Anne Howland
Sun
Financial markets might be too preoccupied this week with the ongoing sub-prime saga to pay much heed to several bits of economic data, particularly from the United States.
“There’s a flood of U.S. data next week but it won’t be enough to catch the attention of the markets,” said Avery Shenfeld, senior economist at CIBC World Markets.
“Realistically, it will take a lot” to turn the markets’ attention away from their focus on liquidity concerns, said Douglas Porter, deputy chief economist at BMO Capital Markets.
On Friday, central banks around the world — including the Bank of Canada — moved to inject short-term money into the financial system in an effort to calm markets spooked by the meltdown in the U.S. sub-prime lending market and ensuing fears of a credit crunch.
In Canada, the only notable economic release next week will be the merchandise trade balance for June on Tuesday. Shenfeld said he expects a smaller, yet healthy, surplus.
Statistics Canada reported last month that Canadian merchandise imports and exports declined in May for the second consecutive month after both reached record levels in March. The nation’s trade balance with the world remained little changed at $5.9 billion, as imports and exports fell by nearly the same value, it added.
The trade report will be “interesting,” Porter added, “but it doesn’t hold a candle to what’s troubling the markets now.”
In the U.S., retail sales figures for July will be released today, and Porter said the data will be important because it will give an indication of the health of consumers. Shenfeld said he expects the sales figures to be disappointing.
On Wednesday, the U.S. consumer price index for July will be released, which “could catch the market,” said Porter. The CPI figure “should be roughly on trend,” added Shenfeld. On Thursday, housing starts in the U.S. could also roil markets already concerned with the health of the housing market, especially if the numbers are weak, Porter said.
“I don’t want to completely dismiss the data,” he added, but the markets’ focus will likely remain firmly on any further surprises from the sub-prime sector and on whether the liquidity squeeze continues.
“One major story is how calm the Canadian dollar has been” in the face of falling markets, said Porter. The loonie is usually among the first of the currencies to be affected by financial turmoil, but its recent steadiness reflects Canada‘s improved fundamentals, he added.
On Friday, the dollar rose after Statistics Canada reported that the unemployment rate fell to its lowest since 1974, boosting expectations that economic expansion will continue. It closed at 94.92 cents US.
© The Vancouver Sun 2007
