On Friday the latest report on Canadian GDP (measure of growth) was out.
The Canadian economy grew by 0.2% in July. However, the growth for the
third quarter is likely to be around 2% annualized, which is below the
forecast. That is mostly due to the recent economic data in the U.S.
which “points to a significant moderation in activity, which has and
will continue to restrain demand for Canadian products in the coming
quarter.” Said TD economist.
The U.S , the existing home sales posted a weaker than expected result
with a decline of 0.5% in August and the median selling price for a
single family home fell by 1.7% on a year over year basis. This was the
second largest monthly decline for prices since 1990s. Also the supply
of unsold homes was up to 7.5 months, up from 7.3 months in July.
What worried some investors was that on the business investment side,
durable goods orders (measure of the health of the business sector) in
August declined by 2%, the largest decline since July 2005. This is
particularly important because the argument has been that even though
the housing sector is slowing down, the business sector is so healthy
that it would help the economy to weather the housing slow down. At TD,
we think that “durable goods orders are notoriously volatile from one
month to another, implying that investors should focus on longer term
trends. Stripping away the most volatile items such as defense related
orders and Air craft, core capital goods orders experience only a mild
decline in Augusto of 0.3%.”
We expect the Fed to cut rates by 1% by the first quarter of 2007 and
the Bank of Canada to cut rates by 0.5% in early 2007 with the first
quarter point cut around march and the second in April.