HIGHLIGHTS OF THE WEEK
United States
• The risk of running off the fiscal cliff will
become a reality in a couple of weeks if a middle ground is not found by
December 20th.
•
Financial markets may be acting too complacent. As of early Friday, the
S&P500 index was up 4.5% in three weeks, even though there is already
evidence that excess cautious behavior from policy uncertainty is taking a toll
and creating distortions in the real economy.
•
Our Q4 real GDP tracking is less than 1%, showing an economy already on thin
ice.
•
The Fed has a 2-day meeting on December 11th and 12th. Monetary policy can not
single-handedly push against the fiscal headwind, but we doubt the Fed will
stand by idly. Operation Twist terminates at year-end and in its place may come
an extension of QE3 with open-ended Treasury purchases.
Canada
•
To no one’s surprise the Bank of Canada left interest rates unchanged this past
week, as Canadian economic growth continues to be soft, hurt by weak foreign
demand. But, the Bank retained its hawkish bias.
•
November’s very healthy job growth would seem to support that hawkish stance by
the Bank. However, some of the details in the report reveal the soft underbelly
of the Canadian economy, namely a slowing goods sector.
• In addition to weaker external demand, Canada faces
competitiveness challenges seen clearly in Canada’s poor productivity
performance in Q3. These reasons underscore why November’s healthy job gain is
unlikely to be sustained in the months ahead.
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