Data Indigestion

A wave of US and Canadian data on Thursday left market participants with plenty to contemplate over the holidays. The euro was the top performer while the pound lagged as cable fell to the lowest since Nov 2. The Asia-Pacific calendar is empty.

The US economy got some good news to close out the year as third quarter GDP was revised higher to a +3.5% annualized pace from +3.3%. That was coupled with a durable goods orders report that was stronger than it appeared. The headline measure fell 4.6% but the key metric of capital goods orders non-defense ex-air rose 0.9% compared to 0.3% expected.

The US dollar largely failed to respond to the data but that isn't a big surprise as ranges narrow into year end and flows dominate. Over time, however, those numbers will help build a floor under the dollar and help carry the positive momentum into 2017.

One damper, however, was the PCE report with spending a shade soft at +0.2% versus +0.3% expected and income flat compared to the +0.3% consensus. The long-awaited inflation/wage inflation paradigm that the Fed (and the market) is betting on for 2017 remains a serious question mark.

Neighbouring Canada also got some holiday cheer in the October retail sales report as it rose 1.1% compared to 0.3% expected. Ex-autos were also very strong at +1.4% compared to +0.7% expected.

The enthusiasm was offset by a soft November CPI report as prices rose 1.2% y/y versus 1.4% expected. The release also marked the first time Statistics Canada reported on three new CPI measures prescribed by the BOC. The CPI trim is likely to be the one Poloz monitors most closely and it sagged to +1.6% y/y from +1.8%. The Canadian dollar struggled and has now fallen in 7 of the past 8 days and sits at the worst levels of December.

We expect quiet markets through year end but will remain on guard for geopolitical shocks.