US economy with good momentum, could give the Fed impetus to act in March

Fundamental Analysis

USD

“The U.S. economy has quite a bit of momentum as the year began. This morning's reports add a little more impetus for the Fed to move this quarter. Still not our call but it is becoming very interesting”.

- Jennifer Lee, BMO Capital Markets

US consumer prices posted the largest increase since February 2013 last month amid higher gasoline prices, keeping the Federal Reserve on course to raise interest rates further this year. The US Commerce Department reported on Wednesday its headline CPI climbed 0.6% month-over-month in January, while analysts expected the Index to remain unchanged from the prior month at 0.3%. Excluding volatile items, core consumer prices rose 0.3% last month, after growing 0.2% in December. The January inflation jump was mainly driven by higher gasoline, apparel and motor vehicles prices. On Tuesday, the Fed Chair Janet Yellen said the Bank would probably raise rates at its next policy meeting. Other data released by the Commerce Department on Wednesday showed retail sales advanced 0.4% in January after surging 1.0% in the previous month. However, analysts anticipated an increase of just 0.1% in the reported month. Furthermore, data showed core retail sales climbed 0.8% last month, following December’s upwardly revised increase of 0.4%. A 1.6% rise in sales at electronics and appliances stores, the largest since June 2015, contributed the most to retail sales growth in January. Back in December, these stores posted a 1.1% drop in sales. In the meantime, automobile sales dropped 1.4%, the largest fall since March 2016, last month after surging 3.2% in December.

GBP
"Continued moderate growth in employment has led to a new high in the total employment rate, while the rate for women has reached 70pc for the first time on record. Overall, the labour market appears to be edging towards full capacity.”

- David Freeman, ONS

The number of Britons filing for unemployment benefits dropped markedly last month, while wage growth slowed in the Q4. The Office for National Statistics reported on Wednesday the number of claimants declined 42,400 to 787,400 in January, following the preceding month’s upwardly revised fall of 20,500. In the meantime, including bonuses, average hourly earnings climbed 2.6% on an annual basis in the Q4 of 2016, while analysts expected an unhanged reading from the prior month, when the Average Earnings Index rose 2.8%. Excluding bonuses, earnings advanced 2.6%, falling behind analysts’ expectations for a 2.7% climb. Wage growth is closely followed by the Bank of England in the wake of the Brexit vote, as an acceleration in pay growth amid higher inflation could force the Bank to raise interest rates. Inflation rose 1.6% in the 12 months to December 2016. Nevertheless, analysts say they do not expect wage growth to pick up in the upcoming months. Wednesday’s data also showed the unemployment rate held steady at its 11-year low of 4.8% during the final quarter of 2016, in line with economists’ forecasts. The data suggests that the labour market was not affected by the June 23 referendum; however, the 2017-year outlook remains ambiguous. The number of foreign workers in Britain declined 9,000 on a quarterly basis in the Q4.

CAD

“Overall, the consensus-beating figures today, combined with the revisions, should have growth in Q4 tracking close to two per cent. That should remove further the possibility of a near-term ease from the BoC, despite its continuing dovish bias”.

-Nick Exarhos, CIBC

Canadian manufacturing sales rose for the second consecutive month in December, official figures showed on Wednesday. According to Statistics Canada, sales advanced 2.3% on a monthly basis in December, the largest increase since 2015, following the preceding month’s upwardly revised gain of 2.3% and surpassing analysts’ expectations for an increase of 1.4%. In volume terms, manufacturing sales climbed 2.3% in the reported month, suggesting the Canadian economy performed well in the final quarter of 2016. Transportation sales jumped 7.4% in December, mainly driven by gains in the vehicle parts and assembly industries. Sales in the petroleum and coal product industry were up 11.6% amid the return of refineries from autumn maintenance. Wednesday’s data showed sales increased in eight out of 21 industries. In the meantime, inventories posted a third straight monthly decline of 0.3% in December, whereas new orders dropped 0.6%. Low-commodity prices and the Alberta wildfires dampened economic growth during the first three quarters of 2016. However, analyst suggest that the economy managed to fully recover by the end of the past year. The weaker Loonie, which dropped around 25% against the Greenback over the past five years, helped manufacturers offset low commodity prices.

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