THE WEEK AHEAD Economics - CIBC Capital Markets
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Economics
THE WEEK AHEAD
October 11-15, 2021
Some crude remarks on Canada
by Avery Shenfeld avery.shenfeld@cibc.com
Spikes in the price of crude oil and gasoline are not all alike, only one input, albeit the most important one, in the costs of
at least in terms of their implications for Canada. The OPEC producing and delivering gasoline, and those other costs will
shocks of the 1970s sent us into a period of stagflation, with have risen with overall inflation in labour and other inputs. The
no consolation for a country that at the time was a net oil loonie has also not risen as sharply this time, keeping crude a
importer. In contrast, high oil prices in more recent decades, as bit more costly in C$ terms.
the country grew to be a net exporter of crude, have on balance
lifted Canadian growth. So how does what we’re seeing now We’re also paying a carbon tax, designed to incent Canadians
measure up? to pare back fossil fuel use, but remember that the funds raised
are rebated back to the public at large. The system penalizes
The climb in both crude oil and natural gas prices will boost consumers who are more profligate in their fuel purchases,
inflation as it did in the 1970s, but will also lift Canada’s terms while rewarding others.
of trade, the prices of our exports relative to imports. That’s
the good kind of inflation, since it raises nominal GDP growth, Oddly, we see some strong advocates for the fight against
incomes, and importantly in these fiscally-challenged times, climate change, including President Biden, urging OPEC to
government revenues. produce more oil and make gasoline cheaper again. If we’re
serious about transitioning to a less-carbon-intensive economy,
But the boost to oil industry profits isn’t yet generating as much some pain at the pump isn’t a bad thing. In Canada, even if, as
of a lift to employment and capital spending. In prior decades, it we expect, OPEC+ countries deliver more output if demand
was the launch of new projects that gave the greatest economic holds up, helping to ease the price crunch, drivers can’t look
boost, rather than just the operations at existing facilities. But ahead to sustained relief in gasoline prices, since we’ll have to
one spur for global oil prices is that, these days, capital isn’t as ramp up carbon taxes as a part of getting us to use transit, buy
quick to flow into new projects to expand supply when prices electric vehicles or ride our bicycles.
rise.
The jump in fuel prices would ordinarily bring another economic
In Canada, environmental regulatory processes are a factor, threat: a sharper or earlier climb in interest rates. Governor
along with heavy fixed costs for new oil sands projects that Macklem made clear this week that he sees the recent inflation
mean that the green light for expansion requires confidence upturn as likely to persist for longer than he had expected,
about longer term prices. In the US, shale projects that proved and gasoline prices will be part of that story. But he’s also
to be less able to deliver adequate returns have investors wary, prepared to sit this inflation spike out, viewing the slack in the
and the Biden administration is clearly less friendly to the sector economy as a sufficient cushion against it spreading into a more
than its predecessor. Globally, some major oil companies are persistent run-up in inflation expectation or wages. Even after
repositioning themselves towards green energy. ESG objectives today’s jobs report, total hours worked in the economy are still
may also be keeping some investor money off the table. 1½% below where they were pre-pandemic, and wage inflation
doesn’t look threatening. That should be enough to have the
For Canadian consumers, it’s notable that although crude oil Bank of Canada look past price hike for gas and other goods,
prices are still miles below prior peaks, we’re already hovering and wait for full employment to be attained late next year.
very near record levels for gasoline prices. Remember, crude is
CIBC Capital Markets The Week Ahead | 1Week Ahead Calendar And Forecast—Canada
H, M, L = High, Medium or Low Priority
SAAR = Seasonally Adjusted Annual Rate
Consensus Source: Bloomberg
Date Time Economic Releases, Auctions and Speakers Month Priority CIBC Consensus Prior
Monday, October 11 - Markets Closed (Thanksgiving) - - - - -
Tuesday, October 12 - Government Bond Purchase Program (GBPP): 10-YR - - - - -
Tuesday, October 12 - AUCTION: 3-M BILLS $8.6B, 6-M BILLS $3.2B, 1-YR - - - - -
BILLS $3.2B
Wednesday, October 13 - Government Bond Purchase Program (GBPP): 5-YR - - - - -
Wednesday, October 13 - AUCTION: 5-YR CANADAS $4.5B - - - - -
Thursday, October 14 - Government Bond Purchase Program (GBPP): 30-YR - - - - -
Thursday, October 14 8:30 AM MANUFACTURING SHIPMENTS M/M (Aug) (M) 0.5% 0.3% -1.5%
Friday, October 15 - Government Bond Purchase Program (GBPP): 2-YR - - - - -
Friday, October 15 8:30 AM WHOLESALE TRADE M/M (Aug) (M) 0.5% 0.5% -2.1%
Friday, October 15 9:00 AM EXISTING HOME SALES M/M (Sep) (M) - - -0.5%
CIBC Capital Markets The Week Ahead | 2Week Ahead Calendar And Forecast—United States
H, M, L = High, Medium or Low Priority
SAAR = Seasonally Adjusted Annual Rate
Consensus Source: Bloomberg
Date Time Economic Releases, Auctions and Speakers Month Priority CIBC Consensus Prior
Monday, October 11 - Treasury Markets Closed (Columbus Day) - - - - -
Monday, October 11 - Bond Market Closed (Columbus Day) - - - - -
Monday, October 11 6:00 PM Speaker: Charles L. Evans (President, Chicago) (Voter) - - - - -
Tuesday, October 12 - AUCTION: 3-YR TREASURIES $58B - - - - -
Tuesday, October 12 - 10-YR AUCTION: $38B - - - - -
Tuesday, October 12 10:00 AM JOLTS Job Openings (Aug) - - 10925K 10934K
Tuesday, October 12 12:30 PM Speaker: Raphael W. Bostic (President, Atlanta) (Voter) - - - - -
Wednesday, October 13 - 30-YR AUCTION: $24B - - - - -
Wednesday, October 13 7:00 AM MBA-APPLICATIONS (Oct 8) (L) - - -6.9%
Wednesday, October 13 8:30 AM CPI M/M (Sep) (H) 0.3% 0.3% 0.3%
Wednesday, October 13 8:30 AM CPI M/M (core) (Sep) (H) 0.2% 0.2% 0.1%
Wednesday, October 13 8:30 AM CPI Y/Y (Sep) (H) 5.3% 5.3% 5.3%
Wednesday, October 13 8:30 AM CPI Y/Y (core) (Sep) (H) 4.0% 4.1% 4.0%
Wednesday, October 13 2:00 PM FOMC Meeting Minutes (Sep 22) - - - -
Wednesday, October 13 4:30 PM Speaker: Lael S Brainard (Governor) (Voter) - - - - -
Wednesday, October 13 8:00 PM Speaker: Michelle W Bowman (Governor) (Voter) - - - - -
Thursday, October 14 8:30 AM INITIAL CLAIMS (Oct 9) (M) - 328K 326K
Thursday, October 14 8:30 AM CONTINUING CLAIMS (Oct 2) (L) - - 2714K
Thursday, October 14 8:30 AM PPI M/M (Sep) (M) 0.6% 0.6% 0.7%
Thursday, October 14 8:30 AM PPI M/M (core) (Sep) (M) 0.5% 0.5% 0.6%
Thursday, October 14 8:30 AM PPI Y/Y (Sep) (M) - 8.8% 8.3%
Thursday, October 14 8:30 AM PPI Y/Y (core) (Sep) (M) - 7.1% 6.7%
Thursday, October 14 10:00 AM Speaker: Raphael W. Bostic (President, Atlanta) (Voter) - - - - -
Thursday, October 14 12:00 PM Speaker: Lorie K. Logan (Executive VP, New York) - - - - -
Thursday, October 14 1:00 PM Speaker: Thomas I. Barkin (President, Richmond) (Voter) - - - - -
Thursday, October 14 6:00 PM Speaker: Patrick Harker (President, Philadelphia) - - - - -
Friday, October 15 8:30 AM RETAIL SALES M/M (Sep) (H) -0.3% -0.3% 0.7%
Friday, October 15 8:30 AM RETAIL SALES (X-AUTOS) M/M (Sep) (H) 0.2% 0.5% 1.8%
Friday, October 15 8:30 AM RETAIL SALES CONTROL GROUP M/M (Sep) (H) 0.3% 0.4% 2.5%
Friday, October 15 8:30 AM NEW YORK FED (EMPIRE) (Oct) (M) - 25.0 34.3
Friday, October 15 8:30 AM IMPORT PRICE INDEX M/M (Sep) (L) - 0.6% -0.3%
Friday, October 15 8:30 AM EXPORT PRICE INDEX M/M (Sep) (L) - 0.5% 0.4%
Friday, October 15 10:00 AM BUSINESS INVENTORIES M/M (Aug) (L) - 0.7% 0.5%
Friday, October 15 10:00 AM MICHIGAN CONSUMER SENTIMENT (Oct P) (H) - 73.5 72.8
Friday, October 15 12:20 PM Speaker: John C. Williams (Vice Chairman, New York) - - - - -
(Voter)
CIBC Capital Markets The Week Ahead | 3Week Ahead’s market call
by Avery Shenfeld
In the US, a flurry of Fed speeches will give us a better read on November’s decision over tapering, which is
admittedly now a closer call after a couple of months of less spectacular job gains. Given that data, those
speeches are probably more relevant than the Fed minutes from the prior meeting, where we know the
leaning was strongly in favour of tapering very soon. We’re not expecting any relief on the CPI inflation front
just yet, as the stories of supply disruptions keep piling up. Those disruptions will also have an impact on
retail sales by depressing the autos component, although we still expect to see a bit of growth elsewhere, if
muted by the fact that the prior month recorded an outsized gain in the “control group.”
In Canada, a holiday-shortened week will also be short on data. Reports from manufacturing and wholesaling
will be clouded by ongoing supply chain issues, but we expect to see both sectors recover some lost ground.
Markets will likely be taking their cue from other developments, with the Bank of Canada’s policy and forecast
announcement not due until the following week.
CIBC Capital Markets The Week Ahead | 4There are no major Canadian data releases next week. CIBC Capital Markets The Week Ahead | 5
Week Ahead’s key US number: Chart: US Retail sales
Retail sales—September
(Friday, 8:30 am)
Katherine Judge katherine.judge@cibc.com
Retail sales (m/m %) CIBC Mkt Prior
Retail sales -0.3 -0.3 0.7
– ex auto 0.2 0.5 1.8
– control group 0.3 0.4 2.5
Source: Census Bureau, Haver Analytics, CIBC
Limited inventories held back unit sales of autos again in Forecast implications — Real spending on goods looks to
September. Combined with little improvement in restaurant have contracted over the third quarter as supply chain issues
traffic as the Delta variant continued to spread, total retail sales weighed. However, a stronger showing from services at the start
likely retreated by 0.3% during the month. of the quarter should outweigh that in the total consumption
calculation. With supply chain issues proving more persistent
Mobility data for retail and recreation locations dropped off, and than expected, spending on goods in the final quarter of the
August’s surge in online sales isn’t likely to have been repeated year is at risk at a time when services activity is also being
given that it owed largely to a change in the seasonal pattern of negatively impacted by the Delta variant.
an annual sale. The control group of sales is therefore poised to
decelerate to 0.3%. With ample excess savings to draw from Market impact — We are slightly more pessimistic than the
and a gain in labor income, the end of expanded unemployment consensus on the control group but not by enough to see a
benefits likely had a muted impact on spending in September. sustained market reaction.
Other US Releases:
CPI—September
(Wednesday, 8:30 am)
Higher gasoline prices should have boosted total CPI in
September adding to pressures from supply chain bottlenecks
in core goods categories, and likely resulting in a 0.3% monthly
rise in prices to leave annual inflation unchanged at 5.3%. In
core categories, the push and pull between a surge in used car
prices amid other supply chain bottlenecks, against a likely
drop in Delta-impacted service prices, could have resulted
in a 0.2% monthly gain in core CPI. That would leave annual
core inflation steady at 4.0% and implies some upside for core
PCE inflation, the Fed’s preferred measure. With supply chain
issues worsening, it’s possible that inflation could stay elevated
for longer ahead even with the downside potential in Delta-
impacted service prices.
CIBC Capital Markets The Week Ahead | 6Contacts: Avery Shenfeld Benjamin Tal Andrew Grantham 416 594-7356 416 956-3698 416 956-3219 avery.shenfeld@cibc.com benjamin.tal@cibc.com andrew.grantham@cibc.com Royce Mendes Katherine Judge 416 594-7354 416 956-6527 royce.mendes@cibc.com katherine.judge@cibc.com CIBC Capital Markets PO Box 500 161 Bay Street, Brookfield Place Toronto, Canada, M5J 2S8 Bloomberg @ CIBC economics.cibccm.com CIBC World Markets Inc., CIBC World Markets Corp., CIBC World Markets Plc., CIBC Australia Limited and certain other corporate banking and capital markets activities of Canadian Imperial Bank of Commerce operate under the brand name CIBC Capital Markets. This report is issued and approved for distribution by (a) in Canada, CIBC World Markets Inc., a member of the Investment Industry Regulatory Organization of Canada, the Toronto Stock Exchange, the TSX Venture Exchange and a Member of the Canadian Investor Protection Fund, (b) in the United Kingdom, CIBC World Markets plc, which is regulated by the Financial Services Authority, and (c) in Australia, CIBC Australia Limited, a member of the Australian Stock Exchange and regulated by the ASIC (collectively, “CIBC”) and (d) in the United States either by (i) CIBC World Markets Inc. for distribution only to U.S. Major Institutional Investors (“MII”) (as such term is defined in SEC Rule 15a-6) or (ii) CIBC World Markets Corp., a member of the Financial Industry Regulatory Authority. U.S. MIIs receiving this report from CIBC World Markets Inc. (the Canadian broker-dealer) are required to effect transactions (other than negotiating their terms) in securities discussed in the report through CIBC World Markets Corp. (the U.S. broker-dealer). This report is provided, for informational purposes only, to institutional investor and retail clients of CIBC World Markets Inc. in Canada, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. This document and any of the products and information contained herein are not intended for the use of private investors in the United Kingdom. Such investors will not be able to enter into agreements or purchase products mentioned herein from CIBC World Markets plc. The comments and views expressed in this document are meant for the general interests of wholesale clients of CIBC Australia Limited. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of CIBC. Before making an investment decision on the basis of any information contained in this report, the recipient should consider whether such information is appropriate given the recipient’s particular investment needs, objectives and financial circumstances. CIBC suggests that, prior to acting on any information contained herein, you contact one of our client advisers in your jurisdiction to discuss your particular circumstances. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice; as with any transaction having potential tax implications, clients should consult with their own tax advisors. Past performance is not a guarantee of future results. The information and any statistical data contained herein were obtained from sources that we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, Internet web sites. CIBC has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient’s convenience and information, and the content of linked third-party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. © 2021 CIBC World Markets Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure without the prior written permission of CIBC World Markets Inc. is prohibited by law and may result in prosecution. The CIBC logo and “CIBC Capital Markets” are trademarks of CIBC, used under license.. CIBC Capital Markets The Week Ahead | 7
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