Canada CPI comes out a little weaker than expected. USDCAD tests upside resistance.

The Canada CPI for the month of July came out a touch weaker than expected as the month on month index fell by -0.3% versus -0.2% and the YoY measure showed a decline of -0.9%.  The Core measures were also lower by a smidge.  The MoM core measure came in at 0.0% vs expectation of +0.1% and the YoY came in at +1.8% vs +1.9% expectation.  The Bank of Canada targets 2.0% inflation but the decline in inflation is largely due to the decline in energy prices.  Nevertheless, there is spare capacity in the economy which should also keep inflation subdued and the BOC on hold as far as interest rates for the foreseeable future.

From a technical perspective the USDCAD first dipped but has since risen post the report.  The pair is up on the day.  The index transitioned from a non trending period to trending.    The pair tried breaking to the downside, but the momentum failed and the market reversed quickly.  

The ensuing move to the upside has approached the recent highs and the 200 bar moving average resistance on the 4 hour chart (see green line in the chart below).  The price over the last three days now have gone above this moving average. However,  each time the price has not been able to sustain any momentum.  That MA comes in at the 1.1079 level today (see chart below).  A move above this give a bullish bias.  Confirmation of the directional move comes when the price takes out the highs from yesterday at the 1.1105 level and the high from Monday at the 1.1123. Keep on eye on these key levels today. 

US CPI comes in as expected. Canada Manufacturing Sales comes in much better than expected

CPI Headline comes in at 0.0% MoM as expected
EX Food and Energy +0.1% also as expected.

CPI YoY comes in at -2.1%  vs -1.9% expected
CPI Core comes in a  +1.5% vs +1.6% expected

Canada Manufacturing Sales much stronger than expected as it comes in at +1.9%, the highest since statistics began in 1992.  The increase is being attributed to a jump in aerospace sales and higher oil and coil prices.  In Real inflation adjusted terms, the gain would have been +1.1%.  The Aerospace sales are likely not to be repeated. Ex Aerospace the number would have been +0.4% according to the Statistics Canada.  Regardless the number is still better than the -0.2% expected and has led to a decline in the USDCAD toward the 200 hour MA. 

The current 200 hour MA comes in at the 1.0830 level and should lead to further declines on a move below the key level. The low yesterday came in at the 1.0791.  There is 61.8% retracement support at the 1.0800 level.  These will be key levels on the downside today.  Moves below these levels further confirm the downside for the USDCAD today. 

Canada New Motor Vehicle Sales came in a -0.6% vs expectation of -1.0%.

US CPI due for release at 8:30 AM

The July CPI is to be released today in the US. The expectation is for the an unchanged reading vs a gain of 0.7% last month.   The ex food and energy is expected to show a gain of +0.1% vs +0.2% last month. 

On a year on year basis the expectation is for a decline to -1.9% from -1.4%.  The ex food and energy or core CPI is expected to fall to +1.6% from +1.7%. 

 The inflation surge of 2008 peaked in July 2008 with a MoM gain of +0.7%. Over the next 5 months starting in August 2008, the MoM gains were +0.0%, +0.0%, -0.8%, -1.7% and -0.8%.  What does this mean going forward? 

It means that the YoY inflation rate will start to go back up unless prices fall by an equal month each month.  So for example, in October 2009, if the MoM CPI comes in at +0.1%, a modest increase, the YoY inflation will show a jump of around 0.9% since in October 2008 the -0.8% reading will drop out of the YoY calculation. 

All things being equal, if MoM inflation is shows no gain in the next 5 months, the YoY inflation measure will incrase roughly by the amount of the 5 months that will drop out from 2008.  That amount comes to a change of +3.3% (+0.0%, +0.0%, -0.8%, -1.7% and -0.8% = +3.3%). With YoY expected to come in at -1.9%, the YoY will rise to +1.4% by December (see chart below).   

The move in coming months may cause fear that inflation is returning and will likely get broadcast news comments to that effect.  However, in reality it is simply the unwinding of the oil and commodity induced gain of 2008.  The resulitng headline inflation rate will likely move closer to the +2.0% target that most central banks like to target.  Is this still too high given the slack economy?   That will be a point of discusssion in the markets through year end (and at FOMC meetings) and may make CPI the focus once again, wrestling control from the growth focus that has dominated the market over the last 9 or so months.

CPI a little higher than expected. Empire Manufacturing comes in stronger.

The Empire Manufacturing comes in a the -0.55 which is better than the -5.0 expected. 

The CPI came in at +0.7% led by gasoline (+17.3%).   The Transportation component added 0.64% of the +0.7% gain this month.  The ex food and energy rose by a more modest 0.2%. 

The rise in the headline index is the highest since July 2008. 

YoY the CPI fell by -1.4% vs -1.3% last month. The ex food and energy YoY came in at +1.7% which is ties the lowest level in the current cycle reached in January. 

The EURUSD has moved lower after the release as profit takers enter the market against the 1.4100 level.  The high reached 1.4097.

US CPI due out at 8:30 AM

The US CPI for the month of June is due at 8:30 AM.  The expectation is for a gain of 0.6% vs a 0.1% gain last month.  The ex food and energy component is expected to rise by a smaller 0.1%.  Despite the higher reading the YoY is expected to fall by -1.5% from -1.3% last month.  

The gains from the sharp commodity gains extended to July last year when CPI rose by +0.7%.  After July, the inflation rate is likely to continue to move back higher as the next 5 months showed monthly inflation readings of 0.0%, 0.0%, -0.8%, -1.7% and -0.8%.    When this starts to kick in the inflation readings for the YoY will start to rise. 

From an ex food and energy component the inflation rate has been steadily moving lower.  The high reached was 2.5% in September of 2008.  Since then the rate has fallen to a low of 1.7% in January.  Last month the YoY came in at 1.8% ex food and energy.  The higher PPI yesterday may flow through to the CPI at some point.  However, with demand likely to remain fairly contained, the pricing power is likely not to lead to a resurgence of inflation. 

Also out at 8:30 will be the Empire Manufacturing Index for the month of July. This index is designed to measure the manufacturing activity in the NY area.  The expectation is for a decline of -5.0.  This is better than the -9.41 reading last month but the 15th straight month with the index below zero indicating contraction.  A lower dollar may be helping the manufacturing sector in the US as a lower dollar makes exports more competitive abroad.

US CPI comes out lower than expected

Ex food and energy +0.1% - as expected

YoY CPI Headline -1.3% lower than expected. Biggest drop since 1950.
Ex Food and Energy YoY +1.8% which is as expected.

Inflation is not really showing up in the numbers.

The US Current Account balance comes out at -101.5 vs -85.0B

In Canada Wholesale sales fell -0.6%. The prior month was revised to -0.4% from -0.6%.  About as expected.

Canada Leading Indicator fell by -0.1% which was better than expectations -0.6%.

The dollar fell a little on the numbers but has rebounded a touch since

UK Data All Released Above Expectations

UK’s CPI came out at 2.2% from the previous 2.3%.  A drop to 1.9% was forecast.

UK’s RPI came out at -1.1% from the previous -1.2%.  A drop to -1.5% was forecast.

UK’s Core CPI came out at 1.6% from the previous 1.5%.  No change from 1.5% was forecast. 

The GBP strengthened behind this data as the GBPUSD hit a session high while the EURGBP hit session lows. 

Swiss CPI Released

The CHF CPI came out as forecast at 0.2% from the previous 0.9%.

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