• U.S. equity markets built on last Friday’s gains, firming up for the second consecutive week. Seemingly-fruitful trade negotiations between the U.S. and China offered notable support.
• With respect to data, both the ISM non-manufacturing index and small business confidence have eased from recent highs, but remain in healthy territory. Inflation data came in as expected, with core CPI holding steady at 2.2% y/y.
• The government shut down, which is on track to become the longest in U.S. history, may test the Fed’s wait and see approach to monetary policy, given data distortions and delays. If it ends soon, we expect its impact to be quite modest. But each passing week has the potential to amplify the impact.
• As widely anticipated, the Bank of Canada held its policy rate at 1.75% this week. It also signaled little desire to raise rates in thenear term.
• Energy sector woes are expected to drag on Canadian economic activity to the tune of half a point through 2020. As a result, 2019 growth was downgraded by 0.4 ppts to 1.7% relative to the Bank’s October outlook.
• With the Bank of Canada communicating less urgency toraise rates in the near-term, we now expect the next rate hike to occur in July.