The release of Canadian Retail sales is likely to continue the string of recent data showing Canada’s economic resiliency. Since the beginning of the month we have seen 43,000 jobs added, and housing starts, exports, new vehicle sales, manufacturing shipments and wholesale sales improve.
[B]MAR 25[/B]
[B]Canadian Retail Sales (MoM)(JAN) (12:30 GMT; 08:30 EST)[/B]
[B]Retail Sales Ex Autos (MoM) (JAN) (12:30 GMT; 08:30 EST)[/B]
[B][/B]
[B]Expected: 1.4%[/B]
[B]Expected: 0.5%[/B]
[B][/B]
[B]Previous: 0.6%[/B]
[B]Previous: -0.4%[/B]
What Are The Markets Facing?
The release of Canadian Retail sales is likely to continue the string of recent data showing Canada’s economic resiliency. Since the beginning of the month we have seen 43,000 jobs added, and housing starts, exports, new vehicle sales, manufacturing shipments and wholesale sales improve. However, the BoC’s recent surprise 50 point rate cut and the unexpected decline of 0.3 percent in the leading economic indicators index are signs that economic downside risks are increasing. A declining U.S. economy may ultimately become too big of an albatross for Canada to bear, as American consumers are already losing their appetite for Canadian goods and travel destinations due to a strong Loonie. A strong consumer confidence and spending, due to a strong labor market, in conjunction with surging commodity prices have been the supporting factors for the economy. However, the recent decline in commodity prices may leave the Canadian consumer holding the bag for the economy. Despite recent fundamental data suggesting that they may be up to the task, eventually the weight of the downwind forces may weaken their resolve. The recent easing of inflation has given the central bank the green light to continue their dovish posture, any sign that consumer consumption is waning will only increase the odds of future rate cuts. However, as long as the Canadian consumer remains irrepressible, it will allow the MPC to be measured in their approach.
Bonds – 10-Year Canadian Government Bond Futures
After coming off recent highs look for the CGB’s to find support and resume its current upward trend, targeting 120.50. However, if January retail sales can put forth evidence that the consumer may be able to sustain the economy, the BoC may pause and reconsider their current dovish stance, putting downward pressure on the contract. Anything less than expected may give traders all the evidence they need to start pricing in another rate cut and push prices higher.
FX – USD/CAD
The USD/CAD consolidated throughout the Easter holiday after the pair broke through the 200 Day-SMA, which has served as a major resistance level for most of the year. The FOMC’s recent surprise 75 point rate cut and a dramatic fall in commodity prices fueled broad based dollar strength, especially against the com block currencies. Upcoming retail sales may provide Loonie support as strong domestic spending has been a source of hawkish sentiment for the Canadian Central Bank. A surprising increase in wholesale sales of 2.6% - which had its biggest increase in a year- may lead to a stronger than expected retail report and a return of Loonie Bulls. Any sign of domestic consumption losing steam will justify further cuts from the MPC, which may look to follow the path of the Fed, and push the pair to retest the 1/22 high of 1.0379.
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Equities – S&P/TSX Composite Index
The S&P/TSX ended last week bouncing off of resistance at 12500, ultimately finishing the week down 3.6%. Commodity producers felt the brunt of the pain as free falling commodity prices negatively impacted their valuations. The index started to stabilize by week’s end as the Bank of Montréal averted $1.46 billion in write downs, and renewed U.S. confidence after the Fed’s recent actions, led to a rally in financials from a two year low. Equities found additional strength from an influx of cash flows from investors fleeing commodities. A strong retail report will continue to prop up stocks as domestic spending continues to show signs of strength. Weaker than expected consumer consumption data could weigh shares down and send them back towards retesting support levels.
