Global Equity Weekly

November 29, 2019 | 16:31

Turkey Trot

Economist

Director and Senior Economist
Economics

Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing regional economic, fiscal... (Read more)

Robert Kavcic

Director and Senior Economist
Economics

Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing regional economic, fiscal... (Read more)

Equity markets pushed higher this week, alongside sturdy economic data. The S&P 500 rose 1.0%, led by consumer discretionary (fitting ahead of the big weekend), technology and health care. Energy was down 1.5% on the week, and remains the lone sector below year-ago levels. Meantime, the TSX was up 0.5%, while Europe and the U.K. posted small gains.

The data in North America were solid this week, reinforcing that the Canadian and U.S. economies are not rolling over at this point. In the U.S., real GDP growth was revised up to 2.1% in Q3 from the 1.9% initially reported. That’s now three straight quarters at better-than-2%, after a brief dip below that mark in 2018Q4. Elsewhere, consumer spending was sturdy enough in October to keep our call for Q4 spending growth in on track. And, core durable goods orders jumped a better-than-expected 1.2% in the month flagging potentially firmer business investment ahead (though they’re still down from year-ago levels)—core orders, by the way, correlate very well with S&P 500 earnings growth. Finally, to round out the sturdy domestic demand story, new home sales were revised up sharply to new cycles highs in September and October, as Fed easing and lower mortgage rates have propped up housing.

Table 1 - Market Performance

Source: BMO Economics, Bloomberg

Meantime, in Canada, real GDP came in as expected at 1.3% in Q3, but the details were quite a bit better than headline. While inventories cut 1.6 ppts from growth, final domestic demand was up 3.2%, including solid gains in residential and business investment. The Bank of Canada will take this report into next week's policy deliberations and we suspect they’ll be on hold—possibly for a long while. While the slowdown in global and U.S. growth has hit home and trade poses ongoing downside risk, there are a number of smaller factors telling the Bank to hold tight. For example, housing activity has rebounded smartly in B.C. and Ontario, and mortgage credit growth has accelerated again. Also, fiscal policy is poised to add more to growth, with the federal budget deficit possibly jumping toward $30 billion in FY20/21 from $19.8 billion this year—the throne speech on December 5th will be the first confidence test, and give a good indication of policy measures ahead. Finally, inflation remains sticky right around the Bank’s target, with the three core measures averaging 2% or higher in each of the past six months.