A nervous beginning to the start of the week

Monday October 22: Five things the markets are talking about

Global equities remain better supported this Monday morning after Chinese stocks surged overnight on senior officials verbal intervention.

The ‘mighty’ U.S dollar has eased a tad along with treasuries, while Italian bonds have rallied.

The EUR had found some early support on the back of a ratings decision by Moody’s Investors Service late last Friday who removed the immediate threat of a downgrade to ‘junk.’ The market now awaits on S&P’s review this Friday.

Nevertheless, risks remain, from tension surrounding the Khashoggi murder and the ongoing Sino-U.S trade showdown to Italian budget fears and President Trump’s unpredictability ahead of U.S midterm elections.

On tap for this week, the Bank of Canada (BoC) is expected to increase its policy rate by +25 bps to +1.75% on Wednesday (Oct 24) despite last Friday’s disappointing inflation and retail sales readings.

Elsewhere, the European Central Bank (ECB) is expected to leave policy unchanged, but questions regarding Italy and its budget issues are expected to be front and center.

In Scandinavia, Sweden’s Riksbank and Norway’s Norges bank take center stage mid-week.

Stateside, earnings season gathers pace with notable highlights including Amazon, Alphabet, Intel, Verizon, Microsoft, Twitter, McDonald’s, and Caterpillar.

1. Stocks in the black

Japan’s Nikkei edged higher, supported by a rally in Chinese stocks on the promise of additional stimulus measures, triggering buying in firms exposed to China. The Nikkei share average rallied +0.37%, moving off a six-week low hit during last Friday’s session. The index is now down around -7.5% since hitting a 27-year high on Oct. 2. The broader Topix edged +0.15% higher.

Down-under, Aussie stocks ended lower on Monday, as political concerns rattled investors after the governing coalition looks set to lose its one-seat majority in parliament following a weekend by-election. The S&P/ASX 200 index closed -0.6% lower. In S. Korea, the Kospi stock index climbed on Monday supported by a strong Chinese market. The index rallied +0.5%.

In China, stocks surged overnight in the wake of coordinated statements of support by senior regulators, and as China prepares to overhaul its income tax law for individuals. The benchmark Shanghai Composite index was +4.2% higher, while the blue-chip CSI300 index jumped +4.4%.

The gains extended to Hong Kong, where the Hang Seng index added +2.3% and the China Enterprises Index ended +2.6% higher.

In Europe, indices trade higher across the board. Italy’s FTSE MIB outperforms after Moody’s cut the countries rating to the lowest investment grade, but put the outlook as stable, helping BTP futures rally.

U.S stocks are set to open in the ‘black’ (+0.1%).

Indices: Stoxx600 +0.22% at 362.02, FTSE +0.26% at 7,066.00, DAX +0.52% at 11,614.01, CAC-40 +0.24% at 5,096.82, IBEX-35 +0.73% at 8,957.30, FTSE MIB +0.66% at 19,205.50, SMI +0.30% at 8,892.50, S&P 500 Futures +0.18%

2. Brent oil back above $80 as Iran sanctions loom

Brent crude oil prices remain better bid as markets are expected to tighten once U.S sanctions against Iran’s crude exports come into effect in November.

Brent crude oil futures are at +$80.26 a barrel, up +48c, or +0.6%, above Friday’s close. U.S West Texas Intermediate (WTI) crude futures are at +$69.60 a barrel, up +48c, or +0.7%.

Note: The U.S sanctions on Iran, the third-largest producer in OPEC, are set to start on Nov. 4.

OPEC agreed in June to boost supply to make up for the expected shortfall in Iranian exports, however, recent data suggests that OPEC is struggling to add barrels as an increase in Saudi supply was offset by declines elsewhere.

Nevertheless, relief may come from the U.S, where offshore drillers added four oilrigs in the week to Oct. 19, bringing the total count to 873, according to Baker Hughes data on Friday. After months of stagnation, U.S crude production is expected to rise.

However, undermining sentiment is weaker China growth data and the ongoing Sino-U.S trade dispute. The full impact of the trade war is expected to hit markets early next year and provide a considerable drag on oil demand.

Ahead of the U.S open, gold prices have edged higher overnight towards their three-month peak hit last week, as the ‘big’ dollar eased and worries over rising political tensions slowing global economic growth lent support to the ‘yellow’ metal. Spot gold is up +0.1% at +$1,226.52 an ounce, while U.S. gold futures are also up +0.1% at +$1,229.50 an ounce.

3. Italian yields drops by most in 4-months on Moody’s decision

Italian sovereign yields dropped across the curve after ratings agency Moody’s kept the country’s sovereign ratings outlook ‘stable’ while delivering an expected downgrade last week. The market was worried that the outlook would be ‘negative.’

Note: S&P’s review is expected this Friday (Oct 26). It now rates the country two notches above junk at BBB.

Italy’s five-year BTP yield dropped -36 bps to a two-week low of +2.63%, while the benchmark 10-year yield was -26.5 bps lower at +3.39%, its biggest daily drop in four-months. The BTP/Bund 10-year yield spread tightened to +284 bps.

Elsewhere, the yield on the U.S 10-year note rose +1 bps to +3.20%, while Germany’s 10-year Bund yield increased + 2bps to +0.48%. In the U.K, the 10-year Gilt yield climbed +1 bps to +1.588%.

4. Dollar quiet across the board

The EUR/USD is a tad lower at €1.1515 after testing a high of €1.1550 overnight on the back of a relief rally in the 10-year BTP/Bund spread. Nevertheless, event risk persists ahead of the deadline for Italy to respond to the E.U Commission’s initial objections over the 2019 budget plan.

Expect Thursday’s ECB meeting to be closely watched, especially Draghi’s press conference, where the market is looking for more color on how the ECB would reinvest maturing QE proceeds post December this year.

GBP/USD is -0.3% lower at £1.3030 as Brexit talks again reached an impasse. However, PM Theresa May believes that +95% of the Brexit withdrawal deal is “now settled.” It’s believed that the PM is facing a rebellion by more than 40 Tory MP’s if she does not back down to fresh demands from Brexiteers’

Note: 48 votes are necessary for a leadership challenge

5. Italy says it’s ready to discuss budget with E.U authorities

The Italian government is ready to sit and discuss its budget targets with E.U, Deputy Prime Minister Luigi Di Maio said this morning, restating that the “populist” coalition had no plan to leave the euro.

Italy has sent a letter to the commission explaining its reasons for sticking to the +2.4% goal, and that the government was ready to “sit at the table”.

Note: Italy wants to hike its budget deficit to +2.4% from this year’s +1.8%. Last week, the E.U Commission labeled Italy’s 2019 draft budget an “unprecedented breach of EU fiscal rules.”

Forex heatmap

US Growth in Q3 to Guide Dollar

The US dollar is mixed on Friday. Investor’s appetite for risk rose and safe haven currencies (JPY and CHF) fell while positive China and Brexit news saw the NZD, EUR, GBP and AUD advance against the USD. The Canadian dollar was dragged down in the last trading day of the week after softer than expected retail sales and inflation data. Next week’s Bank of Canada (BoC) monetary policy meeting is anticipated to bring a 25 basis point rate hike. Despite the miss inflation has been above the central bank’s target and businesses are optimistic about strong sales.

  • BoC expected to hike interest rate to 1.75%
  • German Business Climate to cool down
  • US first estimate of Q3 GDP to confirm solid growth

Euro Caught Between Brexit and Italian Budget

The EUR/USD fell 0.41 percent in the last five days. The single currency is trading at 1.1510 after rising on Friday due to a combination of softer US housing data and positive Brexit News. The gradual pace of rate lifts by the U.S. Federal Reserve had a negative impact on previously owned homes in September.



The euro rallied on Friday after a report that Theresa May’s government is ready to drop the time limit demand on the Irish border. The EU and the UK are said to be close to a deal, 90 percent by the estimate of the EU’s top negotiator, but the final 10 has proven hard to agree on.

Italian budget issues continue to drag on the euro. The threat of a downgrade of Italian debt does not seem to faze local politicians that are ready to square off against Brussels.

The European Central Bank (ECB) will publish its main refinancing rate and host a press conference on Thursday, October 25. No changes are expected, but investors need to be aware of the tone of the press conference as Mario Draghi could push a more dovish rhetoric.

Loonie to get BoC Rate Hike Boost

The USD/CAD fell 0.74 percent in a weekly basis. The currency pair is trading at 1.3117 and will look at the Bank of Canada (BoC) for support. The central bank is highly anticipated to announce a 25 basis points interest rate hike. The central bank has lifted rates twice in 2018 and rising inflation is forcing the hand of the BoC.


Canadian dollar weekly graph October 15, 2018

The rate decision has been priced in for some time, but the fundamental picture has worsened reducing the probabilities of a rate hike while still at near 80 percent. The NAFTA renegotiation was a big risk keeping the BoC awake at night, and with the USMCA some of that risk is lifted.

With inflation data lower than forecasted it now validates the gradual approach of the BoC and unless there is hawkish rhetoric from Governor Poloz, the loonie will continue to underperform against the USD.

Oil Drops as US Weekly Buildup Pressures Prices

West Texas Intermediate lost 0.95 percent this week. WTI is trading at $69.36 after staring a rebound on Friday due to surging Chinese demand. Supply concerns continue to guide daily price action. The US weekly inventories showed a buildup last week and pushed prices lower. Iranian exports have been cut ahead of the start of US sanctions, but there are reports that OPEC and other major producers are already closing the gap.



Saudi Arabia is embroiled in a diplomatic scandal and is quickly losing the goodwill it gained for having engineered price stability with the production cut agreement. The OPEC and major producers agreed to limit output to stop the free fall in energy prices and have extended the agreement to this year.

Trade war concerns eased on Friday as China and the US have agreed to meet during the sidelines of the G20 meeting in Buenos Aires. The leaders of the two nations will fly in a day ahead of the event to try and mend the trade relationship.

Gold Rises for Third Week Straight

Gold rose 0.6 percent last week. The yellow metal is trading at $1,229.40 despite gradual rate hike talk by Fed members and the minutes form the September FOMC. The rebound of the stock market correlated with the rise of the yellow metal. Safe haven appetite in gold holdings has returned and in a market with no shortage of geopolitical risk for the remainder of the year the yellow metal is set to continue on its rise.



Market events to watch this week:

Wednesday, October 24
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:00am CAD Overnight Rate
11:15am CAD BOC Press Conference
Thursday, October 25
7:45am EUR Main Refinancing Rate
8:30am EUR ECB Press Conference
8:30am USD Core Durable Goods Orders m/m
Friday, October 26
8:30am USD Advance GDP q/q

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

CAD plummets on disappointing retail sales and weak inflation

Canadian inflation slowed significantly last month as temporary factors that lifted the cost of gas and air travel dissipated.

Canada’s CPI climbed +2.2% y/y, following a +2.8% increase in August and a +3% climb in July.

The market was looking for a solid +2.7% gain in September.

On a month-over-month basis, CPI declined -0.4%.

Digging deeper, the Bank of Canada (BoC) three preferred measures supporting inflation also weakened - core-inflation prices rose in a range from +1.9% to +2.1% for an average of +2.0%, down from the previous month’s +2.1% average.

Despite this morning miss, the headline annual inflation rate in Canada has come in +2%+ for eight consecutive month.

Canada retail sales miss

Canadian retail sales fell unexpectedly in August, led mostly by gas stations receipts declines.

Canada retail sales fell -0.1% in August, m/m, to a seasonally adjusted +C$50.76B. The market was looking for a +0.3% rise.

In volume terms, retail sales declined by a steeper -0.3% in August.

The previous month’s data were revised downward, and indicated receipts rose +0.2% vs. +0.3% estimate.

On the release, the CAD came under immense, trading at C$1.3030 before the headlines to C$1.3116.

Next up, the BoC monetary policy announcement is next Wednesday (Oct 24). Despite a weaker retail sales and inflation, the market is currently pricing in another +25 bps hike by Governor Poloz.

USD/CAD – Canadian dollar gains ground ahead of CPI, retail sales

The Canadian dollar has posted gains in the Friday session, erasing most of the losses sustained on Thursday. Currently, USD/CAD is trading at 1.3030, down 0.42% on the day. On the release front, Canadian consumer indicators are in the spotlight and traders should be prepared for volatility from the Canadian dollar during the North American session. After a shocking decline in August, CPI for September is expected to gain 0.1%. Retail Sales is forecast to remain at 0.3%, but Core Retail Sales is expected to drop sharply to just 0.1%, compared to 0.9% in August. In the U.S, there are no key releases. Existing Home Sales is expected to drop to 5.29 million.

Employment numbers are important leading indicators of consumer spending, and there was good news on Thursday, ahead of key Canadian retail sales reports on Friday. ADP nonfarm payrolls jumped 28.8 thousand in September, up from 13.6 thousand a month earlier. Will the retail sales numbers also point higher? The Bank of Canada will be carefully monitoring the retail sales and CPI releases, ahead of a policy meeting next week. The markets are expecting the BoC to raise rates by a quarter-point, which would mark the third rate increase in 2018. With Canada, the U.S and Mexico about to enter the USMCA, which replaces the NAFTA pact, the last obstacle for the BoC on the path to normalization has been removed and analysts are now expecting three rate hikes in 2019, up from a forecast of two hikes just a few months ago.

The U.S dollar is broadly higher on Thursday, after a hawkish tone from the Federal Reserve minutes. The minutes indicated that a majority of members want to continue raising interest rates until the U.S economy shows signs of slowing down. However, the duration of a tighter policy remains unclear, as the minutes noted that “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.” This would likely be around the 3 percent level, which will not be reached until the second half of 2019, as the Fed has indicated it will raise rates three times next year. At the September meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes. As rates approach the “neutral rate”, we could see further changes in language at upcoming policy meetings.

China offers verbal support as growth hits lowest in nearly a decade

Asia rebound leads europe higher

Pick your poison

USD/CAD Fundamentals

Friday (October 19)

  • 8:30 Canadian CPI. Estimate 0.0%
  • 8:30 Canadian Core Retail Sales. Estimate 0.1%
  • 10:00 US Existing Home Sales. Estimate 5.29M

*All release times are DST

*Key events are in bold

 

USD/CAD for Friday, October 19, 2018

USD/CAD, October 19 at 7:30 DST

Open: 1.3086 High: 1.3089 Low: 13037 Close: 1.3030

 

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2733 12831 1.2970 1.3067 1.3198 1.3292

USD/CAD posted has ticked lower in the Asian session and has recorded stronger losses European trade

  • 1.2970 is providing support
  • 1.3067 has switched to a support role following losses by USD/CAD on Friday
  • Current range: 1.2970 to 1.3067

Further levels in both directions:

  • Below: 1.2970, 1.2831, 1.2733 and 1.2649
  • Above: 1.3067, 1.3198 and 1.3292

Dollar Higher Amid Uncertainty and Fed Comments

The US dollar is higher against most major pairs on Thursday. The greenback is only down against the Japanese Yen which rose 0.42 percent. Geopolitics and a strong dollar combined to keep stock markets under pressure. The investigation on the disappearance of journalist Jamal Khashoggi, US-China concerns, Brexit, Italian budget comments and the aftermath of the release of the Fed minutes are dictating market moves as investors look for safe haven assets.

The US Treasury Department published its currency report yesterday, and while not outright calling China a currency manipulator it did focus on past intervention and was first on a list of 6 countries on the monitoring list. The language was tougher and the emphasis on the trade deficit signals the current trade dispute between the two nations will not be resolved in the short term. The US and China are preparing talks at the G20 meeting next month.

The news that US Secretary pulled out of the Saudi Arabia investment conference after discussing with President Trump and Secretary Pompeo is seen as a conciliatory move from the administration to politicians who have called for some distance from the Middle East nation. Mnuchin joins a long list of businessmen and leaders who have excused themselves amid the disappearance of Khashoggi.

GBP - Pound Lower as Brexit Shows Sides are too far Apart

Sterling is down 0.63 percent against the greenback. Theresa May is still optimistic a “good deal” can be reached, but the reality appears to show the UK and the EU are too far apart with a fast approaching deadline and the currency market is reflecting that. Earlier the UK PM said that the EU proposal on the Irish border was unacceptable.



The EU and the UK have kept an optimistic demeanour when discussing the divorce with the press, but there does not seem to be that much progress from either side. The best so far have been extensions, and as the DUP party said extending the deadline will not solve the Irish backstop problem.

ECB President Mario Draghi said today that he sees Brexit’s effect as limited for the European economy with a higher risk coming from EU budget rules being challenged.

EUR - Italian Budget Giving Euro Headaches

Italian budget comments from the EU commission pushed Italian bonds lower as the stand off between Brussels and Rome continues. Italian PM Conte will hold a meeting on Saturday to go over the already proposed budget. The EU commission is calling the proposal a “unprecedented deviation” from EU’s budget rules.



The single currency fell 0.29 percent on Thursday against the US dollar. The Italian budget drama put the euro in a corner as the release of the minutes from the latest Federal Open Market Committee (FOMC) and comments from voting and non-voting members support more US interest rate lifts.

CAD - Loonie Under Pressure Ahead of Retail Sales and Inflation

The Canadian dollar fell 0.49 percent on Thursday as Fed rhetoric and risk aversion drove the USD higher. CAD traders will be on the lookout for Canadian retail sales and inflation data due out on Friday. The data is not expected to impress, but rather continue to show a solid pace of growth in the economy validating the upcoming decision by the Bank of Canada (BoC). The central bank is heavily anticipated to lift rates by 25 basis points next week from the current 1.50 percent benchmark.


usdcad Canadian dollar graph, October 18, 2018

OIL - Crude Falling as Suppler Fears Ease

Oil prices had bumpy ride on Thursday. Crude was on the decline at 9am in the morning, but the bounce in US stocks pulled oil out of sessions lows. The bounce did not last long and by 2pm West Texas Intermediate was trading below $69 with Brent holding on to gains a little better at $79.67.

Oil prices are caught between supply concerns triggered by geopolitics and rising stockpiles in the US with a possible supply rise by other major producers. The US sanctions against Iran boosted prices even as the Trump administration tried to convince OPEC members to drive costs down. The latest diplomatic turmoil surrounding missing journalist Jamal Khashoggi puts Saudi Arabia under intense focus from global leaders.

US weekly inventories released by the Energy Information Administration (EIA) on Wednesday showed a larger than expected buildup that further depreciated oil prices. Growth concerns as trade disputes are not resolved have started to impact energy demand even as supply is tighter.

Weather and geopolitics have been the main factors behind supply disruptions, and without a significant change upward to demand, crude will be more sensitive to political events, specially if it’s based on a major producer.

GOLD - Gold Retaking Safe Haven Crown

Gold rose on Thursday as risk aversion gripped the market. The yellow metal is trading higher after reclaiming its place as a safe haven during times of uncertainty. Gold is rising despite the Fed signalling more upcoming rate hikes to the US interest rate, but geopolitical factors are keeping the metal bid.

Gold is trading at 1,229.60 and will head into the Friday session having gained 0.61 percent. The US dollar is expected to keep its upward trend, specially as investors will not want to have short exposures going into the weekend. Gold’s appeal as a safe haven could reduce the pressure from the USD, considering the various geopolitical events playing out around the globe.

ADP Canada: Employment increased in September

Employment in Canada increased by 28,800 jobs from August to September according to the September ADP® Canada National Employment Report. Broadly distributed to the public each month, free of charge, the ADP Canada National Employment Report is produced by the ADP Research Institute®. The report, which is derived from actual ADP payroll data, measures the change in total nonfarm payroll employment each month on a seasonally-adjusted basis.

“The labor market was quite strong in the month of September,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Although the goods producing sector struggled this month, we saw significant growth in many industries. Trade, for example, continued its steady growth adding the most jobs the sector has seen all year.”

The August total of jobs added was revised up from 13,600 to 42,700.

Read more Newswire

USD/CAD – Canadian dollar lower after hawkish Fed minutes

The Canadian dollar has ticked lower in the Thursday session, after recording considerable losses on Wednesday. Currently, USD/CAD is trading at 1.3044, up 0.15% on the day. On the release front, Philly Fed Manufacturing Index is expected to dip to 19.4 points, while unemployment claims are forecast to drop to 211 thousand. Canada will release ADP payrolls. On Friday, Canadian consumer indicators will be in the spotlight, with the release of CPI and Core Retail Sales.

The U.S dollar is broadly higher on Thursday, after a hawkish tone from the Federal Reserve minutes. The minutes indicated that a majority of members want to continue raising interest rates until the U.S economy shows signs of slowing down. However, the duration of a tighter policy remains unclear, as the minutes noted that “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.” This would likely be around the 3 percent level, which will not be reached until the second half of 2019, as the Fed has indicated it will raise rates three times next year. At the September meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes. As rates approach the “neutral rate”, we could see further changes in language at upcoming policy meetings.

The Bank of Canada is widely expected to raise rates by 25 basis points at next week’s policy meeting. The BoC business survey showed strong optimism in the business sector. The poll found that businesses expect higher sales for both domestic and foreign customers. As well, companies reported increased investment and hiring. With the economy performing fairly well, the BoC has room to raise interest rates and keep pace with the Federal Reserve, which raised rates in September.

Asia market update: a busy session is unfolding

Risk Aversion Lingers

Fed minutes rattle investors

USD/CAD Fundamentals

Thursday (October 18)

  • 8:30 Canadian ADP Nonfarm Employment Change
  • 8:30 US Philly Fed Manufacturing Index. Estimate 19.7
  • 8:30 US Unemployment Claims. Estimate 211K
  • 10:00 US CB Leading Index. Estimate 0.5%
  • 10:30 US Natural Gas Storage. Estimate 85B
  • 12:15 US FOMC Member Randal Quarles Speaks

Friday (October 19)

  • 8:30 Canadian CPI. Estimate 0.0%
  • 8:30 Canadian Core Retail Sales. Estimate 0.1%
  • 10:00 US Existing Home Sales. Estimate 5.29M

*All release times are DST

*Key events are in bold

 

USD/CAD for Thursday, October 18, 2018

USD/CAD, October 18 at 8:15 DST

Open: 1.3024 High: 1.3056 Low: 13019 Close: 1.3044

 

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2733 12831 1.2970 1.3067 1.3198 1.3292

USD/CAD posted small gains in the Asian session. In European trade, the pair ticked higher but has given up these gains

  • 1.2970 is providing support
  • 1.3067 is the next resistance line
  • Current range: 1.2970 to 1.3067

Further levels in both directions:

  • Below: 1.2970, 1.2831, 1.2733 and 1.2649
  • Above: 1.3067, 1.3198 and 1.3292

Crude Oil Drops after Surprise US Weekly Buildup

Oil prices fell on Wednesday after the release of the US weekly crude inventories. The report by the Energy Information Administration (EIA) showed a larger than expected buildup of 6.5 million barrels, when the forecast called for a small drawdown of 1.5 million barrels. Yesterday the API oil inventory report came in with a -2.1 million barrels setting the market for a surprise.

West Texas Intermediate is trading under $70 as crude prices have been hit by the bigger than expected buildup in the US.


West Texas Intermediate graph

Supply and demand have been in the background this week as the disappearance of a Jamal Khashoggi has put the spotlight on Saudi Arabia and not in a good way. The Kingdom does not take criticism lightly and issued some statements that have since been walked back as cooler heads have prevailed.


West Texas Intermediate graph

Iranian sanctions have created supply anxiety and Saudi Arabia as the de facto leader of OPEC has not increased production to the US President’s liking as prices rose. Higher inventories will put less pressure on Saudi Arabia on the supply side, as the diplomatic tension continues to be high ahead of the Future Investment Initiative next week.

Rhetoric and diplomacy will guide the oil market for the remainder of the week as more information is known on the whereabouts of the missing journalist and the different official statements from world leaders on the issue.

U.S. Treasury said to release currency policy report today

The U.S. Treasury Department is poised to release its much-awaited foreign-exchange policy report to Congress on Wednesday afternoon, according to an administration official.

The semi-annual review of currency regimes of the U.S.’s 12 major trade partners and Switzerland will be released on Treasury’s website late in the day in Washington, the official said, declining to provide timing. The person spoke on the condition of anonymity.

Treasury is poised to render a verdict on President Donald Trump’s claim that China is manipulating its currency. While the U.S. hasn’t designated China as a currency manipulator since 1994, Wall Street is bracing for the prospect that Treasury will do so this week. Such a move wouldn’t trigger penalties, but it would likely escalate tensions between the world’s two largest economies.

Bloomberg

Canada: Monthly Survey of Manufacturing, August 2018

Manufacturing sales fell 0.4% to $58.6 billion in August, following three consecutive monthly increases.

The decline was mainly due to lower motor vehicle sales. Excluding this industry, manufacturing sales rose 0.4% in August.

After taking price changes into account, the volume of sales in the manufacturing sector edged down 0.3% in August.

Motor vehicle industry posts the largest decrease

Sales of motor vehicles fell 8.3% to $4.9 billion in August, following two consecutive monthly increases. The decline was mostly attributable to lower production due to atypical shutdowns in some assembly plants in August. In constant dollars, motor vehicle sales fell 8.4%, which shows that the decrease in current dollars mainly reflected a drop in sales volumes rather than lower prices in the industry.

Primary metal industry sales fell 2.9% to $4.4 billion in August, a third consecutive monthy decline. The decrease in August reflected lower sales in the non-ferrous metal (except aluminum) production and processing industry. Conversely, seasonally adjusted sales in the iron and steel mills and ferro-alloy manufacturing, steel product manufacturing, and alumina and aluminum production and processing industries grew in August.

Sales in the wood product (-3.4%) and food (-0.6%) industries also fell in August.

These decreases in current dollars were partially offset by increases in the aerospace product and parts (+13.5%), plastic and rubber product (+3.8%), machinery (+2.0%) and chemical product (+1.1%) industries.

Sales down in three provinces

Sales were down in three provinces in August, with Ontario posting the largest dollar decrease.

After two straight monthly increases, sales in Ontario fell 2.0% to $26.6 billion. The decline was mainly attributable to lower sales in the motor vehicle (-8.9%), primary metal (-8.4%) and motor vehicle parts (-1.8%) industries.

In Alberta, sales fell 0.8% to $6.6 billion, following three consecutive monthly increases. Most of the decrease stemmed from lower sales in the petroleum and coal products (-3.5%), electrical equipment, appliance and component (-24.6%) and primary metal (-9.2%) industries.

The largest monthly increase was in Quebec, where sales rose 1.3% to $14.2 billion. The gain was mainly attributable to an 18.9% increase in the aerospace product and parts industry and, to a lesser extent, gains in the plastic and rubber product (+8.6%), computer and electronic product (+12.2%) and petroleum and coal product (+3.4%) industries.

Inventory levels rise

Inventory levels rose 1.1% to $83.9 billion in August. Inventory increased in 14 of 21 industries, with the largest gains in transportation equipment (+3.4%), food (+1.9%) and plastic and rubber product (+5.6%).

These increases were partially offset by lower inventory levels in the primary metal (-1.4%) and wood products (-2.3%) industries.

The inventory-to-sales ratio rose from 1.41 in July to 1.43 in August. The ratio measures the time, in months, that would be required to exhaust inventories if sales were to remain at their current level.

Unfilled orders increase

In August, unfilled orders rose 0.8% to $94.8 billion, after edging down 0.2% in July. Most of the gain came from a 0.8% increase in the aerospace product and parts industry. Unfilled orders were also up in the computer and electronic product and the fabricated metal product industries.

After two consecutive monthly decreases, new orders were up 1.1% to $59.3 billion in August. An increase in new orders in the aerospace product and parts and machinery industries were behind this gain.

The capacity utilization rate edges up

The capacity utilization rate (not seasonally adjusted) of the manufacturing sector edged up 0.7 percentage points, from 79.5% in July to 80.2% in August. Following a 14.6 percentage point decline in July, the capacity utilization rate for the transportation industry increased from 73.4% in July to 81.5% in August. Shutdowns at several auto manufacturing plants were responsible for the decrease in July.

The capacity utilization rate of food manufacturers fell 2.2 percentage points to 81.0% in August. This decrease was attributable to lower production in most food industries.

The capacity utilization rate of the primary metal industry, which includes aluminum and steel, edged down 0.3 percentage points to 77.8% in August.

StatsCanada