First Published in 24th March Tactical

For the past 6 months, we have been alerting clients to the persistent decline in our Canada leading indicator.  This is now showing up in numerous Canadian coincident data releases, with retail sales being the latest to miss expectations last Friday.  The economic surprise index is now declining sharply and there is little sign of immediate improvement ahead.

PMIs continue to fall whilst building permits and housing starts (some of the best leading indicators to watch), remain negative yoy (top chart).  However one of our main themes this year has been that of cognitive dissonance, whereby growth disappoints, but higher excess liquidity supports asset prices.  Canadian excess liquidity has bottomed and is gently turning up (bottom chart).  This is not particularly exciting yet but we will keep clients informed should the indicator begin to accelerate.

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Source: Bloomberg and Variant Perception