CANADA
- What appears solidly dovish BOS and CSCE Q3 surveys at a first look has helped Can-US 2Y yield differentials reverse about half of their 5bp increase seen on the strong jobs report.
- It leaves the 2Y differential at -86bps for close to the circa -90bp extremes seen when the BoC began its easing cycle in June whilst USDCAD is back within 10pips of its latest high of 1.3784 seen prior to the jobs report.
- The four main headlines from the BOS summarise the tone clearly: “Business conditions remain subdued”, “Excess capacity is leading to restrained investment and hiring”, “Sales growth expectations improved but remain soft “ and “Firms expect wage and price growth to soften”.
- Getting into specifics, nearly every measure for business and consumer inflation expectations improved, the exception being 5Y out business inflation expectations holding at a still favourable 2.5%.
- Some of the more notable findings from the below charts:
- the share of firms expecting inflation to average more than 3% over the next two years fell significantly from 41% to 15%, although that’s still above the just 3 or 4% averaged pre-pandemic.
- The share expecting inflation to average 1-2% increased from 3% to 10% for its highest since 3Q21, although that’s still above the 50-60% seen pre-pandemic.
- The Business Outlook Survey saw 2Y out inflation expectations fall from 3.0% to 2.5%
- Consumer expectations two years out fell heavily from 3.9% to 3.05% for the lowest since 2Q21.
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