Market update

Canada’s Consumer Price Index (CPI) rose 6.9% on a year-over-year basis in October, in line with expectations. Core CPI was 5.8%, easing from 6.0% in September.

Wholesale sales in Canada rose 0.1% versus the decrease of -0.2%, which was forecasted a month earlier to reach a record high of $81.8 billion in September. Sales expanded rapidly for personal and household goods.

U.S. retail sales were stronger than expected in October, rising by 1.3% versus the forecast of 1.2%, as consumers are still spending money despite efforts by the Federal Reserve to slow the economy.

The U.S. PPI increased less than expected in October by 0.2% versus 0.4% from last month. On a year over year basis, the PPI rose 8% compared to the 8.4% forecast, adding to hopes that inflation is on the decline.

U.S. housing starts declined 4.2% month-over-month to a seasonally adjusted annualized rate of 1.425 million in October of 2022, compared to market forecasts of 1.41 million.

U.S. weekly jobless claims fell by 4,000 to 222,000 versus the expectations of 225,000.

U.K. annual inflation rose to 11.1% from 10.1% in October to a 41-year high as food, transport and energy prices continued to squeeze households and businesses

In the U.K, Finance Minister Jeremy Hunt announced a string of tax increases and tighter public spending worth £55 billion as it seeks to plug a gaping hole in public finances and stabilize financial markets.

Britain's unemployment rate unexpectedly rose as employers worried about the outlook for the economy, but pay growth stayed strong as the jobless rate rose to 3.6% from 3.5%.

German wholesale price growth slowest since start of war in Ukraine in October.

Japan GDP unexpectedly contracted in Q3 with a slump in external demand. European markets were cautious trading slightly up as investors focused on the economic outlook for the region and the global economy.

Morgan Stanley reported that Britain and the euro zone economies are likely to tip into recession next year, but the United States might have a slim chance to escape a recession thanks to a resilient job market.

Chinese markets were boosted this week by Beijing's property rescue measures and as easing Covid controls raised hopes that the worst may be over.

China’s October activity data underwhelmed expectations with retail sales contracting due to lockdowns and a slowdown in industrial production.

China's new home prices fell 1.6% in October after a fall of 1.5% in September, weighed down by COVID-19 curbs and industry-wide problems.

Oil prices fell this week pressured by concern about weakening demand in China and the U.S. dollar firming with further interest rate hikes likely from the U.S. Fed.

Weekly change: TSX: FLAT; DOW: FLAT; S&P 500: -0.5%; NASDAQ: -1.5%; GOLD: -1.0%; WTI: -9.8%

 

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US Retail sales showcase the resilience of the American consumer by Karyne Charbonneau Link to Article

Headline retail sales picked up in October as consumer spending remains surprisingly strong ahead of the holiday season. Total sales grew by 1.3%, above consensus expectations for a 1% gain, marking the largest increase in eight months as sales rose in 9 out of 13 categories.

The main surprise came from the strength outside of gasoline and autos - Sales at restaurants grew a strong 1.6% on the month, which, given the price gains in October, looks to be a decent advance in volume terms.

As anticipated, fading supply chain issues supported auto sales in October. Pent-up demand should boost auto sales ahead, but the increase in interest rates could act as a strong offset.

Spending on categories linked to the housing market, notably furniture and building materials, rebounded strongly in October. This may be due to homeowners choosing to renovate their house rather than move in the face of rapidly increasing mortgage rates.

Implications & actions

Economic forecast — Today's data suggests that the fourth quarter is off to a decent start and growth could hold up better than anticipated. The resiliency of consumers and goods demand in the face of rising interest rates will no doubt cause some concerns for the Fed as it seeks to slow the economy.

Nevertheless, given the weaker-than-expected price data for October, the central bank should remain on track to slow the pace of interest rate hikes in December and deliver a 50bps increase.

Markets — Bond yields rose after the release but had retraced those gains within an hour. There was also no sustained move in the USD, which is reacting more to news out of Europe.

 

A break in the other Great Wall by Avery Shenfeld Link to Article

Although lesser news than US CPI last week, investors were also optimistic on China’s zero tolerance COVID policy stance. However, CIBC Economics cautions investors about being overly optimistic with regards to the rumours. For one, this week’s “news” was largely proven false, and whenever one is dealing with a less transparent political system, very few decision makers will really be able to speak with authority. Those more powerful bodies have affirmed that the zero-COVID policy remains in place, at least in broad strokes.

Relaxing COVID-19 restrictions would initially enhance global supply, dampening inflation in some manufactured goods, however, if the virus then spread rapidly through the population, we’d have production delays due to worker absenteeism.

On the inflation front, a reopening in China could put upward pressure on gasoline and other global commodities at a time when that’s just what central banks around the world don’t want to see. So, the impacts on global inflation are ambiguous.

While China is still a large economic player, and it could be one of the few countries to post faster growth in 2023 than this year, if it is able to relax its COVID restraints while maintaining a reasonable degree of control over the virus. But the potential outcomes need to be considered far more ambiguous than a clear reason for taking more risk.

 

 

Global Insights

OPEC on Monday cut its forecast for 2022 global oil demand growth for a fifth time since April and further trimmed next year's figure, citing mounting economic challenges including high inflation and rising interest rates.

Reuters

U.S. and European startups are racing to develop new batteries using two abundant, cheap materials — sodium and sulfur — that could reduce China's battery dominance, ease looming supply bottlenecks and lead to mass-market electric vehicles (EVs).

Today's EVs run on lithium-ion batteries — mostly made with lithium, cobalt, manganese and high-grade nickel, whose prices have soared. Western producers are struggling to catch up with their Asian rivals, and carmakers expect supply bottlenecks to hit car production around the middle of the decade.

Reuters

Job cuts announced by U.S.-based employers jumped 13% to 33,843 in October, the highest since February 2021, according to a reporters

Reuters

As a potential recession looms, unemployment will rise, but Bank of Canada governor Tiff Macklem says job losses won't fall to levels seen in past economic downturns.

"We don’t expect a large increase in unemployment in the way we’ve seen in past recessions," Macklem said before students and researchers at Toronto Metropolitan University Thursday. "We’re not expecting high unemployment by historical standards."

Bloomberg

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