Skip to main content
business week ahead

It’s shaping up to be an interesting week, with trade playing a central role.

As North American free-trade agreement negotiators return to the table Wednesday, the Bank of Canada will be releasing its interest-rate decision. and the most likely scenario is no change. Those are just two developments: Watch, too, for trade numbers the same day.

As The Globe and Mail’s Adrian Morrow and Robert Fife report, Canadian and U.S. negotiators will be back at it, trying to fashion a new NAFTA deal after the United States struck its own deal with Mexico last week and set a Friday deadline for Ottawa to join in.

That deadline came and went, with Foreign Affairs Minister Chrystia Freeland repeating Canada won’t accept a bad deal, but will continue to bargain.

And "while a hoped-for NAFTA resolution would put much of the trade issues to bed, there remains uncertainty from a global perspective," said Benjamin Reitzes, Bank of Montreal's Canadian rates and macro strategist.

Open this photo in gallery:

Foreign Affairs Minister Chrystia Freeland.Chris Wattie/Reuters

Trade is just one of the factors playing into the Bank of Canada’s decision Wednesday, when economists expect Governor Stephen Poloz, senior deputy Carolyn Wilkins and their colleagues to hold their key overnight rate at 1.5 per cent.

Economists don’t see them moving it again until October.

That may seem like heresy to some as annual inflation is running at 3 per cent, but there's so much more at play.

First, some temporary factors are influencing consumer prices, and the central bank will look past that, although not for long.

“Although inflation is high in part due to temporary shocks, such as higher minimum wages and energy prices, core inflation has also been rising, and it is already at the target,” according to economist Carlos Capistran and his colleagues at Bank of America Merrill Lynch, strategists Ben Randol and Olivia Lima, referring to the measure that strips out certain volatile prices.

"With this inflation we would expect an inflation-targeting central bank to be closer to its neutral rate to keep expectations at bay," they added in a lookahead to Wednesday's decision.

"But the BoC's overnight rate at 1.5 per cent is still far from the 2.5 to 3.5-per-cent neutral rate."

Open this photo in gallery:

Bank of Canada senior deputy governor Carolyn Wilkins and governor Stephen Poloz.Justin Tang/The Canadian Press

Then there are the other factors the central bank is watching.

“The slowing housing market and new mortgage rules have caused debt growth to decelerate, but it’s going to take time to work off debt burdens and bring debt ratios down,” BMO’s Mr. Reitzes said.

"Barring a big burst of sustainable income growth, elevated debt burdens will keep the bank patient."

Canada and the United States release their latest trade numbers just before the central bank’s announcement. The latter should be enough to send any deficit-centric administration into a hissy fit, as economists believe the trade gap widened in July to about US$50-billion from June’s US$46-billion.

“We estimate that the nominal trade deficit widened quite sharply in July, suggesting that net trade will be a big drag on third-quarter GDP growth,” Capital Economics said.

"A lot could change over August and September but, for now, we expect net trade to subtract around 1.5 percentage points from GDP growth in the third quarter," it added.

Read more

What else to watch for this week:


We've got the day off, but some others don't.

If you’re not stuck in highway traffic on the way back from the cottage, watch for some Purchasing Managers' Index (PMI) numbers from China, Japan and Europe.

Watch, too, for Turkey's consumer price report given its economic crisis.

Those numbers "are likely to show that inflation soared to 21.5 per cent, year over year, in August, the highest rate since 2003," Capital Economics said. "But government pressure means that this is unlikely to prompt a rate hike."


North America gets back up and running, catching up with its own PMI reporting in the United States and Canada.

In the United States, “regional manufacturing surveys were skewed towards a slower pace of expansion in August, something that was likely partly attributable to ongoing labour shortages and transportation bottlenecks, on top of the impact of trade uncertainty,” Katherine Judge of CIBC World Markets said.

“That should see the ISM manufacturing index pull back to 56.8 from 58.1,” she added, the 50-mark being the line between expansion and contraction.

"That’s still a respectable level, however, and is consistent with a healthy pace of expansion at the start of Q3 despite the deceleration from Q2."

Given South Africa's precarious situation, Capital Economics expects its measure of gross domestic product to show "the economy was no longer contracting in Q2, but that output was stagnant in quarter-over-quarter terms."

Also on tap are quarterly results from Hudson's Bay Co. and Laurentian Bank of Canada.


Besides the Bank of Canada and the U.S. trade numbers, expect Statistics Canada to report that domestic trade was also labouring.

Economists expect to see that the trade deficit widened in July to between $1-billion and $1.8-billion.

“The always volatile aircraft sector won’t provide the same sort of lift to exports, and cutting the same way, oil shipments look to have tailed off with a major energy producer offline for the entirety of the month,” CIBC’s Royce Mendes said.

"Don’t forget about tariffs, either. U.S. steel and aluminum levies could show up more prominently in export numbers in the second month of their existence, while Canada’s retaliatory actions were enacted at the beginning of July."


Both Germany and the United States release their factory orders reports, the latter expected to show a dip of 0.5 per cent for July.

At the same time, StatsCan releases a report economists believe will show a rise of 2 per cent in July building permits.

Transcontinental Inc. releases quarterly results.


Canada and the United States release their August labour market reports, the latter more widely watched among investors.

It's always difficult to project what the Statistics Canada report will show, but observers expect somewhere between zero and 15,000 new jobs and unemployment either holding at 5.8 per cent or inching up to 5.9.

"Public sector weakness will likely show up in the industry breakdown via education and health care, which combined to add 67,000 workers in July for the strongest pace of hiring on record," Toronto-Dominion Bank economists said.

"Private employment should benefit from a rebound in the goods sector after manufacturing and construction shed a combined 30,000 jobs in July."

The U.S. report, in turn, is expected to show job creation to the tune of about 190,000, and the unemployment rate dipping to 3.8 per cent

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe