Hopefully by now our reader base has successfully recovered from the post Bank of Canada interest rate hike flu that I have been seeing all over the news. It’s an epidemic some news sources are reporting. I hear symptoms include headaches, hindsight bias, lethargy and general apathy toward interest rate news this week. Well, I’ve got a fever and the only prescription is more…commentary.
It always worth noting these, as it’s what borrowers care most about. Last commentary, GoC 5s/10s were trading at 2.02% and 2.22% yields respectively. A whole week later, on the run Government of Canada 5s are trading at 2.06% and 10s are trading at 2.26%. Some days yields were higher and/or lower as trade floors were abuzz with activity, I’m sure, but overall we are in a similar position to last week.
Black Friday Sales and Inflation
After last week’s market moving interest rate hike from the Bank of Canada, this week started pretty light in terms of economic data. However, economists, statisticians and our readers can rejoice as the end of the week brought some great economic indicators that will help me keep this going.
Fast forward to Thursday , we saw some retail sales numbers. November retail sales came in lower than expected: + 0.8% estimated vs 0.2% as the actual number. However, since no one buys a car in November, “Ex Auto Retail Sales” was actually 0.7% higher than expected. StatsCan chalked this up to Black Friday sales and I believe them. Don’t you remember all those DVD’s they had on clearance? Bonds sold off the release and yields rose.
Today, January 26th, brought CPI data. The inflation indicator, CPI, came in lower than expected for the month-over-month numbers, -0.4 actual vs -0.3 expected. This keeps the year-over-year number at 1.9% which both market participants and the Bank of Canada are expecting. Bonds rallied on the release but as of writing, yields seem to be back in line with market open, exemplifying the market not reacting to expectations in inflation.
Loonie and the Dollar
As a change for once, the Loonie was the talk of the Canadian markets this week. No, not the one down south with great hair, the Canadian Dollar.
NAFTA talks progressed this week in beautiful, sunny and extremely cold Montreal. Even with all the wonderful the poutine and smoked meat sandwiches, Reuters was reporting into Thursday afternoon that negotiators have made no progress “at all”. However, Canadian sources mentioned they had constructive conversations on key issues. So who knows? I can’t do much work after poutine either.
Down south the US Treasury Secretary, Steve Mnuchin, made some comments about how a low USD dollar is obviously good for trade. He then doubled-down on those remarks driving the USD to 3-year lows (Bloomberg index). Wowza. Trump had to finally do some damage control, remarking he wants a strong USD. Finally...damage control….Trump.
Here’s what that means. The BoC hike, NAFTA talks and a weaker USD have all driven the Canadian dollar to 4-month highs this week. That’s a big deal. So much so, that when Stephen Poloz was asked about our now strong dollar in a CNBC interview, he declined to comment. Regardless, markets are watching the CAD very closely as it currently sits at 0.81 CAD/USD.
Finally, my greeting at the beginning wasn’t a typo that was missed by my team of proof readers, it was Scottish Gaelic for hello. A dude in a kilt taught me that. Yesterday was “Burns dinner” or “Robbie Burns Day”, celebrating the poet known for “Auld Lang Syne”, among other things. If that’s not clicking - it’s the New Year’s song. I recommend everyone seek out a dinner next year. It’s a great time. I also learned that: haggis is delicious, poems go best with scotch and not everyone should wear a kilt.
Analyst, Capital Markets