ON DECK FOR TUESDAY, NOVEMBER 19
KEY POINTS:
- Safe havens in demand on fear Ukraine-Russia war is escalating
- Canadian CPI may return to 2% y/y…
- ...but key will be the BoC’s preferred core gauges…
- ...yet even they could play second fiddle to GDP & US policy risks
Risk appetite is weakening across all major asset classes this morning on concern that Russia’s illegal invasion of Ukraine is escalating. Biden’s lifting of the ban on using high precision long range ATACMS missiles provided by the US against Russia was followed up by Ukraine’s first such strike overnight against a military site and led to Putin’s sabre rattling as he adjusted a nuclear arms doctrine to allow their use against non-nuclear states supported by nuclear ones. Guess Putin’s afraid of getting back what he’s given.
The dollar and yen are broadly appreciating. US Treasury yields are dearer with the 2s and 10s down by about 5–6bps. Stocks are broadly lower with N.A. futures off by ¼% to ½% and European cash markets mostly 1%+ lower with less than that in London.
There were no other material overnight releases or developments. The focus is on Canadian inflation and what it may—or may not—say about the BoC’s December bias. In my opinion, it’s not necessarily the most important domestic data in that regard. Over time, domestic data itself could matter less than US policy developments such as ill-advised US trade provocations against multiple economies.
Canadian CPI — May Not Be What Determines the BoC’s December Move
Canada updates CPI for October this morning (8:30amET). Estimates for headline inflation range from 0.2% to 0.4% m/m NSA (Scotia 0.4%) and 1.8% to 2% y/y (Scotia 2%) from 1.6% previously. A 0.4% m/m NSA rise would translate into about a 0.3% SA increase. Therefore, everyone expects the prior month’s dip to have been temporary while still leaving behind soft overall inflation.
Drivers are reviewed in my weekly. Key, however, will be the trimmed mean and weighted median ‘core’ gauges that are preferred by the BoC. The m/m SAAR measures will inform the tracking of underlying price pressures at the margin. They have been ebbing over recent reports but it’s futile to forecast them (chart 1).
I wouldn’t be surprised to see volatile services inflation pick up again from recent lows (chart 2).
CPI is arguably not the most important data point to consider. That may be the following week’s GDP figures that will inform tracking of Q3 and Q4 growth and hence whether the BoC is still trapped in a pattern of downward revisions to their growth projections. If so, then it would once again add more slack than they had estimated in the October MPR and increase their concern toward undershooting 2% inflation going forward which would be incrementally dovish to size and pace arguments. The next jobs report could also matter.
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