Wednesday Night #1154 Jacques Clément Report

CANADA
As expected, the Bank of Canada eased monetary policy for the fifth time since July, 2003 in order to stimulate domestic demand as “the economy is adjusting to the stronger Canadian dollar that prevailed in the first quarter and the intensive international competition as the global economies and commodities are recovering.” Exports had weakened in January as had wholesale sales, manufacturing shipments and employment (February – March). Consumer spending had moderated and business spending was stagnant. Consumer confidence tumbled and G.D.P in January was negative. New vehicle sales have just begun to recover after seven consecutive monthly declines, the worst in three years. The savings rate is at a record low of 2% with close to 1.3 million unemployed (7½%), Ontario (particularly Toronto) has still not recovered from SARS and tourism continues to be affected.
Additional woes have been caused by the Madcow Disease and now the avian flu. In addition, the political uncertainty that surrounds the Liberal government is not to be underestimated, including corruption scandals.
The housing market continues at a record pace with starts rising by 14% in March and new home prices up 5% (year/year). Exports have recovered sharply in February as have imports and the trade surplus at 5.7 billion is the highest since September (6 billion). Bank of Canada will present its monetary policy report tomorrow. Although very early, I would not expect Bank of Canada to ease policy again on June 8. The Canadian dollar will probably continue to trade between 74 and 76cents U.S. Inflation at 0.7% (core 1.1%) is at its lowest level in two years.

U.S.
G.D.P in the first quarter is likely to be revised up to 4¾% – 5% growth, supported by strong consumer and business spending, a very strong housing market, soaring manufacturing orders and production, rebuilding of inventories, the fastest job creation in four years, twenty year peak in business confidence, average productivity gain of over 4½ % and strong consumer confidence. The export sector has recovered sharply in February. Retail sales have improved by 3% in the first quarter, given the improved job climate, low borrowing costs and tax refunds. Department store sales increased 7% in March. Profit expectations are for a rise of 15% to 20% in the first half. The geopolitical situation will continue to weigh heavily on the equity markets.

Outlook
The euro could weaken further to $1.18 U.S.
Gold is in a $400.00 U.S. to $420.00 U.S. trading range.
Crude oil near-term trading range $36 U.S. to $38 U.S.
U.S. inflation is stable at 1.7%, but core has moved to 1.6%.

Despite the speculation, I am not expecting the Fed to tighten before June.