Next week is a light one for Canadian economic data—existing home sales the only major indicator—meaning focus will remain on the will they-won’t they of US-China trade talks. Last week saw growing optimism that the two countries will strike a ‘phase one’ trade deal, leaving more challenging issues for later negotiations. The US side seems to have accepted that a cancelation of additional tariff increases (i.e. October’s currently-delayed tariffs and December’s planned hikes) will need to be part of any such agreement. Chinese negotiators are also pushing for a roll-back of September’s tariffs, though whether the US will accept that remains to be seen. There was hope that the two sides would reach an agreement by the APEC Summit in mid-November, but with that meeting cancelled we might have to wait until December to see whether hopes of a deal—which pushed the S&P 500 to a record high this week—are fulfilled.
There are several Bank of Canada speaking engagements scheduled for next week, though it looks like Governor Poloz’s speech on Thursday night (on a yet-to-be-announced topic) might be the only one with immediate policy relevance. The BoC will be keeping a close eye on US-China trade negotiations—escalating trade tensions and uncertainty were a key issue that had Governing Council contemplating a rate cut in October. The bank elected to hold rates steady but said the economy’s resilience, particularly in consumer spending and housing, will be increasingly tested in the near-term. Data flow this week came in slightly below consensus, but not remarkably so. Canadian employment edged lower in October but didn’t retrace strong gains in earlier months. The unemployment rate held close to multi-decade lows and wage growth remained firm. Housing starts and building permits both slipped lower but remained at relatively strong levels. So while the jobs and starts data weren’t as robust as we’ve seen in recent months, they also did little to chip away at the Canadian economy’s resilience.
In the US, diverging trends in the consumer and industrial sectors are expected to remain in evidence next week. Retail sales likely increased in October, adding to gains that saw real consumer spending rise an annualized 3% in Q3. Industrial production is forecast to have slowed further, due in part to labour disruptions in the auto sector that continued in October. Manufacturing has been a drag on growth for much of 2019, falling 1.5% in the first nine months of the year. The ISM manufacturing report showed a slight improvement in sentiment last month—a trend that would be helped by a reduction in trade uncertainty.