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Market Monitor

Economic trends and topics to help you.

Staying current with global economic news and market updates is a full-time job – and then some. To help, we've partnered with Credential Financial Inc. to provide their expert research commentary every month, capturing the highlights of what's important to investors as they track events in Canadian, U.S., European, Latin American and Asian markets.

For the month ending February 28th, 2017

Canadian Economy and Markets

Unemployment rate drops. The economy added 48,300 jobs in January on a surge of part-time hirings, mainly in the services sector. This bumped the national jobless rate down 0.1% to 6.8%, where economists had forecasted to be unchanged for the month. The participation rate rose slightly to 65.9.

Inflation rises. The annual inflation rate climbed into the Bank of Canada’s target range in January on a surge in gasoline costs. Prices at the pumps rose 20.6% year-over-year, the largest rise since September 2011, leading a monthly increase in CPI of 0.9% and bumping the annualized inflation to 2.1%, its highest level in two years. Core inflation was reported to be 1.7% annualized during the month.

Producer Price Index higher. Rising costs in petroleum and energy pushed producer prices higher by 0.4% in January following a 0.3% gain the previous month. The cost of meat, fish, and dairy goods also climbed 2.2% as the measure posted its fifth straight monthly increase. On an annualized basis, PPI holds steady at 2.3%, the same pace as in December.

Manufacturing sales gain. For second straight month, manufacturing sales beat expectations, as reported by Statistics Canada. In December, sales rose 2.3% to $53.5B on increased demand for petroleum, coal, and transport equipment with petroleum and coal products rising 11.6%. Economists had estimated growth to be 0.2% as eight of the 21 sectors tracked gained for the month. November’s numbers were revised higher to $52.3B from $51.8B.

Manufacturing activity higher. Canada’s factories were busier in January, a nice start to the new year. Improving business conditions, along with increased output and new order growth for the month sent the Markit manufacturing PMI to its highest in two years at 53.5, compared to 51.8 the previous month. Estimates called for the month’s reading to be 51.7.

Wholesale sales climb. Factory sales climbed for a third consecutive month in December, aided by increases in machinery, equipment, and building materials. With sales of $57.3B, wholesale trade rose 0.7% in six provinces across the country, though manufacturing hub Ontario saw a decline. With the data, wholesale sales were higher by 3.1% in 2016, the seventh straight year of increases.

Retail sales fall. December was not a merry month for retailers as sales fell 0.5%, following four straight months of shopping. Nine of the 11 sectors tracked declined, as its speculated consumers began their holiday shopping earlier in November to coincide with Black Friday events in the U.S. The month’s decline was the largest since March but for all of 2016, retail sales were higher by 3.7%, the biggest increase since 2014.

Canada Housing News:

  • Canadian existing home sales lower. The effects of regulatory and governmental changes appear to be having an impact as existing home sales activity declined in January by 1.3% compared to the previous month. However, on a year-over-year basis, sales are higher by 1.9%. Sales were noticeably lower in Toronto, Vancouver, and Montreal, the country’s biggest markets, as new listings fell 6.7%, causing a supply shortage.
  • Building permits fall. The national aggregate of applications for building permits fell in December, as softness was seen in the residential and commercial sectors. For the month, the value fell by 6.6%, exceeding forecasts of a 4% decline. Residentials fell 4.1% as multi-family dwellings declined, while non-residentials fell 11.5%.
  • Housing starts up. The number of ground-breakings surprised analysts in January. Ontario led the charge, while B.C. continued to lag. Over 207K starts were reported on a seasonally adjusted annualized rate, surpassing the 200K predicted by analysts. Multi-unit dwellings rose 4.2% while single-detached homes fell 4.6%.
  • New home prices rise. The average cost of a new home in Canada rose 0.1% in December, just shy of expectations of a 0.2% increase. Most of the increases were seen in Ontario as a result of rising prices in the areas surrounding Toronto, which was unchanged. Vancouver was also relatively flat as activity in that market continues to cool following B.C.’s new tax on foreign homebuyers.
U.S. Economy & Markets

U.S. market continues to surge. The U.S. market continued to move higher after the election in November. All three major indices made new record highs. The broad-based S&P 500 index rose 3.7%, closing the month at 2,364. The Dow Jones Industrial Average, marching toward the 21,000-level, moved up 4.8% to end the month at 20,812. The tech-heavy Nasdaq also posted a solid gain of 3.8%, wrapping up the month at 5,825.

U.S. Q4 GDP grows. The Commerce Department released its second estimate of the Q4 GDP growth. It was unchanged from the first estimate of a 1.9% growth year-over-year. Economists were expecting a 2.1% annualized growth. One major component of the GDP, consumer spending, was revised up from the initial estimate of 2.5% to 3%.

Fed minutes released. The Federal Reserve released the minutes of its January meeting, showing that members of the Federal Open Market Committee (FOMC) discussed the impact of the new administration’s policies and tax plans at length. According to the minutes, a few members of the committee believed that raising interest rates at “an upcoming meeting” would be appropriate - but the next FOMC meeting in March was not specifically mentioned.

U.S. inflation gains. Consumer prices in the U.S. continued to move up and the index posted its biggest gain in nearly four years. The Labor Department reported that the consumer price index (CPI) surged 0.6% in January after posting a 0.3% gain in December last year. It was the largest monthly increase since February 2013. Year-over-year, CPI rose 2.5% in January, the biggest annual gain since March 2012. Economists were expecting a monthly increase of 0.3% and year-over-year increase of 2.4%. Core CPI, which strips out food and energy prices, increased by 0.3% month-over-month and 2.3% YoY.

U.S. economy creates more jobs than expected. The Bureau of Labor Statistics reported that the economy pumped out 227,000 jobs in January, crushing economists’ estimate of 175,000. It was also much higher than December’s figure of 57,000. Job creation was the strongest in the retail sector, with 46,000 new positions created. Despite this, the unemployment rate in the U.S. rose slightly to 4.8% from 4.7%.

PPI rises. Producer prices in U.S. continued to increase. The Labor Department reported that its producer price index (PPI) jumped 0.6% in January following a 0.2% increase in December, beating economists’ expectations of a 0.3% increase. It was the largest monthly increase since September 2012. Year-over-year, PPI increased by 1.6%, slightly higher than the consensus increase of 1.5%.

U.S. industrial production drops. Industrial production declined in January as a utilities output was affected negatively by warm weather. The Fed reported that industrial production fell 0.3% in January, lower than economists’ expectations of a flat reading. The majority of the decline came from a 5.7% drop in utilities output as warm weather reduced demand for heating.

U.S. "flash" manufacturing and services PMI drops. Both manufacturing and services activity in U.S. slowed down in February. Markit’s ‘flash’ manufacturing purchasing managers’ index (PMI) declined to 54.3 from January’s final reading of 55.1, missing economists’ estimate of 55.5. Services PMI fell to 53.9 from the 14-month high of 55.6 reported in January. Both gauges slipped to their respective two-month lows.

U.S. durable goods orders rise. Orders for long-lasting manufactured goods increased in January, but core capital goods orders fell. The Commerce Department reported that durable goods orders increased by 1.8% in January, higher than economists’ estimated 1.7% increase. However, core capital goods orders, which excludes aircraft and is seen as a proxy of business investment plans, declined 0.4% after a 1.1% increase reported in December; economists were expecting a rise of 0.5%.

Retail sales rise. Retail sales in the U.S. rose more than expected in January. The Commerce Department reported that retail sales advanced 0.4% in January after a 1% increase reported in December. Economists were expecting an increase of 0.1% only. Year-over-year, retail sales were up 5.6%.

U.S. consumer sentiment drops. Consumer sentiment fell for the first time since Donald Trump was elected president. The University of Michigan reported that its final index of sentiment for February fell to 96.3 from January’s 98.5, which was the highest reading since 2004. Economists were projecting a reading of 96.0.

U.S. Housing News:

  • U.S. home prices gain. The S&P/Case-Shiller U.S. National Home Price Index jumped 5.8% year-over-year in December, the highest annual increase since June 2014. The 20-city index, which tracks prices in the nation’s largest cities, gained 5.6% year-over-year, higher than economists’ estimate of 5.4%. Price gains in Seattle, Portland, Oregon, and Denver remained at the top of the chart. Low inventory has been pushing up home prices.
  • U.S. pending home sales drop. Pending home sales dropped in January, likely due to higher mortgage rates and limited supply in the market. According to the National Association of Realtors, its pending home sales index dropped 2.8% to a reading of 106.4 in January, the lowest reading in a year. Economists expected a rise of 0.9%. Rising mortgage costs and rising home prices were believed to be the main causes of the decline in sales.
  • U.S. existing home sales surge. Home resales in the U.S. hit a 10-year high in January, according to the report by the National Association of Realtors. January home resales were reported to jump 3.3% to a seasonally adjusted annual pace of 5.69M units, the highest level since February 2007. The figure also exceeded economists’ expectations of a 5.54M unit pace. Year-over-year, sales were up 3.8% from January last year.
  • U.S. new home sales rise. The Commerce Department reported that new home sales in January climbed 3.7% to a seasonally adjusted 555,000 units, falling short of economists’ expectation for a rise of 6.3%. Year-over-year, new home sales were up 5.5%. The increase came despite increasing mortgage rates.
  • U.S. housing starts drop. The Commerce Department reported that homebuilding declined by 2.6% to a seasonally adjusted annual pace of 1.25M units, slightly higher than economists’ forecast of a 1.22M-unit pace, but lower than December’s pace of 1.28M units. Year-over-year, new housing starts increased by 10.5%. Starts for the volatile multi-family housing segment declined 10.2% to a rate of 423,000 units. Despite a fall in housing starts, building permits for future construction were up 4.6% in January to an annual rate of 1.29M units, the highest level since November 2015.
European Markets

Euro-zone’s Q4 GDP growth revised lower. Q4 GDP growth within the 19-member zone was revised lower from the initial estimate. Eurostat reported that GDP grew 0.4% during the last three months of 2016, down from the 0.5% growth reported earlier. Year-over-year growth in Q4 was also revised down to 1.7% from the initial estimate of 1.8%.

Euro-zone inflation climbs. Eurostat reported that Euro-zone annual inflation jumped up 1.8% in January, up from the 1.1% increase reported in December. Energy prices played a large part in the increase, moving up 8.1% YoY. Core inflation within the zone, which excludes unprocessed food and energy prices, remained unchanged in January at 0.9%.

Euro-zone trade surplus increases. Trade surplus increased unexpectedly within the 19-member region in December. Eurostat reported that Euro-zone trade surplus increased to €24.5B from November’s figure of €22.2B. Economists were expecting the trade surplus to decline slightly to €22.0B. December’s surplus was the highest since April 2016. Exports advanced 2.8% month-over-month in December and imports moved up by 1.7%.

Euro-zone economic sentiment up. Economic sentiment improved in February within the 19-member region despite political uncertainties coming up. The European Commission reported that the Euro-zone’s economic sentiment index inched up to 108.0, slightly lower than the expected reading of 108.1, but was higher than January’s reading of 107.9. It was the highest level in almost six years.

Euro-zone ‘flash’ composite PMI rises. Business growth within the 19-member region grew more than expected in February, according to the ‘flash’ PMI. IHS Markit’s Euro-zone ‘flash’ composite purchasing managers’ index advanced to 56.0 in February from January’s reading of 54.4. It was the highest reading since April 2011 and was above economists’ estimated reading of 54.3. ‘Flash’ manufacturing PMI rose to 55.5 from January’s 55.2, and the services PMI moved up to 55.6 from 53.7.

Asian Markets

China’s inflation climbs. The National Bureau of Statistics reported that China’s consumer price index (CPI) accelerated to 2.5% year-over-year in January; economists were expecting an increase of 2.4%. On the other hand, producer price index (PPI) also quickened, recording a year-over-year increase of 6.9% in January, handily beating economists’ forecast of a 6.3% increase.

China’s exports rise. China’s shipment abroad rebounded in January. The General Administration of Customs reported that exports jumped 7.9% year-over-year in January, beating economists’ forecast for a rise of 3.1% handily. The politically sensitive number for exports to the U.S. also moved up, rising 9% year-over-year in January. Imports increased as well, advancing by 16.7% year-over-year.

Japan’s GDP grows. Japan’s economy grew for the fourth straight quarter, lifted by strong exports. Cabinet Office’s data showed that the world’s third largest economy grew an annualized 1% in the final quarter of 2016, in line with economists’ estimates. On a year-over-year basis, GDP expanded by 1.6% in Q4, better than the 1% increase reported for Q3. Exports rose by 2.6% in Q4, the fastest growth in two years.

Japan ‘flash’ manufacturing PMI rises. Japan’s manufacturing activity accelerated at the fastest pace in nearly three years in February. The Markit/Nikkei ‘flash’ manufacturing purchasing managers’ index (PMI) rose to 53.5 in February from January’s final reading of 52.7. The gauge was above the 50-mark for the sixth consecutive month and was at the highest level since March 2014.

Japan’s trade deficit widens. Japan’s trade deficit in January increased to ¥1.1T compared to ¥648B one year ago, as imports climbed for the first time in two years. Economists were expecting a trade deficit of ¥626B. Exports rose 1.3% from a year earlier while imports advanced 8.5% year-over-year. Exports to U.S. dropped 6.6% while sales to China increased by 3.1%.

Key Take-away:

Economy is improving. The prospects of Canada’s economy are looking brighter as indicated by recent economic data. The manufacturing sector, weighed down by muted growth, continues to move deeper into expansionary territory with PMI readings much improved over previous months. With increased activity, workers benefited as January unemployment numbers surpassed expectations, adding over 48,000 jobs where a loss of 10,000 was forecasted, and dropping the jobless rate to 6.8%. From a trade perspective, the low Canadian dollar and rising price of crude - one of Canada’s main exports - helped the economy register a second straight surplus, which was last accomplished in September 2014. But despite the good news, optimists remain cautious. The makeup of the labour market is tilted more towards part-time positions, instead of the preferred, more stable full-time hirings. A fall in the price of oil can also easily wipe out a surplus because of the commodity’s high correlation to our economy.

Trade has been a key topic of U.S. president Donald Trump as he turned his attention to Canada. The first face-to-face meeting between Prime Minister Trudeau and President Trump had Canadian markets and CEOs worried that a renegotiation of NAFTA would be a setback to Canada’s manufacturing sector. Investors were able to breathe easier following the meeting between the two leaders as they both publically acknowledged the importance of the Canada-U.S. economic relationship. In addition, Trump indicated that his changes to NAFTA would be “tweakings” that would be mutually beneficial for both countries. Back home, manufacturing got another boost as sales data surprised, signalling perhaps recovery in a sector that has struggled for growth.

The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any mutual funds and other securities.