CANADA: Underlying Domestic Demand Dynamics Eyed In Q2 Contraction (2/2)
Aug-28 20:18
- Desjardins (-0.7% in Q2): "Household consumption likely continued to be positive despite the precarious environment, as goods purchases moved higher in the quarter, notably autos. We anticipate a modest boost in government expenditures and residential structures as well. In addition, net exports probably fell significantly because of US tariffs, albeit with a partial offset from inventory accumulation. Concurrently, we expect business fixed investment to have slowed due to the uncertain outlook for trade... looking ahead to the July 2025 real GDP release, we expect Statistics Canada’s flash estimate will show another slightly positive advance."
- National (-0.6% in Q2): "Household consumption, residential investment, government spending, and inventory accumulation are all expected to contribute to GDP growth during the quarter. However, these positive factors will likely be offset by a sizeable negative contribution from international trade, with the goods trade balance suffering from a collapse in exports following the imposition of tariffs by the U.S. administration. A decline in business investment in machinery and equipment could also weigh on the headline figure."
- BofA (-0.4% in Q2): "The Canadian economy could be seeing the first stages of economic recovery. Employment should rise by 5.0k jobs in August, following a drop of -40.8k in July. The unemployment rate will likely rise to 7.0%. We see the labor market weakness persisting."
- Scotiabank (-0.25% Q/Q): "The uncertainty surrounding reliance on monthly GDP figures—based on product/income concepts—to estimate expenditure-based GDP is that the full effects of net trade and inventory swings on how output changed may not be fully captured.... our tracking of monthly net trade figures including revisions along the way suggests that Q1 exports in the GDP accounts and hence Q1 GDP could be revised lower."
- RBC: (0.0% in Q2) "a flat reading in Q2 consistent with Statistics Canada’s advance estimates of monthly output through June is better than feared, given spring saw a surge in U.S. tariffs (and threats) that rattled business and consumer confidence...Total final domestic demand, which strips out volatile swings in trade and inventories, should post a small gain─suggesting underlying momentum is not as weak as the headline implies."
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USDCAD TECHS: Pierces The 50-Day EMA
Jul-29 20:00
- RES 4: 1.4016 High May 12 / 13
- RES 3: 1.3920 High May 21
- RES 2: 1.3862 High May 29
- RES 1: 1.3798 High Jun 23 and a key near-term resistance
- PRICE: 1.3771 @ 19:05 BST Jul 29
- SUP 1: 1.3679/3557 20-day EMA / Low Jul 03
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
A short-term correction in USDCAD remains in play. However, note that price has traded through the 50-day EMA at 1.3728. A clear breach of this average would highlight a stronger short-term reversal, exposing 1.3798, the Jun 23 high. Clearance of 1.3798 would strengthen a bullish condition. On the downside, 1.3540, the Jun 16 low, marks key support. A break of this level would resume the downtrend.
US TSYS: Treasuries Bid Ahead FOMC, Strong 7Y Sale, JOLTS Jobs Recede
Jul-29 19:57
- Treasuries look to finish near late session highs, TYU futures back at last week's highs on July 22 as markets consolidate ahead of tomorrow's FOMC rate annc.
- A strong 7Y note auction helped rates extend highs after the $44B note sale (91282CNR8) stopped through again: 4.092% high yield vs. WI of 4.120%; bid-to-cover 2.79x from 2.46x prior. Peripheral stats: Indirect take-up retreats to 62.26% vs. 76.74% prior; Direct take-up climbed to new high at 33.68% vs. 11.62% prior; Dealers fell to new low of 4.06% vs. 11.64% prior.
- First half support: Tsys extended highs briefly after lower than expected JOLTS openings, quits level lower (prior down-revised), layoffs broadly lower than expected. Prior to JOLTS, little react to Advance Goods Trade Balance, import decline and less negative goods export. Wholesale inventories slightly higher than expected, retail inventories in-line.
- Tsy Sep'25 10Y contract trades +19 at 111-11.5 vs. 111-12.5 high; nearing initial technical resistance at 111-14.5 (High Jul 22). A clear break would highlight a stronger reversal and open 111-28, the Jul 3 high. Key support remains intact at 110-08+, the Jul 14 and 16 low. A move through this support would reinstate a bearish theme.
- Curves bull flatten: 2s10s -3.051 at 44.734, 5s30s -3.148 at 95.557.
- Cross asset: Bbg US$ index firmer but off highs: BBDXY +1.65 at 1209.76 (1212.47 high); stocks moderately lower (SPX eminis -19.75 at 6403.0); gold firmer +9.30 at 3323.91.
US DATA: Dallas Fed Regional Services Sentiment And Prices Pick Up
Jul-29 19:57
The Dallas Fed's Texas Service Sector Outlook Survey has bounced from weak readings in Q2, suggesting a pickup in regional activity to more normal levels after a tariff-related fall in sentiment albeit amid stubborn price pressures.
- General Business activity rose to 2.0 in July from -4.4 prior, marking the first positive reading since February. In tandem, the 6-month outlook rose to 9.8 from 1.5, for the highest reading also since February. Various key metrics improved including revenue, employment, and hours worked, with uncertainty falling to around the longer-term average.
- This echoes improvement in July's Philadelphia, NY, and Richmond services/non-manufacturing surveys (Kansas City was an outlier), as well as the rise in the July flash S&P Global PMI index.
- One area of concern was a renewed pickup in current prices paid, to 25.3 from 21.3 prior for a 3-month high, even as prices received dropped to 3.3 from 6.8 prior, marking an 8-month low. That potentially points to margin pressures for regional services firms.
- Overall services prices paid looked to have steadied/risen in July based on regional Fed surveys - we will preview the ISM Services reading for July ahead of release on August 5.
- Within the survey, Texas retail sales were flat, albeit at 0.8, the sales index was a strong improvement from -29.5 prior.
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