real consumption expected for. ff Canada: A slight increase in real GDP by industry possible in. FINANCIAL MARKETS ff A difficult week for the energy sector. ff Investors are preparing for a July hike in Canadian key interest rates. ff The Canadian dollar is holding strong despite lower oil prices. 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 Mathieu D Anjou, Senior Economist Benoit P. Durocher, Senior Economist Francis Généreux, Senior Economist Jimmy Jean, Senior Economist Hendrix Vachon, Senior Economist Desjardins, 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 Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins 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. Desjardins 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 Desjardins Group. Copyright 207, Desjardins Group. All rights reserved.
Key Statistics of the Week ff Sales of existing homes increased % in, while forecasts were calling for a decrease. This gain was followed by a 2.5% decline in. Annualized sales went from 5,700,000 units in to 5,560,000 in, and to 5,620,000 in. Condominium sales were up slightly (+.6%) compared to single-family home sales (+%). ff Retail sales increased % in, thus exceeding the consensus forecast. Clearly, this spring s difficult weather conditions did not have the expected negative effects on retail trade. For example, sales of building materials as well as gardening equipment and supplies rose 3.5% during the month. Excluding motor vehicles and automotive parts, sales grew %. The vitality of the labour market and the rise in consumer confidence have something to do with this strong advance. Expressed in real terms, retail sales posted a gain of 0.3%. ff The leading indicator rose 0.3% in following a % increase in and a 0.4% rise in. In, the primary positive contributing factors were the interest rate spread, consumer confidence and the ISM index. Nonetheless, the drop in building permits had a significant negative impact. The change in the leading indicator over six months is still at its highest point since January 205, suggesting that the economy grew faster than anticipated. Francis Généreux, Senior economist ff Wholesale sales rose % in, in keeping with expectations. This increase mainly stems from wholesale sales of machinery, equipment and supplies; this is good news for future business investment. Expressed in real terms, sales rose % while inventories grew by 0.5%. Wholesale trade should therefore contribute positively to economic growth in. Benoit P. Durocher, Senior economist Housing resales are no longer showing a clear uptrend Strong growth for retail trade Existing home sales (annualized) Value of retail sales In thousands Annual variation in % 5,700 5,600 5,500 5,400 5,300 5,200 5,00 5,000 4,900 4,800 205 0 9 8 7 6 5 4 3 2 0 200 206 Sources: National Association of Realtors and Desjardins, Economic Studies 207 20 202 203 204 205 206 207 Sources: Statistics Canada and Desjardins, Economic Studies 2
Financial Markets Oil Prices Are Still Dropping The week started off strongly with a surge of technology stocks that pushed the S&P 500 and Dow Jones to new historic heights. The markets also seemed to react positively to the decisive victory of Emmanuel Macron s party in France. But the most recent sessions were more difficult, with oil prices plummeting to their lowest since August 206. Even some encouraging U.S. weekly figures could not calm investors extreme pessimism about oil. At closing time on Wednesday, the S&P 500 energy sector posted a decline of 3.5% from the previous Friday. Despite that, the U.S. and Canadian indexes were still slightly above last week s close on Thursday morning. U.S. bond yields barely moved this week, with the relatively positive remarks from some Federal Reserve leaders offsetting the downward pressure linked to dropping oil prices. In Canada, encouraging economic statistics, and in particular the strong increase in retail sales, pushed the implicit probability of a July hike in key interest rates close to 60%. Canadian rates have thus continued to climb, especially on the short end of the curve, and the negative spread between 2 year Canadian and U.S. yields went down to only 40 basis points on Thursday. The U.S. dollar made some progress against most major currencies. The euro dropped below US$2 and the pound dropped below US$.27. A week earlier, the pound was bolstered by a tight vote of the Bank of England s monetary policy committee but, on Tuesday, Governor Mark Carney put the lid back on by downplaying the chances of short-term interest rate increases, penalizing the British currency. The Canadian dollar retreated to close to US$5 during the first half of the week as oil prices were down. But on Thursday, its losses were wiped out when the promising figures on retail sales gave investors higher expectations about money firming. At the time of writing, the loonie was trading at over US$55 (C$.325/US$). Mathieu D Anjou, CFA, Senior economist Hendrix Vachon, Senior economist GRAPH Stock markets Index Index 5,700 2,450 5,600 2,430 5,500 2,40 5,400 2,390 5,300 2,370 5,200 2,350 5,00 207/05/0 207/05/8 207/05/26 207/06/05 207/06/3 207/06/2 S&P 500 (left) S&P/TSX (right) Sources: Datastream and Desjardins, Economic Studies GRAPH 2 Bond markets 0-year yield In % points -0.60 In % 2.5 2.3-0.65 2. -0-5.7-0 -5 207/05/0.3 207/05/8 Spread (left) 207/05/26 207/06/05 United States (right) 207/06/3 207/06/2 Canada (right) Sources: Datastream and Desjardins, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ 60 3 55 2 50 45 40 0 35 9 30 25 207/05/0 8 207/05/8 207/05/26 207/06/05 Canadian dollar (left) 207/06/3 207/06/2 Euro (right) Sources: Datastream and Desjardins, Economic Studies 3
A Look Ahead MONDAY 26 - Desjardins m/m -% -% -% New durable goods orders () After two consecutive months of solid advances, new durable goods orders declined % in, the first pullback since November 206. The decline in orders excluding transportation is the biggest disappointment. Another drop is expected in, fuelled in large part by the transportation industry, as aircraft orders seem to be down again. The data on automobile production also point to a pullback in this sector. However, better results for new durable goods orders excluding transportation are expected, considering the solid reading for the ISM manufacturing index and the recent increase in machinery output. We expect orders excluding transportation to rise 0.5%, with total orders posting a % decline. TUESDAY 27-9:00 y/y Desjardins 5.83% 5.89% S&P/Case Shiller existing home price index () The monthly change in the S&P/Case Shiller index remained lively in, with a % gain after the % increase in February. A significant slowdown is expected in, however. A slower pace is often seen in the spring due to faulty seasonal adjustments. Between and 206, growth by the S&P/Case Shiller index went from % to %. A 0.5% advance is expected for 207. The annual change in the S&P/Case Shiller index should remain at around 5.8%. TUESDAY 27-0:00 Desjardins 6.0 7.5 7.9 Conference Board confidence index () After reaching a peak in not seen in 6 years, the Conference Board confidence index is now falling, losing a total of 7 points in and. Not much movement is expected in. The other confidence indexes have had fairly mixed readings thus far this month, with the University of Michigan index showing a decline and other indexes showing some stability. Gas prices have dipped somewhat in the last month and the U.S. stock market reached new heights. Household opinion of the Trump administration has been an important factor in confidence index movements since fall 206. We expect the Conference Board confidence index to remain at around 7.5. FRIDAY 30 - Desjardins m/m 0.% 0.% 0.4% Consumer spending () The % advance in real consumption in marks a slowdown from the 0.5% gain recorded in. Another % increase is expected in. Some weakness in consumption of durable goods is expected, in tune with automobile sales and retail sales. That said, we expect consumption of services to rebound, especially considering energy demand s return to growth. The absence of price increases in will also help real consumption, but hinder nominal consumption, which should tick up by only 0.%. Nominal personal income should advance by 0.3%. FRIDAY 30 - Desjardins m/m % 0.5% Real GDP by industry () Generally speaking, economic indicators made good progress in. However, these results provide very few clues on the negative impact this spring s difficult weather conditions will have in some areas of Canada s economy. Our projections show that an increase of about % could be recorded in better than our initial forecast, which could reflect the resilience of Canada s economy and its fairly positive momentum. OVERSEAS DURING THE WEEK : Economic indicators Among the indicators to be published in the euro zone this week, several confidence indexes for will be released on Thursday. These indexes have been on a positive trend of late, supporting economic growth in the euro zone. The flash estimate on inflation for will be out on Friday. The annual change in the total consumer price index has slowed in recent months, falling from a recent peak of % in February to only.4% in. 4
DURING THE WEEK : Economic indicators Several monthly indicators for will be published this week in. Retail sales data will be released on Wednesday evening; sales jumped.4% in, the sharpest monthly increase since October 206. Another equally good result would be surprising. Data on the unemployment rate, industrial output, housing starts and the major consumer price indexes will be released on Thursday evening. 5
Economic Indicators Week of 26 to 30, 207 Day Hour Indicator Period Previous data MONDAY 26 0:20 Speech of the San Francisco Fed President, J. Williams Durable goods orders (m/m) TUESDAY 27 9:00 0:00 :00 7:30 S&P/Case-Shiller home price index (y/y) Consumer confidence Speech of the Philadelphia Fed President, P. Harker Speech of the Minneapolis Fed President, N. Kashkari WEDNESDAY 28 3:30 0:00 Speech of the San Francisco Fed President, J. Williams Goods trade balance preliminary (US$B) Retail inventories preliminary (m/m) Wholesale inventories preliminary (m/m) Pending home sales (m/m) 3:00 Initial unemployment claims Real GDP (ann. rate) Speech of the St. Louis Fed President, J. Bullard THURSDAY 29 FRIDAY 30 Personal income (m/m) Personal consumption expenditures (m/m) Personal consumption expenditures deflator Total (m/m) Excluding food and energy (m/m) Total (y/y) Excluding food and energy (y/y) 9:45 Chicago PMI index 0:00 Michigan s consumer sentiment index final -% -% -% 6.0 5.83% 7,5 5.89% 7.9-65.5 0.6% -67.2-67. -0.3% -0.5% -.3% 9-23 Qt.2% 244,000.2% 24,000.2% 0.3% 0.% 0.3% 0.% 0.4% 0.4% -0.% %.4% 58.0 94.5 % 0.% % % 55.0 94.5 % %.7% % 59.4 94.5 0.% -% % 0.6%.6% 0.5% MONDAY 26 TUESDAY 27 WEDNESDAY 28 THURSDAY 29 FRIDAY 30 9:30 4:5 -- 0:30 0:30 Speech of the Bank of Canada Governor, S. Poloz Speech of a Bank of Canada Deputy Governor, L. Patterson --Industrial product price index (m/m) Raw materials price index (m/m) Real GDP by industry (m/m) Release of the Bank of Canada Senior Loan Officer Survey Release of the Bank of Canada Business Outlook Survey Note: Desjardins, 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 Desjardins, Economic Studies of the Desjardins Group. 6
Economic Indicators Week of 26 to 30, 207 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS MONDAY 26 :00 :00 4:00 4:00 4:00 Leading indicator final Coincident indicator final IFO survey Business climate IFO survey Current situation IFO survey Expectations 04.5 7.7 4.6 23.2 06.5 TUESDAY 27 Italy Italy 4:00 4:00 Consumer confidence Economic confidence 05.4 06.2 WEDNESDAY 28 France Italy :00 2:45 9:50 Small business confidence Consumer confidence Consumer price index preliminary Retail sales % 48.9 02 -%.4% THURSDAY 29 China China -2:00 8:00 9:0 9:30 9:30 9:30 9:30 9:50 2:00 2:00 Nationwide house prices Retail sales Consumer confidence Business climate Consumer confidence final Industrial confidence Services confidence Economic confidence Consumer price index preliminary Consumer confidence Household spending Consumer price index Consumer price index Tokyo Unemployment rate Industrial production preliminary PMI manufacturing index PMI non-manufacturing index -% -% July 0.4 0 -.3 2.8 3.0 09.2 -% -5-0.5% 0.5% 0.4% 2.8% 2.8% -3.2% 7.0% 4.0% 5 5.2 54.5 2.% -% FRIDAY 30 France France 0:00 :00 2:45 2:45 4:30 4:30 4:30 Vehicle production Housing starts Personal consumption expenditures Consumer price index preliminary Current account ( B) Index of services Real GDP final Consumer price index estimate % 0.5% % Q -2. % Q % 6.3% % -0.5% %.4% 3.2% % -.4% 0.4% % 5.7% %.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 Daylight Saving Time (GMT - 4 hours). 7
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 $B) GDP deflator (2009 = 00) Labor productivity (2009 = 00) Unit labor cost (2009 = 00) Employment cost index (Dec. 2005 = 00) Current account balance ($B) VARIATION (%) LEVEL * ANNUAL VARIATION (%) Quart. ann. year 206 205 204.2 0.6-3.7.4 --5.9 3.8 3.2 2.8-0.5 2.5 3.6 --3. 3.7 2.3.2 2.4.6 2.7 4.9-0.5 2 0.4.2 2..3 0.3-45.7 3.2.8.7 2. 84.0 0. 4.6 3. 2. -434.6 2.4 2.9-3.5 6.0 57.7 4.3 4.4.8-373.8 6,862,689 2,899 65.5 2,257 4.3 2,68 2,768 7,439 2.9 07.5 29.0-6.8 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 * VARIATION (%) LEVEL 27.0 54.9 - month -3 months -6 months - year 0.3 54.8 57.7 2.3 53.5 3.5 5 ISM non-manufacturing index 56.9 57.5 57.6 56.2 53.6 Cons. confidence Conference Board (985 = 00) Personal consumption expenditure (2009 $B) Disposable personal income (2009 $B) Consumer credit ($B) Retail sales ($M) 7.9,753 2,859 3,82 473,808 9.4-0.3 6..2 0.3 09.4 2.5 92.4 5.8 3.8 377,26-0.3 0.4 3.8 05.0 76.6 469,030 23,007,854,092 76.7 - - -,56.2 75.9.7 2.9,288 75.5.4 -.2.8,49 75.6 3.8 2.3,9 Building permits (k),68,228,29,255,78 New home sales (k) 569.0 64 599.0 577.0 566.0 Excluding automobiles ($M) Industrial production (2007 = 00) Production capacity utilization rate (%) New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k) Existing home sales (k) * 5,620 5,560 5,470 5,600 5,470-47,67-45,283-48,786-43,069-38,422 Nonfarm employment (k)2 46,35 38.0 36 965.0 2,266 Unemployment rate (%) Consumer price (982 984 = 00) 4.3 243.8 4.4-0. 4.7-4.6 4.7.7 Commercial surplus ($M) Excluding food and energy 25.3 0. 0..7 Excluding food and energy 2.7 Producer price (2009 = 00) Export prices (2000 = 00) Import prices (2000 = 00) 2.7 2.7 22.4 - -0.3 0.4 - -.4 2.4.4 2. 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. 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 $M) VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. year 206 205 204 Current account balance ($M),829,325,048,084 350,974 30,369 63,843 2,324 582,067 580,982,806,260 5.5 09.6 5.5-4,053 3.7 4.3 0.5 5.7 0.3 0.3 3.7 4.7 4.3 5.6-2.3 3..2 4.2 -.3.6 3. 2.7-2.4 3.0-8.6-45.0-0.6-66,968 3.8-3,86 3.4 0.3 0.3 - -0.5-67,553 2.8 2.7 3.2 9,392 5.8-48,207 Production capacity utilization rate (%) Disposable personal income ($M) Corporate net operating surplus (2007 $M) 83.3,90,580 27,588 --.8 50.6 --3.7 27. 8 3.7-4.5 8 4.4-9.5 82.4 3.2 8.2 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 ($M) * VARIATION (%) LEVEL - month -3 months -6 months - year,79,84 365,284 54,43 94.6 7,057 48,639 0.5 23.5 -.7.7 2.7-7.7 2.5 6.2 87.6-3.3 3.9 3.2 5.3 7.6 87.0-3.3 7.0 * 35,92.4 3.6 6.4 * 6,007-370.3-935.8 48.2 6.5 -,38 0.3-3,5 Exports ($M) Imports ($M) 47,689 48,059.8 0.6 3.6 8.7 6.2 4.7 7.4 Employment (k)2 8,366 54.5 25.7 3 26.4 6.6 966. 6,25 30.4 6.5 8. 0.4 6.6-0.5 9.9 6.8 6.3 6.9 22..6 25.2 29.6 0.6 0.4 4.7 0.3 929,03 0.6.6.8.6.3 2.7 3. 8.0 5.5 6.3 7.7 Wholesale trade sales ($M) Commercial surplus ($M) Unemployment rate (%) Average weekly earnings ($) 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+ ($M) Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. 9
,, OVERSEAS Major financial indicators PREVIOUS DATA ACTUAL LAST 52 WEEKS IN % (EXPECTED IF INDICATED) 22 5 - month -3 months -6 months - year Higher Average Lower United States Federal funds target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years S&P 500 index (level) DJIA index (level) Gold price (US$/ounce) CRB index (level) WTI oil (US$/barrel).25 6.34.77 2.6 2.73 2,438 2,446,25 67.59 43.4.25.3.75 2.6 2.78 2,433 2,384,256 73.05 44.73 0 2.28.80 5 2.92 2,46 2,080,268 8 49.58 0 7.26 3 2.40 3.00 2,344 20,597,249 83.47 47.30 5 0.5.2 3 2.54 3. 2,264 9,934,34 90.53 5 6 0.65 7 8 2.43 2,037 7,40,34 88.69 46.70.25.38 2.3 3.9 2,453 2,529,369 95.4 54.48 0 0.54 5.60 8 2.75 2,259 9,572,259 86.04 48.56 0.8 0.56 4.36 2. 2,00 7,40,27 67.42 39.50 Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years 0.57 5 7 0 4 2 4 0.52 7.44 7 0.49 5 3.64 2.3 0.47 0.2.80 2.39 0.54 0.63 6.80 0.58 5.32.87 2.53 0.68 2.43 6 0.42 0.47 0.53 5 5 Spread with the U.S. rate (% points) Overnight target -5 Treasury bill 3 months -0.39 Treasury bonds 2 years -0.39 Treasury bonds 5 years -0.60 Treasury bonds 0 years -0.66 Treasury bonds 30 years -3-5 -0.5-0.42-0.6-0.63-5 - -0.40-0.57-3 - -4 - -8-0.5-0 -6-0.69-5 -4-0.4-2 -4-2 4-0.44-0.4-0.63 0.35-6 -0.38-0.35-0.52-0 -4-0.37-0.68-0.66-0 -5-0.54-0.63-9 -4-8 S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 5,247.329.4750 5,93.322.4794 5,47.3447 037 5,443.3379.4448 5,328.3536.454 3,892.3006.4459 5,922.3749 20 5,05.3244.4454 3,690 565.3828 Overseas ECB Refinancing rate Exchange rate (US$/ ) 59 98 83 799 457 7 354 897 387 BoE Base rate Bonds 0 years FTSE index (level) Exchange rate (US$/ ) 5 2 7,436.2668 5 5 7,464.2776 5 4 7,548.2804 5 3 7,337.2470 5.34 7,068.2293.22 6,39.3680 7,548.3680 8 8 7,064.2697 5 0.6 5,982.2049 Bonds 0 years DAX index (level) 5 2,777 8 2,753 0.33 2,602 0.4 2,064 0.4,450-6 9,557 0.49 2,889 0.5,309-2 9,269 BoJ Overnight rate Nikkei index (level) Exchange rate (US$/ ) 20,.37 9,943 7 9,687.35 9,263.35 9,428 7.35 4,952 03 20,230 8.8 8,99 08.97 4,952 99.89 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. 0