Briefing highlights
- Rare fracas among economists
- Markets at a glance
- Strike shuts GM Ingersoll plant
- What to expect from the Fed this week
- What else to watch for this week
Well, it wasn't a grand tea party.
Which is rare, because economists are generally a tame group.
They prepare worthy studies oft-cited by folks like me. They e-mail research notes on key statistics, with their interpretations, so we can all better understand the importance of this or that to our broader economy. Many on Bay Street also send around reports each Friday, recapping the week's economic events and looking ahead to the next batch.
They can disagree, and often do, particularly on forecasts for everything from economic growth and employment to manufacturing and currencies.
What they don't tend to do is publicly poke each other in the eye, which, if it happened, would be the economist equivalent of politicians gouging each other's eyes out.
This story begins with one of those end-of-week reports, a couple of Fridays ago from Douglas Porter, one of Bay Street's leading economists.
Douglas Porter, chief economist, Bank of Montreal
Fred Lum/The Globe and Mail
Mr. Porter, Bank of Montreal's chief economist, criticized the Bank of Canada for what he called two months of silence in advance of its early September interest rate hike, the second in a row. As Mr. Porter saw it, the central bank failed to prime the markets, which is why, for example, the loonie spiked.
(Mr. Porter, by the way, has a sense of fun, and is very quotable.)
Asked what it made of his comments, the Bank of Canada responded with rare chapter and verse on why he was wrong.
Then, later in the week, senior deputy governor Carolyn Wilkins said the Bank of Canada was keen on transparency but isn't going to tell markets what's going to happen before it does.
Carolyn Wilkins, Senior Deputy Governor and Stephen Poloz, Governor of the Bank of Canada.
Globe and Mail Update
The central bank had telegraphed its first rate hike, in mid-July, with Ms. Wilkins, governor Stephen Poloz and others signalling an increase was on its way.
(Central bankers don't ever say things like, "We're going to raise our benchmark rate by one-quarter of a percentage point to 1 per cent at our next meeting." Which is why you'll often see reports that a central bank signalled or whatever.)
Some analysts simply noted last week's controversy, some agreeing with Mr. Porter.
"We thought in light of the amount of criticism the Bank of Canada has had in the past, they would probably have learned from this and basically prepared markets for a rate hike," National Bank of Canada's Krishen Rangasamy told The Canadian Press.
Scotiabank's Mr. Holt, though, didn't see it that way.
"Data risk takes over next week in driving the path toward timing the next Bank of Canada rate hike," Mr. Holt said in his lookahead to this week.
"That will shift the focus back away from the tendency within the economics community of late to blame the Bank of Canada for not making their jobs a walk in the park by explicitly stating the central bank's policy intentions in advance of the meeting," he added.
"The BoC said all that it needed to in June with the speech by senior deputy governor Wilkins and interviews by governor Poloz plus the July [monetary policy report] and press conference. Economists should not have needed to be hit over the head with the same hammer in the lead-up to the September meeting."
Which brings us to today, and to what will no doubt be a widely watched speech by deputy governor Timothy Lane, given that observers are still trying to interpret the last policy statement.
This could move the loonie. Because after that last statement, analysts drew up new timelines suggesting the central bank's key rate could jump to between about 1.75 and 2.25 per cent by the end of next year.
"Regarding BoC communication, this issue came to the fore following the somewhat unexpected rate hike [in early September], with BoC senior deputy governor Wilkins discussing it following a BoC workshop on monetary policy frameworks," Royal Bank of Canada rates strategist Simon Deeley said in his lookahead, noting Mr. Lane's scheduled talk to the Saskatoon Regional Economic Development Authority this afternoon.
"As is typical for the central bank, Wilkins expressed an open mind in terms of investigating alternative forms of communication, including a published anticipated rate path, though we would not expect any near-term changes in this regard," he added.
"Indeed, such a path is certainly no guarantee that the market will price in that path … Additionally, she noted something that should be obvious now, if not earlier: They will not tie themselves to market pricing for a rate move if they think one is warranted."
(Central bankers, by the way, don't necessarily talk like the rest of us. So rather than say, "We think it's time to raise interest rates," they'll say something like, "Governing council judges that today's removal of some of the considerable monetary policy stimulus in place is warranted." Of course, I've never just chatted over a beer with Mr. Poloz or Ms. Wilkins, and I assume they wouldn't talk about the "upside risk" or "downside risk" of a Molson Canadian.)
So, how did this story end? Maybe it didn't yet. But here's what Mr. Porter said in his latest Friday report:
"For no particular reason, there is the compelling urge to write about something non-controversial this week – like the weather. After all, Mother Nature won't summon her communications director to slap you down if you have the temerity to complain about the weather."
Read more
- Bank of Canada, BMO in rare ‘failure to communicate’ over run-up to rate hike
- Barrie McKenna: BoC eager to be more transparent but won’t signal every rate move: Wilkins
- Barrie McKenna: Bank of Canada: Failure to communicate or failure to forecast?
- How Canada could end up with the G10’s highest interest rates
- Barrie McKenna, Rachelle Younglai: Bank of Canada, major lenders hike rates as economy roars
- David Parkinson: The beginning of runaway rate hikes? Don’t bet on it
Markets at a glance
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GM plant strikebound
General Motors Co.'s Ingersoll, Ont., plant is shut down amid a strike by 2,800 Unifor members, cutting off the main supply of GM's hot Chevrolet Equinox models, The Globe and Mail's Greg Keenan reports.
Negotiators at Cami Automotive failed to reach a tentative pact before Sunday night's deadline.
This will ripple through GM's other operations.
What to watch for this week
The Federal Reserve is going to communicate.
While the U.S. central bank isn't expected to change its benchmark rate, it is expected to talk about unwinding its balance sheet. (I don't talk like most people, either.)
Wednesday's meeting of the Federal Open Market Committee, the Fed's policy-setting panel, also comes with fresh economic projections from individual members, followed by a news conference with chair Janet Yellen.
"After raising rates in December, March and June, there has been increased policy caution about running both normalization processes in tandem, particularly at the start of reinvestment tapering," said BMO deputy chief economist Michael Gregory.
"We look for the FOMC to shift from a quarterly rate-hike cadence to a semi-annual one, or for the next rate hike this December, then next June."
"We expect Yellen to emphasize that balance sheet normalization should run quietly in the background, that the next rate hike is, as always, data dependent, and that the negative economic impact of the hurricanes along with the negative inflation impact of idiosyncratic factors should both prove to be temporary," he added.
The rest of the calendar:
Today
Mr. Lane, of course.
Tuesday
Statistics Canada gives us a snapshot of the manufacturing sector with its monthly report on sales. It's expected to show a drop, though forecasts differ as to the severity.
"Tuesday's factory report is going to be ugly," said Nick Exarhos of CIBC World Markets.
"Manufactured exports have been down roughly 10 per cent over the past two months, with only part of that weakness reflected in June's slide. Look for a 3-per-cent drop [this] week, a first negative data point for the first month of the third quarter – where we expect growth to cool dramatically from Q2's blistering pace."
On the corporate side of things, Tuesday also brings quarterly financial results from Adobe Systems Inc., AutoZone Inc., FedEx Corp, and Gluskin Sheff + Associates.
Wednesday
The Fed is up, with its announcement at 2 p.m. ET.
General Mills Inc. also releases quarterly results.
Thursday
The Bank of Japan is out with its rate decision.
Friday
We'll see how Canadians are shopping, and the prices they're paying, when Statistics Canada releases reports on July retail sales and August inflation.
Analysts believe retail sales rose by between 0.1 and 0.3 per cent.
"[The June report] showed that the slowdown in the Toronto housing market has weighed on big-ticket purchases by local residents, and we expect this regional underperformance to continue into July," said economists at Toronto-Dominion Bank.
"Outside of the Toronto region, labour market gains and elevated consumer confidence should continue to drive spending, and sesquicentennial Canada Day celebrations could add to general merchandise and food and beverage sales."
Observers also expect to see that annual inflation rose to 1.5 per cent from 1.2 per cent a month earlier.
"Although the inflation outlook remains positive ahead, some of the forces depressing price pressures have proven to be more persistent than previously anticipated, and have been global in nature," said CIBC's Mr. Exarhos.
"As a result, still relatively tame [consumer price index] readings likely preclude too aggressive a tightening path for the BoC from here, especially with growth also poised to slow in the quarter ahead."
Watch, too, for a key speech by British Prime Minister Theresa May, who speaks on Brexit.
"The next round of monthly Brexit negotiation talks have been postponed a week to make way for the U.K. PM to deliver what is anticipated to be her most significant speech on Brexit since January," said RBC economists.
"The speech will be in Florence, Italy, and we expect it to focus on the U.K.'s future relationship with the EU, rather than on the financial settlement associated with the U.K.'s exit from the EU."
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