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A pleasant surprise on Canadian GDP - TD Securities

"Industry level surprised to the upside at +0.3% m/m (consensus:+0.2% m/m) in October, lifting the y/y pace of growth from 2.0% to 2.2%," said TD Securities analysts reviewing today's GDP report from Canada.

Key quotes

"While this morning's data was encouraging on balance, there are still clouds gathering on the horizon. We are set to see a significant drop-off in oil&gas production over the next few reports as producers in Alberta began voluntarily reducing production in November in response to the mounting supply glut. The softer print on retail sales (0.3% m/m, flat in volumes terms) also hints at slowing momentum for consumers."

"We are currently tracking Canadian GDP growth at 1.7% for Q4. While that is a decent print in light of recent energy market dynamics, it also won't be enough to drive an incremental tightening in the output gap or convince markets that the BoC needs to resume tightening in the spring (the BoC was forecasting Q4 growth at 2.3% in the October MPR)."

"Our bet here is still for the Bank to look through the deceleration in economic activity in late 2018/early 2019 with a rate hike in March, and today's data bolsters our conviction that a spring rate hike is in the cards. Markets will probably need a more forceful nudge from Poloz to reach the same conclusion."

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