FEATURED ARTICLE: The Beginning of the End MARKET STATISTICS: Weekly Change
ECONOMIC STATISTICS:
Canadian Consumer Price Index – February CPI inflation clocked in at just 1.0% y/y in February, pulled down by a sharp 21% annual drop in gasoline prices. Excluding the impact of lower gas prices and other volatile prices, the Bank of Canada’s core measure of inflation rose 2.1% from year-ago levels – topping the Bank of Canada’s target for the seventh consecutive month. Overall gains in food prices slowed to a still lofty 3.9% y/y, while prices for vegetables were up a hefty 7.5%. Clothing and footwear prices (+2.5% y/y) accelerated in the month while reading material prices grew a tremendous 7.7%. Beer prices rose 4.4% y/y. The inflation picture was widely different by province. Ontario posted the sharpest gain in overall inflation (+1.3% y/y) as shelter costs rose sharply, while the Atlantic provinces saw an outright contraction in prices in February. Overall consumer prices rose 1% just about everywhere else. The inflation outlook in 2015 can best be described as a battle of the forces. More specifically, as the combination of the drop in gas prices and a weak Canadian dollar continue to drive a wedge between the headline consumer prices and the Bank of Canada’s core measure of inflation. Headline inflation is expected to average just 0.4% in 2015, with core inflation expected to clock in at 1.8%.
Canadian Retail Sales – January Retail sales fell by 1.7% in January, following an upwardly revised decline of 1.8% in January. On a volume basis, sales fell 1.2%. The drop in sales were broad-based, as pull-backs were recorded in 7 of the 11 major subsectors. That said, the overall decline was largely led by the gasoline sale. Excluding this category, sales fell a more modest 0.8% month-on-month. Across the other sectors, sales of motor vehicles and parts fell for a fourth straight month, down 1.4% in January. Food and beverage retailers (-1.2%), grocers (-0.1%) and general merchandise stores (-1.1%) also saw sales slow on the month. Conversely, electronics and appliance stores (+3.8%) saw a reversal of the December sales drops, while the clothing and accessory stores also saw sales rise on the month (+1.5%). Across the country, retail sales were down in nine of the ten provinces, with only P.E.I. seeing rising sales (+0.5%). Significant sales drops were seen in Alberta (-2.8%), Quebec (-2.4%) and Ontario (-1.8%). Sales in the territories were up 1.5%, led by Nunavut. The drop in oil prices seen in the latter half of 2014 continues to be seen in the data. A pullback in retail sales was to be expected on the basis of this decline along, as consumers pay less at the pump. That said, the weak income growth that many Canadians are seeing appears to be offsetting these savings somewhat. As a result, we expect only slight growth in consumer spending in the first quarter of 2015 as auto sales are expected to decline outright.
U.S. Industrial Production and Capacity Utilization – February U.S. industrial production rose only 0.1% in February, a tick softer than expected. Coupled with the downward revision in the prior month (-0.3% from the original +0.2% print), production is up a healthy 3.5% y/y but still slower than the 2nd half of 2014. Mining output fell 2.5% in the month as oil and gas drilling plunged more than 17% - the steepest one-month slide since the 1986 oil price collapse. Production has now fallen in five consecutive months and is down 28% since the peak in September. Manufacturing production dipped 0.2% and has clearly slowed in recent months. Auto output fell 3.0% while machinery and electrical equipment were also weaker. Meanwhile, utilities output surged a record 7.3% amid colder-than-normal temperatures across much of the Midwest and Northeast. The capacity utilization rate fell for a third straight month to 78.9% from a downwardly-revised 79.1% in the prior month. Looking beyond the slide in oil drilling, industrial production is off to a weak start in 2015 – and that’s despite a massive jump in utilities output.
Over the past nine months, the single biggest driver of price action has been the skyrocketing U.S. dollar. Since the end of June 2014, the U.S. dollar index, which tracks the greenback’s performance relative to a basket of major currencies, has risen by 25 per cent. However, the Federal Reserve’s release on Wednesday threw a massive wrench into the greenback’s one-way ticket to the stratosphere. While the Feds removed the word “patient” from the statement, technically putting a June rate hike on the table, monetary policy makers’ estimated glide path higher for rates is slower than it was in December and the growth outlook for the next three years was downgraded. The U.S. dollar index proceeded to tumble by more than 2.5 per cent from the 10 minutes preceding the statement until markets closed. It seems that we’ve reached the “beginning of the end of the bull run” in the U.S. dollar due to a number of factors: recent data developments, U.S. tolerance for dollar strength has its limits, valuations, positioning/U.S. dollar bullishness has become all-pervasive, and greenback does not performance once Fed has pulled the trigger.
U.S. Existing Home Sales – February - Monday, March 23, 2015 at 10:00am
U.S. Consumer Price Index – February - Tuesday, March 24, 2015 at 8:30am
U.S. Durable Goods Orders – February - Wednesday, March 25, 2015 at 8:30am
U.S. Real GDP – Q4 - Friday, March 27, 2015 at 8:30am
Thursday, March 26, 2015 at 3:30pm - Team-Wide Meeting