HIGHLIGHTS OF THE WEEK
- Investor sentiment remained upbeat this week, with U.S. equities looking to end the week on a positive note for the seventh consecutive week despite some profit taking.
- Domestic data was relatively robust this week. Economic growth was revised up to a robust 3.5% during the third quarter, with the economy looking to expand by close to 2% during the last quarter of 2016. Sales of existing home rose to a nine-year high in November, while personal income remained flat last month.
- Our outlook for 2017 calls for growth of just over 2%. This should be enough for the economy to eat-up any remaining slack, with the ensuing wage pressures helping lift inflation closer to the Fed’s 2% target.
The Canadian economy looks to be ending the year on a soft note. The CPI data released this week showed that inflation moderated into November, with the Bank of Canada’s new preferred measure of underlying inflation growing by just 1.3% year-over-year. Despite a pleasant upside surprise to retail spending, overall real GDP fell 0.3% in October.
- While the GDP reading puts downside risk to TD Economics’ own view of a 2.2% annualized gain in the fourth quarter of the year, it is consistent with the 1.5% forecast underpinning the Bank of Canada’s latest decision to hold rates steady. Overall, the economic data released this week is consistent with our view that the Bank of Canada is likely to remain on hold for the foreseeable future, but the risks of a rate hike are rising.