Howdy, forex friends! Canada’s will be simultaneously releasing its CPI and retail sales report this Friday (12:30 pm GMT). So if you’re looking to pillage some quick pips from the Loonie before the week ends, then you better read up, eh?
Canada’s Retail Sales Report (March)
What happened last time?
- Headline retail sales m/m: -0.6% vs. -0.1% expected, 2.3% previous
- Core retail sales m/m: -0.1% vs. -0.3% expected, 2.3% previous
Canada’s retail sales report for the month of February was a miss, with headline retail sales falling by 0.6%, a much faster decline than the expected 0.1% stumble, as well as a major slowdown compared to January’s 2.3% increase.
And the slide in retail sales was somewhat broad-based as well since 5 of 11 sub-sectors, representing 67% of total retail sales, reported lower sales.
The major drags came from the 1.8% decline in sales from motor vehicles and parts dealers, as well as the 3.6% slump in retail sales reported by gasoline stations.
Sales from motor vehicles and parts dealers are stripped from the core reading, though, so the core reading only fell by 0.1%, which is a bit softer than the expected 0.3% decline. Even so, it’s a disappointment compared to January’s 2.3% surge in sales.
Anyhow, the February retail sales report was mixed but net negative overall. However, oil prices were rebounding at the time, so the immediate negative impact on Loonie was initially cushioned. There was follow-through selling, though, and the Loonie ultimately succumbed.
What’s expected this time?
- Headline retail sales m/m: 0.4% vs. -0.6% previous
- Core retail sales m/m: 0.2% vs. -0.1% previous
For the retail trade situation in Canada during the March period, market analysts expect a recovery that will be enough to push both the headline and core reading back into positive territory.
Looking at the available leading and related indicators, average hourly earnings only increased by 0.04% between February and March (+0.54% previous).
Even so, the number of people employed in the retail and wholesale trade industry increased by 16.9K between February and March.
Also, a closer look at Canada’s trade data shows that imports of consumer goods increased by 1% month-on-month in March.
Overall, the leading indicators therefore support a recovery in retail trade during the March period, even though wage growth slowed.
Canada’s CPI Report (April)
What happened last time?
- Headline CPI m/m: 0.2% vs. 0.4% expected, 0.2% previous
- Headline CPI y/y: 1.6% vs. 1.8% expected, 2.0% previous
- Trimmed Mean CPI y/y: 1.4% vs. 1.5% previous
- Weighted Median CPI y/y: 1.7% vs. 1.8% previous
- Common Componented CPI y/y: steady at 1.3%
Canada’s March CPI report was a disappointment because Canada’s CPI only increased by 0.2% month-on-month, missing expectations for a 0.4% rise. Year-on-year, CPI only increased by 1.6%, a slower rate of increase compared to February’s +2.0%.
Moreover, the reading missed the +1.8% consensus, as well as the BOC’s +2.0% forecast. This also marks the second month of slower annual CPI increases.
Worse, two of the three measures for the core reading preferred by the BOC took hits. Specifically, trimmed mean CPI, which excludes CPI components that show the most extreme movements in a given month, ticked lower from +1.5% to +1.4%. This is the lowest reading since June 2015 and marks the second month of deteriorating readings.
The weighted median CPI, which filters out extreme movements specific to certain CPI components in a given month, also ticked lower from 1.8% to 1.7%. This is the lowest reading since October 2015 and puts an end to four consecutive months of holding steady at 1.8%.
As for the common component CPI, which uses a statistical procedure to filter out price movements that might be caused by factors specific to certain components, it held steady at 1.3% for the third consecutive month.
Overall, Canada’s CPI report was rather disappointing, so it’s no real wonder why the Loonie got sold off across the board.
What’s expected this time?
- Headline CPI m/m: 0.4% expected vs. 0.2% previous
- Headline CPI y/y: 1.7% expected vs. 1.6% previous
For the upcoming CPI report, the headline reading for April is expected to improve on both a month-on-month and year-on-basis, as you can see above.
Ivey’s comprehensive PMI report showed that the prices index jumped from 57.0 to 70.9 in April, which supports a faster increase in CPI.
Markit’s PMI report, meanwhile, noted that “strong demand for inputs contributed to rising raw material prices in April, with cost inflation accelerating to its fastest since May 2014.” And this was likely passed on to consumers since Markit also noted that there was “another robust increase in factory gate prices.”
Overall, the available leading indicators appear to be pointing a rebound in inflation, so the consensus reading seem about right.
By the way, take note that the BOC no longer had an easing bias as of the April BOC statement. So if one or both economic reports fail to impress, then that may make some traders bet that the BOC will be a tad more downbeat in next week’s BOC statement (or even switch back to an easing bias).
And if the reports come in mixed, forex traders usually pay more attention on the CPI report. However, the spotlight has been on Canada’s housing market woes recently, especially after Moody’s downgraded six major Canadian banks. And since consumer spending, together with consumer credit and housing debt, are linked to Canada’s housing market problem, then chances are good that more traders will have their sights on Canada’s retail sales report.