Douglas Porter, CFA, Chief Economist, BMO Financial Group
April 21, 2017
Feature Article
Page 7
Ontario Housing Policy Measures:
The Bark is Worse than the Bite
Ontario Seeks to Cool Housing
C$ Weakens on Oil Price Slump
President Trump Blasts Canada
over “Unfair” Trade
French Presidential Race Tight
before Voting Day
PM May Calls for Snap U.K. Election
BMO Capital Markets Economics
economics.bmocapitalmarkets.com  1-800-613-0205
Please refer to page 15 for important disclosures
Our Thoughts
Page 2 of 15
Focus — April 21, 2017
From Tweaks to Teats
S
ince Prime Minister Trudeau’s amicable meeting in February with President
Trump in Washington, Canadian businesses and investors calmed on the
declaration that the protectionist-leaning Administration would only seek to “tweak”
the North American Free Trade Agreement… when it came to Canada. The calm was
disturbed this week with Canada’s “unfair” trading practices singled out by Trump on
two separate days (Monday and Thursday) covering three specific sectors (dairy,
lumber/timber and energy). Meanwhile, a perennial Canada-U.S. trade dispute
(softwood lumber) was making headlines. This once again added a dollop of
uncertainty on the trade file.
Trump’s singling out of Canada’s dairy supply management system occurred as he spoke
in dairy-heavy Wisconsin to introduce his “Buy American, Hire American” policy. A
recent Canadian decision to apply restrictions on a milk product ingredient, that was
previously unrestricted, provided a convenient focus for the President, so it’s unclear
whether he had issue with this one recent decision or the system in general. It’s
noteworthy that nothing was said about poultry and eggs. However, this did serve notice
that, potentially, Canada’s dairy and other supply management systems, currently
excluded from NAFTA, could find their way back on the negotiation table later this year.
Later, from the White House, the President said: “We can’t let Canada or anybody
else take advantage and do what they did to our workers and to our farmers…
included in there is lumber, timber and energy.” The lumber mention may be a
reflection of the fact that the U.S. Department of Commerce will announce its
preliminary determination for countervailing duties on Canadian softwood lumber
next Tuesday.
My colleague Alex Koustas notes that the Department’s ruling will set the tone for
the market, as countervailing duties are expected to be double the amount of any
proposed anti-dumping duties—the fact that anti-dumping is a tougher case to make
probably explains why it’s been pushed back to June 23rd from May 4th. Expectations
are for countervailing duties to fall in the range of 20%-to-30% with anti-dumping
duties possibly adding an extra 15% at the upper bound. Though a final
determination by the International Trade Commission could stretch out into 2018,
penalties would be retroactive 90-days prior to the decision date.
Showcasing the elegance of free markets, lumber prices spiked 25% in February as
Canadian producers worked through the mental math and established de-facto tariff
pricing. Though prices have ebbed slightly, they still remain over 15% above their
January levels as holdout U.S. buyers were finally forced to bite. Canadian exports
account for 30% of U.S. market demand; meaning consumers (voters) will have to
pick up the tab on any duties for some time. What is often missed is that
homebuilding accounts for only a third of lumber consumption; renovations, furniture
and consumer goods account for the lion’s share. Therefore, while the media focuses
on quoting homebuilders for possible price increases, the impact could hit a lot closer
to home (or the living room) than many consumers may think.
Unlike dairy and softwood lumber, energy trade is covered by NAFTA in which the
non-discriminatory aspects of the original Canada-U.S. Free Trade Agreement
Michael Gregory,
CFA
Deputy Chief Economist
[email protected]
416-359-4747
Our Thoughts
Page 3 of 15
Focus — April 21, 2017
(Canada committed to treating American energy market participants as if they were
Canadian) were grandfathered; provisions that were deemed, at the time, to increase
U.S. energy security. We’re not sure what the issue is here. Perhaps the President had
in mind America’s US$39 billion deficit in energy trade with Canada (2016 annual
figure). Note that with an overall US$11 billion trade deficit with Canada, America
ran a US$28 billion trade surplus, excluding energy. Yes, a surplus! So any Canadian
pain felt by the U.S. dairy and lumber industries is being more than offset by U.S.
gains elsewhere.
And, it’s not like U.S. energy imports from Canada are supplanting domestic
production; they are supplanting imports from other countries (many of whom are
undemocratically governed and do not give U.S. companies the same access as
Canada does). As America’s largest source of energy imports, any U.S.-based trade
restrictions (there is a buzz in Washington about a potential energy import tax to help
pay for tax reform and cuts elsewhere) will almost immediately hurt consumers
(voters) via pump prices.
The spotlight was cast on Canada-U.S. trade this week. But the spotlight was also
recently taken off China’s gigantic trade surplus with the U.S. as Sino-American
attention shifted to the North Korean nuclear situation. Elements in the White House
want to keep the protectionist drum beating, so if not China this week and having
beaten the Mexican case to death, it might have simply been Canada’s turn.
Remember, the Turtle Won the Race
T
he Commerce Department will report first quarter GDP growth next week. And,
like the start of the previous three years, it’s likely to underwhelm. We and the
consensus expect a mere 1.3% annualized rate, the slowest in a year. Our estimate is
derived from monthly data—the actual figure might be closer to zero if the
Department has yet to correct a long-standing “residual seasonality” problem. Our
call has been whittled down by nearly one percentage point in recent months, largely
because consumers took an unexpected, albeit well-deserved, break after spending at
a heated 3.6% average rate in the previous three quarters. Real personal spending fell
in the first two months of the year, so it will be hard pressed to top 1% in the quarter
even with a solid March bounce. Although “core” retail sales snapped back last
month, autos hit a speed-bump. Unit auto sales slid to 17.3 million (annualized) in Q1
after racing to 15-year highs of 18.1 million in Q4. Despite a likely upturn in
scrappage rates to replace aging vehicles, sales look to have peaked in the face of an
aging population and expected higher interest rates.
The economy should look better outside the consumer space in Q1. Consumers might
have taken a breather, but businesses likely picked up the baton. We judge that fixed
investment jumped 5%, the most in 2½ years, after last year’s contraction.
Residential construction should build on the prior quarter’s 10% jump, though less so
given a 7% slide in March housing starts (albeit from the second highest level in a
decade). An upturn in exports suggests trade will merely nibble on growth in Q1 after
taking a 2-ppt bite out of Q4. Government spending is a wildcard, but look for some
upturn in federal defence spending and a pickup in state and local expenditures after
a spate of weakness.
Sal Guatieri
Senior Economist
[email protected]
416-359-5295
Our Thoughts
Page 4 of 15
Focus — April 21, 2017
Apart from the weak headline print, Q1 will be gleaned for signs of pep heading into
Q2. Consumers have every reason to pick up the pace, given rising income, credit and
wealth and the highest confidence in 16 years. Investment should expand in all major
categories—equipment, construction and intellectual products—reflecting an upswing
in business sentiment and indicating durability. This would support our call for GDP
growth rebounding to 2.7% in Q2, even as auto production looks to reverse on
elevated inventories and as the fiscal stimulus drum beats a little softer.
Qui Vivra Verra
T
hat proverb (yes, I Google’d it) works brilliantly when applied to this Sunday’s
presidential elections in France. A few weeks ago, there was concern, clearly,
about the still-solid support enjoyed by the far right’s Marine Le Pen. Although no
one was questioning that she would clear Round 1 and make it to Round 2 on May
7th, nearly all polls indicated that she would lose to the more centrist-lean-to-the-left
Emmanuel Macron. However, concerns grew as the far left’s Jean-Luc Mélenchon
(also known as the “French Bernie Sanders”) had a sudden jump in the polls (nearly
two weeks ago), making this effectively a tight 4-way race.
It is too close to call the outcome of Round 1. Opinonway’s latest poll (April 20th)
showed the following votes to be captured this weekend:
 Emmanuel Macron (Independent)
23%
 Marine Le Pen (Front National)
22%
 Francois Fillon (Republican)
20%
 Jean-Luc Mélenchon (La France insoumise)
19%
 Benoît Hamon
8%
The top two candidates will then move on to Round 2. Again, too close for comfort.
Let’s quickly summarize what each candidate stands for:
 Emmanuel Macron (centrist, leans left): stronger European ties (more
integration), cut spending and reduce government jobs, cut corporate and
personal taxes, keep the deficit within 3% of GDP, and supports trade deals such
as CETA
 Marine Le Pen (far, far right): ban all immigration, hold a referendum within 6
months of winning the presidency to take France out of the Euro Area and the
EU if she cannot renegotiate France’s role, introduce border controls, throw a
35% tax on certain imports, force firms to “Buy from France”, stop
manufacturing from leaving France, cut personal taxes, increase welfare benefits,
allow the BoF to print money, leave the 35-hour workweek as is and allow taxfree overtime, and lower the retirement age
 Francois Fillon (centrist, leans right): cut spending but increase borrowing
temporarily, cut public sector jobs, cut corporate and personal taxes and raise the
VAT, lengthen the 35-hour workweek to… shock! gasp!... 39 hours for the
public sector (no max for the private sector), and ease the rules on firing workers
 Jean-Luc Mélenchon (far, far left): ditch the Stability and Growth Pact and
increase spending, tax at a top rate of 100% those who earn ≥ €400k, increase
Jennifer Lee
Senior Economist
[email protected]
416-359-4092
Our Thoughts
Page 5 of 15
trade barriers to protect local industry (because free trade “destroys everything”),
back out of CETA, cut the workweek from 35 hours to 32 hours, lower the
retirement age of 62 to 60, raise minimum wages and social security benefits,
renegotiate France’s role in the EU (and leave the EU if he doesn’t get his way),
withdraw from NATO and the IMF, and become friendlier with Russia
A run-off between the centrists would be the most favourable for financial markets.
A run-off between a centrist and an extremist would not be ideal. But, at least
there is a centrist in the mix and polls have indicated that the centrist (likely Macron)
would win against Le Pen or Mélenchon. However, that set-up is no longer assured
given the close polling results. A run-off between the two extremists would be very
destabilizing for markets (in fact, according to the FT, that would also be the first
time in postwar history that France’s 2nd round didn’t feature a centrist). Who knows?
Markets may be better equipped to digest a Mélenchon victory as his main issue is
anti-austerity, while Le Pen’s platform is hostile anti-Europe. Either way… not ideal.
According to our Stephen Gallo, European Head of FX Strategy, the most EURnegative/French bond-negative outcomes this Sunday would be: 1) Mélenchon or Le
Pen get 50% or more of the vote negating a 2nd round run-off; 2) a Le Pen/Mélenchon
run-off; 3) a Le Pen/Macron or Mélenchon /Macron run-off where Le Pen and
Mélenchon get 25%-to-30% or more of the vote; and, 4) a Le Pen/Fillon or
Mélenchon/Fillon run-off where Le Pen and Mélenchon get 25%-to-30% or more of
the vote.
On the other side, Stephen views the most EUR-positive/French bond-positive
outcomes would be: 1) either Fillon or Macron get 50% or more of the vote negating
a second round run-off; 2) a Fillon/Macron run-off; 3) a Le Pen/Macron or
Mélenchon/Macron run-off where Le Pen and Mélenchon get 20% or less of the vote;
and, 4) a Le Pen/Fillon or Mélenchon/Fillon run-off where Le Pen and Mélenchon
get 20% or less of the vote.
No matter what the outcome, the mid-June parliamentary elections are seen as
more important. The French president cannot freely do what he/she campaigned on
without the approval of a majority of MPs in Parliament and that won’t be easy. (Le
Pen only has 2 MPs in the 577 member National Assembly; Macron is a newbie and
on his own; Fillon is best to gather the most MPs but his party is deeply divided).
He/she must select a Parliament-approved prime minister, and it is this PM who
holds most of the executive powers. (This is called “cohabitation”; never a happy
one.) So regardless of the outcome on April 23rd and May 7th, whatever ultimately
happens may not be what the winner campaigned on.
Only time will tell.
Focus — April 21, 2017
Recap
Page 6 of 15
Focus — April 21, 2017
Priscilla Thiagamoorthy
Economic Analyst
[email protected]
416-359-6229
Good News
Canada
 Ontario announces new
housing market measures
 President Trump threatens to
“get rid of NAFTA” as dairy,
lumber and energy industries a
“trading disaster”
 C$ weakens as oil tumbles
United States
 Beige Book: tightening labour
market restrains growth in
some sectors
 President Trump focusing on
steel imports (and other trade
issues)
 Hoping to avoid government
shutdown next week
Foreign investors bought a net $38.8 bln of
Canadian securities (Feb.)
Bad News
Consumer Prices slowed to +1.6% y/y (Mar.)
MLS Home Prices +18.6% y/y (Mar.)—too fast
New Motor Vehicle Sales +2.7% y/y (Feb.)
Existing Home Sales +1.1% (Mar.)—all-time high
Industrial Production +0.5% (Mar.)—but -0.3%
ex. utilities
Retail Sales -0.2% (Mar.)
Consumer Prices +2.4% y/y (Mar.)
Capacity Utilization +0.4 ppts to 76.1% (Mar.)
Housing Starts -6.8% to 1.215 mln a.r. (Mar.)
Existing Home Sales +4.4% to 5.71 mln a.r. (Mar.)
—decade high
NAHB Housing Market Index -3 pts to 68 (Apr.)
Building Permits +3.6% to 1.26 mln a.r. (Mar.)
Empire State Manufacturing Survey +0.6 pts to an
ISM-adjusted 55.5 (Apr.)
Initial Claims +10k to 244k (Apr. 15 week)
Philly Fed Index -0.7 pts to an ISM-adjusted
59.5 (Apr.)—but still high
Leading Index +0.4% (Mar.)
Foreign investors bought a net $35.9 bln of U.S.
securities (Feb.)
Japan
Exports +12.0% y/y (Mar.)—fastest pace in 2 yrs
 Parliament nominates two
dovish members to BoJ Policy
Committee
 VP Pence visits Japan to forge
“balanced” bilateral trade
Europe
th
 PM May calls for June 8 snap
election
 French yields fall, terror in
Paris ahead of tight Sunday
presidential vote
 IMF boosts growth forecasts
despite political uncertainties
Other
 RBA Minutes show concern
over weak job market and
lower iron ore prices
Department Store Sales -0.9% y/y (Mar.)
Imports +15.8% y/y (Mar.)
Manufacturing PMI +0.4 pts to 52.8 (Apr. P)
Tertiary Industry Index +0.2% (Feb.)
Euro Area—Manufacturing PMI +0.6 pts to 56.8;
Services PMI +0.2 pts to 56.2; Composite PMI +0.3
pts to 56.7 (Apr. P)—highest since April 2011
Germany—Producer Prices +3.1% y/y (Mar.)—
below expected
U.K.—Retail Sales (incl. fuel) -1.8% (Mar.)
Euro Area—Trade Surplus widened to
€19.2 bln (Feb.)
Euro Area—Consumer Confidence +1.4 pts to
-3.6 (Apr. A)
Italy—Industrial Orders +5.3% (Feb.)
China—Real GDP +6.9% y/y (Q1)
China—Industrial Production
+6.8% y/y (Jan.-to-Mar.)
China—M2 Money Supply +10.6% y/y (Mar.)—
slowed
China—Retail Sales +10.0% y/y (Jan.-to-Mar.)
China—Fixed Asset Investment
+9.2% y/y (Jan.-to-Mar.)
China—Aggregate Yuan Financing 2.1 trln (Mar.)—
and New Yuan Loans 1.0 trln
Australia—New Motor Vehicle Sales +1.9% (Mar.)
Indications of stronger growth and a move toward price stability are good news for the economy.
Feature
Page 7 of 15
Focus — April 21, 2017
Ontario Housing Policy Measures:
The Bark is Worse than the Bite
The Province of Ontario announced a suite of 16 measures that attempt to address
runaway home price growth and stretched housing affordability, with actions aimed
both at the demand and supply sides of the market. We commend the Province for
taking action given recent price trends, but it remains to be seen if these measures
will materially change the price environment in the near term.
Robert Kavcic
Senior Economist
[email protected]
416-359-8329
Why the Changes?
Toronto home price growth has quite simply detached from domestic income and
interest rate fundamentals. While we have long downplayed years of bubble
mongering, arguing instead that strong supply-demand fundamentals were at work,
the story clearly began to change in early-2016. Since then, the Toronto benchmark
price has surged nearly 30% y/y, while average price gains in excess of 30% have
recently fanned out to Hamilton, Niagara, Kitchener-Waterloo and Chart 1
even Orillia. In real terms, prices have gone parabolic after more Home Prices Gone Wild
than a decade of stable trend-like growth (Chart 1). As wonderful a
fundamental story there still is to tell, it clearly doesn’t lead to this. Toronto (Mar. 2017 C$ 000s)
And, as the province experienced during the early-1990s, unchecked Real Home Prices
1,000
speculative gains in home prices usually end quite badly.
Summary of Major New Measures
Non-resident tax: The headline measure is a 15% property transfer
tax on residential purchases for buyers who are not citizens or
permanent residents of Canada, similar to that imposed recently in
Vancouver. This will apply to agreements signed on or after April
21st, and will cover the Greater Golden Horseshoe, which stretches
as far west as Kitchener/Waterloo, north to Orillia and east to
Peterborough (Chart 2). The tax will be rebated in cases where the
owner takes residence within a certain window (e.g., a student
attending school here for two years; becoming a permanent resident
within a 4-year period; or working full-time in Ontario for a year).
In that light, the Province is aiming at those effectively parking
wealth in the GTA real estate market, and we have been fully in
favour of such a move for some time.
Look for a modest negative impact on price growth and sales at the
high end of the market, but little impact on domestic credit growth.
The impact will likely be less than that seen in Vancouver, given
that the non-resident investor share is by all accounts no larger in
the GTA (the Finance Minister cited 8%), the move comes with
more exemptions, and was well telegraphed. Domestic investors
could also curb their enthusiasm briefly while gauging the impact.
Rent control: In arguably the biggest measure, all private rental
units will immediately fall under Ontario rent control guidelines
(previously, rent controls were applied only to properties built
800
600
400
200
00
02
04
06
08
10
12
Sources: BMO Economics, Haver Analytics
Chart 2
The Golden Horseshoe
Orillia
Barrie
Peterborough
Oshawa
Brampton
Guelph
Waterloo
Toronto
Mississauga
Hamilton
Brantford
St. Catharines
Niagara Falls
14
16
Feature
Page 8 of 15
before late-1991). Annual rent increases will now be capped at the rate of inflation
(with a 2.5% maximum) while occupied by the same tenant. Note that this leaves rent
growth flat-to-negative in real terms, and even more so if building maintenance costs
are running ahead of overall inflation. The concern here is that this fans longer-term
excess demand in the rental market, when vacancy rates are already barely more than
1%. That is, less incentive to bring supply to market in a timely fashion, and more
incentive for tenants to stay put in increasingly under-priced units (landlord own-use
eviction rules will be tightened as well). Note that chronic underbuilding came to a
swift end by the late-1990s when rent controls were permanently removed.
From an investors’ perspective, which makes up roughly half the new condo supply
today, buyers will have to adjust their rent growth assumptions accordingly. Will this
measure break the condo market given the high investment share? Not likely,
given that new purchasers can effectively remove a tenant and start fresh at a market
rent, leaving initial cap rates intact. But, more conservative discounting of future cash
flows and the constant risk of a unit becoming under-priced (especially if the market
is tight and/or inflation runs above 2.5%) could dampen sentiment.
Absent—any measures to target domestic speculation: Despite talk of measures to
address short-term speculation by domestic ‘investors’, and obvious signs that home
prices have caught fire across Southern Ontario, there are no such measures in this
announcement. We suspect that such a move would probably take more time to work
through, and the Province clearly wanted something done quickly to start.
Development charges: A partial rebate of development charges for builders in the
purpose-built rental market.
Assignment ban: Measures to address the turning over of a title on a pre-built unit to
another buyer are going to be explored, but nothing is being implemented now.
Vacancy tax: The Province will allow individual municipalities to apply a tax on
vacant properties. This will likely have minimal impact on prices, and the biggest
issues will probably end up being defining a vacancy and enforcing it. Still, it’s at a
commendable effort given unproductive vacant units dotting some neighbourhoods.
Real estate practices: Some areas will be reviewed. For example, multiple
representation (where one agent works on behalf of both the buyer and seller) will be
looked at—that should be the lowest of the low-hanging fruit and long overdue.
The Greenbelt: The Province firmly states that the Greenbelt will not be altered in
terms of size or usage. An updated growth plan will “promote intensification around
existing and planned transit stations and will promote higher densities in the suburbs
to support transit”. This will continue to shrink the share of traditional detached
homes within the overall housing stock—nothing new here.
The Bottom Line: The Province has taken some actions that attempt to address what
has now become runaway price growth across much of Southern Ontario, while also
serving up a big win for renters. While the former is certainly commendable, it
remains to be seen if these measures will bring price growth back down to more
fundamental levels, especially in an environment where animal spirits are rising, real
mortgage rates remain close to zero, and the Bank of Canada is telling investors
that’s where they are staying.
Focus — April 21, 2017
Economic Forecast
Page 9 of 15
Focus — April 21, 2017
Economic Forecast Summary for April 21, 2017
BMO Capital Markets Economic Research
2016
2017
Annual
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2016
2017
2018
Real GDP (q/q % chng : a.r.)
2.7
-1.2
3.8
2.6
3.5
1.9
2.1
2.2
1.4
2.5
1.9
Consumer Price Index (y/y % chng)
1.5
1.6
1.2
1.4
1.9
1.7 
1.9 
2.0
1.4
1.9 
2.0
Unemployment Rate (percent)
7.2
7.0
7.0
6.9
6.7
6.7
6.6
6.5
7.0
6.6
6.3
199
198
199
197
226
202
185
181
198
198
180
-71.3
-77.6
-79.0
-42.9
-46.2
-42.1
-37.7
-34.0
-67.7
-40.0
-31.0
CANADA
Housing Starts (000s : a.r.)
Current Account Balance ($blns : a.r.)
(average for the quarter : %)
Interest Rates
Overnight Rate
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.88
3-month Treasury Bill
0.45
0.51
0.50
0.48
0.47
0.55
0.55
0.55
0.49
0.50 
0.90
10-year Bond
1.22
1.28
1.06
1.45
1.71
1.60
1.70 
1.80
1.25
1.70
2.00 
Canada-U.S. Interest
(average for the quarter : bps)
Rate Spreads
90-day
16
25
20
5
-13
-38 
-57 
-72 
17
-45 
-61 
10-year
-70
-47
-50
-69
-73
-77 
-78 
-79 
-59
-77 
-73 
Real GDP (q/q % chng : a.r.)
0.8
1.4
3.5
2.1
1.3 
2.7
2.7
2.8
1.6
2.3 
2.5
Consumer Price Index (y/y % chng)
1.1
1.1
1.1
1.8
2.6
2.3 
2.5 
2.3 
1.3
2.4 
2.3 
Unemployment Rate (percent)
5.0
4.9
4.9
4.7
4.7
4.5
4.4
4.3
4.9
4.4
4.2
Housing Starts (mlns : a.r.)
1.15
1.16
1.14
1.25
1.25
1.26 
1.28 
1.30 
1.18
1.27 
1.31 
Current Account Balance ($blns : a.r.)
-532
-479
-464
-450
-538
-566
-592
-625
-481
-580
-685
UNITED STATES
(average for the quarter : %)
Interest Rates
Fed Funds Target Rate
0.38
0.38
0.38
0.46
0.71
0.96
1.21
1.38
0.40
1.06
1.63
3-month Treasury Bill
0.29
0.26
0.30
0.43
0.60
0.90
1.10
1.25
0.32
0.95
1.50
10-year Note
1.92
1.75
1.56
2.13
2.44
2.35 
2.50 
2.60 
1.84
2.45 
2.75 
EXCHANGE RATES
(average for the quarter)
US¢/C$
72.8
77.6
76.6
75.0
75.6
73.9
73.8
74.6
75.5
74.5
76.8
C$/US$
1.37
1.29
1.31
1.33
1.32
1.35
1.36
1.34
1.33
1.34
1.30
¥/US$
115
108
102
109
114
111 
115 
119
109
115 
117
US$/Euro
1.10
1.13
1.12
1.08
1.07
1.06 
1.03
1.01
1.11
1.04
1.04
US$/£
1.43
1.43
1.31
1.24
1.24
1.25 
1.23 
1.21 
1.35
1.23 
1.25 
Blocked areas represent BMO Capital Markets forecasts
Up and down arrows indicate changes to the forecast 
Spreads may differ due to rounding
Key for Next Week
Page 10 of 15
Focus — April 21, 2017
Canada
Retail Sales
Wednesday, 8:30 am
Feb. (e)
Jan.
unch
+2.2%
Ex. Autos
-0.1%
+1.7%
Following the usual turn of the year volatility in the retail sales Benjamin Reitzes
data, we’re looking for activity to be little changed overall in Senior Economist
February. Gasoline prices were sharply lower on a seasonally- [email protected]
416-359-5628
adjusted basis, with a modest rise in auto sales providing some
offset. Underlying sales are expected to see a decent gain, consistent with the persistent
strength in employment and improving consumer sentiment. With goods prices seeing a
small decline in the month, look for volumes to see a similar-sized increase.
Note that this month’s report will be based on a new sample according to StatsCan.
There will be revisions back to 2012. Seasonal factors have also been reviewed and
updated, so that could mean big revisions to recent months, as perhaps the
December/January quirk gets smoothed out.
Real GDP at Basic Prices
Friday, 8:30 am
Feb. (e)
Jan.
+0.1%
+0.6%
United States
New Home Sales
Tuesday, 10:00 am
Mar. (e)
594k a.r. (+0.5%)
Consensus 588k a.r. (-0.7%)
Feb.
592k a.r. (+6.1%)
Durable Goods Orders
Thursday, 8:30 am
Mar. (e)
+4.3%
Consensus +1.3%
Feb.
+1.8%
The Canadian economy likely kept its growth intact in February, though our call for a
0.1% rise in GDP is a significant deceleration from the prior three months’ 0.5%
average. Manufacturing activity firmed once again, though driven largely by an
inventory build this month, home sales rose strongly, and utilities likely rebounded
with more seasonal weather. We’ll get wholesale trade and retail sales during the
week, so surprises in either sector could colour our view. Despite the forecast for
modest February growth, the outstanding end to Q4 and start to Q1, leaves the
quarter on pace for 3.5% growth or better.
Ex. Transport
+0.6%
+0.5%
+0.5%
Housing demand is trending stronger, reflecting solid job Michael Gregory, CFA
growth, still attractive affordability (as income growth and still Deputy Chief Economist
relatively low borrowing costs partly offset rising prices), an [email protected]
416-359-4747
easing in banks’ mortgage lending standards, along with the
unwinding of pent-up demand (mostly from first time purchasers). And, amid relatively
low levels of existing homes available for sale (flirting with record-low months’ supply
metrics), new home sales are finding support. For example, the National Association of
Home Builders’ Housing Market Index hit its highest level in more than 11½ years in
March, before slipping a bit in April. We look for new home sales to increase 0.5% to
594,000 units (annualized) in March, to sit at their second highest level in more than nine
years (the highest was an anomalous spike to 622k in July 2016).
Business optimism surged after the election, but some scepticism has subsequently
set in, as the prospects for expeditious pro-growth government policies have faded.
However, surveys show capital spending intentions, specifically, remain elevated. As
some of these intentions translate into tangible outlays on structures and equipment,
durable goods orders should see a boost. Rebounding oil sector activity is already
greasing gains. The ISM manufacturers’ new orders metric dipped a bit in March but
remains historically high (at 64.5). As such, we look for durable goods orders to rise
4.3% in March, majorly propelled by Boeing bookings. Ex-transportation orders
should rise 0.6%, for their ninth straight advance. Nondefense capital goods (exaircraft) orders are expected to increase 0.4%, up for the fifth time in the past six
months. The emerging consistency of orders bodes well for GDP.
Key for Next Week
Page 11 of 15
Focus — April 21, 2017
Real GDP
Friday, 8:30 am
Q1 A (e)
+1.3% a.r.
Consensus +1.2% a.r.
Q4
+2.1% a.r.
See Sal Guatieri’s Thought on page 3.
+1.6% a.r.
+2.0% a.r.
+2.1% a.r.
Presidential Election, Round 1
Sunday
France
See Jennifer Lee’s Thought on page 4.
Financial Markets Update
Page 12 of 15
Focus — April 21, 2017
Apr 21 ¹
Apr 14
Week Ago
4 Weeks Ago
Dec. 31, 2016
(basis point change)
0
0
Canadian
Money Market
Call Money
Prime Rate
0.50
2.70
0.50
2.70
0
0
U.S. Money
Market
Fed Funds (effective)
Prime Rate
1.00
4.00
1.00
4.00
0
0
0
0
25
25
3-Month
Rates
Canada
United States
Japan
Eurozone
United Kingdom
Australia
0.54
0.78
-0.17
-0.33
0.34
1.75
0.51
0.80
-0.11
-0.33
0.34
1.76
3
-2
-6
0
0
-1
5
2
15
0
-1
-4
8
28
23
-1
-3
-5
2-Year Bonds
Canada
United States
Canada
United States
Japan
Germany
United Kingdom
Australia
0.71
1.17
1.46
2.22
0.01
0.25
1.04
2.54
0.73
1.21
1.49
2.24
0.00
0.19
1.04
2.47
-1
-3
-3
-2
1
6
0
6
-4
-9
-18
-19
-5
-16
-15
-21
-3
-2
-26
-22
-3
4
-19
-23
Risk
Indicators
VIX
TED Spread
Inv. Grade CDS Spread ²
High Yield CDS Spread ²
14.5
37
68
346
16.0
36
67
345
-1.5 pts
2
0
1
Currencies
US¢/C$
C$/US$
¥/US$
US$/€
US$/£
US¢/A$
73.99
1.352
109.12
1.0699
1.280
75.31
75.05
1.333
108.64
1.0618
1.252
75.79
-1.4
—
0.4
0.8
2.2
-0.6
Commodities
CRB Futures Index
Oil (generic contract)
Natural Gas (generic contract)
Gold (spot price)
182.58
50.47
3.16
1,281.43
187.77
53.60
3.23
1,285.69
-2.8
-5.8
-2.1
-0.3
-0.5
5.2
2.7
3.1
-5.2
-6.0
-15.1
11.2
Equities
S&P/TSX Composite
S&P 500
Nasdaq
Dow Jones Industrial
Nikkei
Frankfurt DAX
London FT100
France CAC40
S&P ASX 200
15,615
2,355
5,915
20,581
18,621
12,058
7,115
5,067
5,854
15,535
2,329
5,805
20,453
18,336
12,109
7,328
5,071
5,890
0.5
1.1
1.9
0.6
1.6
-0.4
-2.9
-0.1
-0.6
1.1
0.5
1.5
-0.1
-3.3
0.0
-3.0
0.9
1.7
2.1
5.2
9.9
4.1
-2.6
5.0
-0.4
4.2
3.3
10-Year Bonds
¹ = as of 10:30 am
² = One day delay
1.6 pts
-2
0
18
(percent change)
-1.0
—
-2.0
-0.9
2.6
-1.2
0
0
0.5 pts
-13
0
-10
-0.5
—
-6.7
1.7
3.7
4.5
Global Calendar
April 24 – April 28
Euro Area
Japan
Monday April 24
Tuesday April 25
Leading Index
Feb. F (e) -0.5%
Jan.
+0.1%
Wednesday April 26
Thursday April 27
All Industry Activity Index
Feb. (e)
+0.6%
Jan.
+0.1%
BoJ Monetary Policy Meeting (Apr. 26 – 27)
FRANCE
GERMANY
Consumer Confidence
Apr. (e)
100
Mar.
100
Ifo Business Climate
Apr. (e)
112.4
Mar.
112.3
FRANCE
EURO AREA
Economic Confidence
Apr. (e)
108.1
Mar.
107.9
Consumer Confidence
Apr. F (e) -3.6
Mar.
-5.0
ECB Monetary Policy Meeting
Presidential Election First Round
(Apr. 23)
GERMANY
GfK Consumer Confidence
May (e)
9.9
Apr.
9.8
Rightmove House Prices
Apr.
Mar.
+1.3%
+2.3% y/y
Other
U.K.
Consumer Price Index
Apr. P (e) -0.1%
+1.9% y/y
Mar.
+0.1%
+1.5% y/y
D
= date approximate
EC President Juncker to meet PM May
for Brexit talks
AUSTRALIA
Markets Closed
AUSTRALIA
Consumer Price Index
Q1 (e)
+0.6%
+2.2% y/y
Q4
+0.5%
+1.5% y/y
Upcoming Policy Meetings | BoE: May 11, June 15, Aug. 3 | ECB: June 8, July 20, Sep. 7
Friday April 28
CPI
Core CPI
Mar. (e)
+0.3% y/y +0.2% y/y
Feb.
+0.3% y/y
+0.2% y/y
CPI ex. Food & Energy
Mar. (e)
unch y/y
Feb.
+0.1% y/y
Retail Sales
Mar. (e)
-0.3%
+1.5% y/y
Feb.
+0.3%
+0.2% y/y
Overall Household Spending
Mar. (e)
-0.5% y/y
Feb.
-3.8% y/y
Industrial Production
Mar. P (e)
-0.8%
+4.0% y/y
Feb.
+3.2%
+4.7% y/y
Jobless Rate
Mar. (e)
2.9%
Feb.
2.8%
EURO ARE A
M3 Money Supply
Mar. (e)
+4.8% y/y
Feb.
+4.7% y/y
Consumer Price Index
Apr. A (e)
+1.7% y/y
Mar.
+1.5% y/y
Core CPI
Apr. A (e)
+1.0% y/y
Mar.
+0.7% y/y
GERMANY
Retail Sales
Mar. (e)
unch
+2.4% y/y
Feb.
+1.8%
-2.1% y/y
F RA N C E
Real GDP
Q1 A (e)
+0.4%
+0.9% y/y
Q4
+0.4%
+1.1% y/y
Consumer Spending
Mar. (e)
+0.5%
+0.9% y/y
Feb.
-0.8%
+0.5% y/y
Consumer Price Index
Apr. P (e)
+0.2%
+1.4% y/y
Mar.
+0.7%
+1.4% y/y
I T A L Y
Consumer Price Index
Apr. P (e)
+0.5%
+1.6% y/y
Mar.
+1.9%
+1.4% y/y
Real GDP
Q1 A (e)
+0.4%
+2.3% y/y
Q4
+0.7%
+1.9% y/y
Nationwide House Price IndexD
Apr. (e)
+0.1%
+3.3% y/y
Mar.
-0.3%
+3.5% y/y
A U ST RALIA
Producer Price Index
Q1
Q4
+0.5%
+0.7% y/y
MEXICO
Real GDP
Q1 P
Q4
+0.7%
+2.4% y/y
RUSSIA
Central Bank of Russia Monetary Policy Mtg.
North American Calendar
April 24 – April 28
United States
Canada
Monday April 24
8:30 am
Feb. (e)
Jan.
8:30 am
Tuesday April 25
Wholesale Trade
-1.0%
+3.3%
Mar. (e)
Feb.
Chicago Fed National
Activity Index
0.10
0.34
10:30 am
Apr. (e)
Mar.
Dallas Fed Mfg. Activity
17.0
16.9
Wednesday April 26
8:30 am
Feb. (e)
Jan.
9:00 am
Feb. (e)
Consensus
Jan.
S&P Case-Shiller Home
Price Index (20 city)
+0.8%
+5.8% y/y
+0.6%
+5.7% y/y
+0.9%
+5.7% y/y
9:00 am
Feb. (e)
Jan.
FHFA House Price Index
+0.3% C
+5.5% y/y C
unch
+5.7% y/y
10:00 am
Mar. (e)
Consensus
Feb.
New Home Sales
594k a.r. (+0.5%)
588k a.r. (-0.7%)
592k a.r. (+6.1%)
10:00 am
Conference Board
Consumer Confidence
Index
124.0
122.9
125.6
Apr. (e)
Consensus
Mar.
10:00 am
Apr. (e)
Mar.
Retail Sales Ex. Autos
unch
-0.1%
+2.2%
+1.7%
Noon
10-year bond auction
$3.0 bln
7:00 am
Apr. 21
Apr. 14
MBA Mortgage Apps
10:00 am
Retail Sales revisions
-1.8%
Thursday April 27
8:30 am
8:30 am
Initial Claims
Apr. 22 (e) 240k (-4k) C
Apr. 15
244k (+10k)
8:30 am
Apr. 15
Apr. 8
8:30 am
Mar. A (e)
Consensus
Feb.
8:30 am
9:45 am
10:00 am
Mar. (e)
Consensus
Feb.
11:00 am
Fed Speaker: Minneapolis’ Kashkari
(11:30 am, 3:15 pm)
11:00 am 4-week bill auction
announcement
11:30 am 13- & 26-week bill auction
$72 bln
C
= consensus
Apr. (e)
Mar.
11:30 am 4-week bill auction
11:30 am 52-week bill auction $20 bln
1:00 pm 2-year note auction $26 bln
11:30 am 2-year FRN auction $15 bln
1:00 pm 5-year note auction $34 bln
8:30 am
Feb. (e)
Jan.
Real GDP at Basic Prices
+0.1%
+0.6%
8:30 am
Mar. (e)
Feb.
Industrial
Product
Price Index
+0.3%
+0.1%
Raw
Materials
Price Index
-0.5%
+1.2%
8:30 am
Q1 A (e)
Consensus
Q4
Real GDP
+1.3% a.r.
+1.2% a.r.
+2.1% a.r.
GDP Deflator
+1.6% a.r.
+2.0% a.r.
+2.1% a.r.
8:30 am
Q1 (e)
Consensus
Q4
Employment Cost Index
+0.6%
+2.2% y/y
+0.6%
+2.2% y/y
+0.5%
+2.2% y/y
9:45 am
Apr. (e)
Consensus
Mar.
Chicago PMI
57.0
56.8
57.7
3-year bond auction announcement
Mar. (e)
Consensus
Feb.
8:30 am
Mar. (e)
Consensus
Feb.
8:30 am
Richmond Fed
Manufacturing Index
16.0
22.0
Survey of Employment,
Payrolls, and Hours (Feb.)
Ontario Budget
Nova Scotia Budget
Friday April 28
Continuing Claims
1,979k (-49k)
Goods Trade Deficit
$65.0 bln
$65.4 bln
$63.9 bln
Durable Goods
Orders
Ex. Transport
+4.3%
+0.6%
+1.3%
+0.5%
+1.8%
+0.5%
Nondef. Capital Goods ex. Air
+0.4%
+0.5%
-0.1%
Wholesale and Retail
Inventories (Mar. A)
Bloomberg Consumer
Comfort Index – Apr. 23rd
week
Pending Home Sales
-1.0%
-0.8%
+5.5%
Kansas City Fed
Manufacturing Activity
17
20
11:00 am 13- & 26-week bill auction
announcements
1:00 pm 7-year note auction $28 bln
10:00 am
University of Michigan
Consumer Sentiment
Apr. F (e) 97.5
Consensus 98.0
Apr. P
98.0
Mar.
96.9
Continuing resolution funding federal
departments expires tonight, risking
partial shutdown
Fed Speakers: Gov. Brainard (1:15 pm);
Philadelphia’s Harker (2:30 pm)
Upcoming Policy Meetings | Bank of Canada: May 24, July 12, Sep. 6 | FOMC: May 2-3, June 13-14, July 25-26
Page 15 of 15
Focus — April 21, 2017
General Disclosure
“BMO Capital Markets” is a trade name used by the BMO Financial Group for the wholesale banking businesses of Bank of Montreal and its subsidiaries BMO Nesbitt Burns Inc., BMO Capital Markets
Limited in the U.K. and BMO Capital Markets Corp. in the U.S. BMO Nesbitt Burns Inc., BMO Capital Markets Limited and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries
(“BMO Financial Group”) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections contained
in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been
compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or
warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or
reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be
used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.
This material is for information purposes only and is not an offer to sell or the solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the
securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities
discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of
interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein.
Dissemination of Research
Our publications are disseminated via email and may also be available via our web site http://economics.bmocapitalmarkets.com. Please contact your BMO Financial Group Representative for more
information.
Conflict Statement
A general description of how BMO Financial Group identifies and manages conflicts of interest is contained in our public facing policy for managing conflicts of interest in connection with investment
research which is available at http://researchglobal.bmocapitalmarkets.com/Public/Conflict_Statement_Public.aspx.
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO
serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, personal and commercial banking clients are served by BMO Harris Bank N.A., Member
FDIC. Investment and corporate banking services are provided in Canada and the US through BMO Capital Markets. BMO Capital Markets is a trade name used by BMO Financial Group for the
wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A, BMO Ireland Plc, and Bank of Montreal (China) Co. Ltd. and the institutional broker dealer businesses of BMO Capital
Markets Corp. (Member SIPC), BMO Nesbitt Burns Securities Limited (Member SIPC) and BMO Capital Markets GKST Inc. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Canadian Investor
Protection Fund) in Canada, Europe and Asia, BMO Capital Markets Limited in Europe, Asia and Australia and BMO Advisors Private Limited in India.
“Nesbitt Burns” is a registered trademark of BMO Nesbitt Burns Inc., used under license. “BMO Capital Markets” is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel
symbol)" is a registered trademark of Bank of Montreal, used under license.
® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.
™ Trademark Bank of Montreal in the United States and Canada.
© COPYRIGHT 2017 BMO CAPITAL MARKETS CORP.
A member of BMO Financial Group