TD Canada Trust Weekly Economic Highlights – Oct. 29

HIGHLIGHTS OF THE WEEK – October 29/12

United States
  • Markets fell back to pre-OMT/QE3 territory as weak earnings and guidance downgrades provided a reality check. This was true for non-financials in particular, as financials continued to benefit from the confidence inspired by open-ended central bank announcements
  • European data continue to underwhelm, with German PMI and business confidence declining in October.
  • Eurozone services PMIs fared better than manufacturing PMIs, but remain in contractionary territory still.
  • GDP releases from China, U.K. and U.S. suggest economic activity gained momentum in the third quarter, however current quarter looks to come in flatter.
  • Flash PMIs in U.S. and China leave us hopeful that the manufacturing sector slowdown may be coming to an end. However, risks related to the ‘fiscal cliff’ and sovereign-debt crisis continue to loom, and should constrain any significant breakout in the sector in the near-term.
Canada
  • As widely expected, the Bank of Canada held its overnight rate at 1.00% during this week’s fixed rate announcement.
  • The Bank altered the forward language to “overtime, some modest withdrawal of monetary
  • stimulus will likely be required”.
  • The Monetary Policy Report showed that the BoC expects Canadian economic growth to pick up to a speed slightly above potential through the last quarter of 2012 and into 2013.
  • Overall, Bank of Canada’s statements suggest that international risks will keep the Bank of Canada on the sidelines for a little while longer. However, the next direction in the overnight rate will be up.