CAD: still some signs of weakness

Summary

"In contrast to the United States, Canada’s economy continues to operate with material excess capacity." 

"Bank of Canada Governor Stephen Poloz says another interest rate cut remains in play as the country’s economy braces to take a “material” hit from a much more protectionist United States under Donald Trump."

Central Bank and rates

Economic Activity

GDP was catching up recently due to recovery of oil prices. 

 The last few readings of Ivey PMI showed some weakness.

Inflation

Inflation is increasing but still lagging the US figure. 

Labor Market

Unemployment rate is between 6.5% and 7.0%  for some two years now. It is well above the pre-crisis level.

Consumer

Retail sales are trending up.

EUR: the economy is still not convincing enough

Summary

EU and Eurozone macro data is showing improving economic activity. Lavour market is still lagging. There are some bad readings in the last few months such as trade balance and German factory orders. This underpins well the ECB wait and see stance.

Central Bank and rates

ECB holds main rate at 0.00%, deposit facility at -0.40%

QE, EUR 2.3 trillion bond buying programme to continue until at least end of 2017
Level of QE to drop from €80bn to €60bn per month.

There some pressure from Germany for a "timely start to the exit” from loose monetary policy. "German politicians, facing national elections in September, are concerned that a toxic combination of low interest rates and rising inflation will squeeze the nation’s conservative savers, and drive voters into the arms of antieuro parties.

After a sharp reversal two weeks ago, the German 2-Y yields are at 0.70% again.

Peripheral riskwise the Italian bond spreads are important to watch. The 10-Y spread is at 2.10%. This is not a particularly high figure given that US premium is at the same level.

Economic Activity

The economy is expanding modestly. There is slight increase in the speed of growth.

Unexpected drop in trade balance.

 ZEW Economic Sentiment is modest but catching up.

Unexpected drop in German Factory orders.

Inflation

The steep uptrend in inflation is intact. 

Labor Market
The unemployment is trending down, but still far from the pre-crisis level. 

Consumer
The last two readings of Retail sales was not in line with the uptrend.

European consumer seems to be confident.

USD: Market expected more hawkish FED

Summary

US macro data is still very positive. Inflation is undoubtedly gaining significant momentum. 

The three rate hike signaled by the FED disappointed the markets and resulted in some dollar selloff. 

Central Bank and rates

The FED raised rates as expected and signaled two more hikes this year. To my surprise this dissapointed the market and the USD was sold off.  

The 2y rates broke out from the 2 months range.

Economic Activity

GDP data is show some relative weakness in the last readings.

Industrial production trend is still up.

Manufacturing indices are at the top of the range.

Philly Fed Manufacturing Index:

Empire State Manufacturing Index:

Inflation

Inflation trend is strongly up.

  

Labor Market

The US is close to full unemployment.

Consumer

 Retail sales are at the highest level since years as the CB Consumer Confidence