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• Budget Deficit: Canada recorded a slightly lower budget deficit of C$14.50 billion ($10.09 billion) for the first seven months of the 2024/25 fiscal year compared to C$15.13 billion in the same period last year.
• Program Expenses: Increased by 9.8% across all major categories of spending.
• Public Debt Charges: Rose by 19.4%, mainly due to higher effective rates on bonds and treasury bills.
• Revenues Growth: Year-to-date revenues grew by 10.7%, driven by higher personal income tax revenue and other taxes.
• Monthly Comparison: In October, Canada posted a deficit of C$1.49 billion, significantly lower than the C$6.96 billion deficit in October 2023

This article was written by Greg Michalowski at www.forexlive.com.

• Prior month -13.7
• EU consumer confidence flesh for December -14.5% versus -14.0 estimate:

The high for the year was -12.5 in November. The low for the year was -16.1 in January

This article was written by Greg Michalowski at www.forexlive.com.

• Prior month 71.8
• consumer sentiment Index 74.0 versus 74.0 estimate 74.0 preliminary. Last month 71.8. Best reading since April
• Current conditions 75.1 versus 77.7 preliminary and 63.9 last month. Best since April still.
• Expectations 73.3 versus 71.6 preliminary and 76.9 last month.
• One year inflation 2.8% versus 2.9% preliminary and 2.6% last month.
• Five year inflation 3.0% versus 3.1% preliminary and 3.2% last month.

A summary of comments from Consumers Director Joanne Hsu

• Consumer sentiment rose for the fifth consecutive month, reaching its highest level since April 2024.
• Buying conditions improved by 32%, driven by expectations of future price increases for large purchases.
• Expectations index showed:
  • Improvement among Republicans.
  • Decline among Democrats.
  • Stability among Independents.
• Consumers recognize economic improvements as inflation slows but do not feel they are thriving.
• Sentiment remains midway between the June 2022 all-time low and pre-pandemic levels.
• Year-ahead inflation expectations increased to 2.8%, the first rise since May, but within pre-pandemic ranges (2.3%-3.0%).
• Long-term inflation expectations declined slightly to 3.0%, modestly elevated compared to pre-pandemic levels.

The survey data can be politically influenced. Therefore not surprised to see the Republicans are on the up and up and the Democrats are on a decline. Independents are neither happier or sadder.

This article was written by Greg Michalowski at www.forexlive.com.

The major US stock indices are opening day lower but well off the premarket levels thanks in part to the better-than-expected PCE data, and the hopes that a solution to the Washington problems will ultimately be found.

The numbers are showing:

• Dow industrial average is now up 26 points or +0.03% at 42360
• S&P index is down -13 points or -0.23% at 5853.48
• NASDAQ index -121 or -0.63% at 19250

The NASDAQ index is down over 300 points premarket trading.

For the trading week:

• Dow industrial average -3.39%, it works week since March 2023
• S&P index is down -3.25% which is it worst week since September 3 when the index fell -4.25% (the worst week for the year)
• NASDAQ index is down -3.37%, its worst week since September 3.

This article was written by Greg Michalowski at www.forexlive.com.

Jim Cramer was on CNBC this morning highlighting that the trade is always to buy US government shutdowns and market selloffs. He highlighted the history and it’s unassailable.

I’ve written the same thing a hundred times over the years.

Here is why this time might be the exception:

The selloff isn’t really about the shutdown. This shutdown will get solved like all the others and it could be as soon as today. Maybe it drags on and the market freaks out more, I don’t know but I do know that it will get sorted and won’t be as bad as the market fears.

But the question to really consider is this: Is this Congress going to be run by DOGE? By the deficit hawks? By the Tea Party?

The baseline for myself and most market participants is that Trump’s priority is the stock market, not the deficit:

You could even argue that this week’s developments strengthen that as he’s aiming to eliminate the debt ceiling altogether.

But I’m not sure that’s Elon Musk’s priority and he’s bullying the GOP via threatening primaries. A big part of US growth in the past two years was running 7% deficits while much of the world was bringing down post-covid spending.

The risk here is that we get some kind of hawkish congress, or at least a few true believers that hold everything up. Given the composition of Congress, it doesn’t take many votes so long as Democrats stay united.

Now what do I think?

Congress is going to pass a corporate tax cut, to hell with the deficit. But until this week, I think that was 95% priced in and there are risks.

This article was written by Adam Button at www.forexlive.com.

November US PCE inflation data ran cooler than the Fed expected. The month-over-month reading on core inflation was +0.1149% while headline was +0.1280%. Those are both at annual paces slower than 1.5%, which is well below the Fed target.

The numbers throughout the report were lower than economists expected and consumer spending numbers were also a touch light.

The market is now pricing in 44.9 bps in easing in 2025, which is up 10 bps from the post-Fed lows as the market re-adjusts to data and reacts to Republican discord in Congress. I’d say the latter is the biggest driver as the idea of a ‘red sweep’ and a repeat of 2016 comes under question.

Still, the moves after the data have been small and the euro is still far below pre-FOMC levels.

This article was written by Adam Button at www.forexlive.com.

• Prior was +2.8%

Core PCE (excluding food & energy):

• Core m/m +0.1% vs +0.2% exp
• Unrounded core PCE +0.1149% vs +0.274% m/m prior
• PCE excluding food, energy and housing +0.1% m/m vs +0.3% m/m prior (revised to +0.2%)

Headline PCE:

• Headline PCE +2.4% y/y vs +2.5% expected
• Deflator +0.1% m/m vs +0.2% expected
• Unrounded headline +0.1280% vs +0.238% m/m prior

Consumer spending and income for November:

• Personal income +0.3% vs +0.4% expected. Prior month revised to +0.7%
• Personal spending +0.4% vs +0.5% expected. Prior month revised to +0.3%
• Real personal spending +0.3% vs +0.1% prior
• Savings rate 4.4% vs 4.4% prior

Ahead of the report, the market was pricing in 42.7 bps of easing in 2025.

On Wed, Powell said:

“Estimates based on the consumer-price index and toher data indicate
that total PCE prices rose 2.5 percent over the 12 months ending in
November and that, excluding the volatile food and energy categories,
core PCE prices rose 2.8 percent.”

This is a surprisingly cool report across the board and the US dollar is selling off while bonds rally.

This article was written by Adam Button at www.forexlive.com.

• Prior month 0.4% revised to 0.6%
• Canada retail sales 0.6% vs 0.7% expected
• ex Auto 01% versus 0.5% expected.
• Prior month ex auto revised higher to 1.1% from 0.9%
• Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were up 0.2% in October
• Sales were up in five of nine subsectors and were led by increases at motor vehicle and parts dealers

Looking at the details of the report:

• The largest increase in retail sales in October was observed at motor vehicle and parts dealers (+2.0%). Higher sales at new car dealers (+2.5%) led the increase, followed by used car dealers (+2.5%). Automotive parts, accessories and tire retailers (-3.3%) were the only store type within this subsector to record a decrease in October.
• Sales at gasoline stations and fuel vendors (-0.5%) were down for a sixth consecutive month in October. In volume terms, sales at gasoline stations and fuel vendors decreased 4.7%, following an increase of 4.1% in September.

The advanced report for November

• Advance estimate suggests retail sales were relatively unchanged in November.
• Figure is unofficial and subject to revision.
• Based on responses from 50.6% of surveyed companies.
• Average final survey response rate over the past year was 88.7%.

This article was written by Greg Michalowski at www.forexlive.com.

I’m not sure what the strategy is here.

Trump also wrote this:

Congress must get rid of, or extend out to, perhaps, 2029, the
ridiculous Debt Ceiling. Without this, we should never make a deal.
Remember, the pressure is on whoever is President.

This article was written by Adam Button at www.forexlive.com.

For the full information on this post, why knowing the ranges is important etc, see this I posted earlier during the Asian session:

• US inflation (PCE) data due Friday – here are the critical ranges to watch
• Distribution of forecasts for the US PCE

But, if you just want the numbers …

Core PCE Price Index m/m

• 0.1% to +0.3%

and for the y/y

• 2.8% to 3.0%

As for the consensus mid-point:

Powell spoke to the PCE this week, his estimate is bang in the middle:

• “Estimates based on the consumer-price index and toher data indicate that total PCE prices rose 2.5 percent over the 12 months ending in November and that, excluding the volatile food and energy categories, core PCE prices rose 2.8 percent.”

This article was written by Eamonn Sheridan at www.forexlive.com.

One of the big FX moves in the fourth quarter was in USD/CAD as Canadian and American fortunes diverged. The Bank of Canada cut big again in December and the market is 50/50 for a cut in January even as the Fed moves to the sidelines.

Today is an important data point with retail sales due at the bottom of the hour.

RBC is out with its latest spending tracker and the indications aren’t great.

Our RBC credit cardholder data suggests Canadians pared back on
discretionary goods (including home-related goods and electronics) and
discretionary services (like health and fitness and home services) after
a stronger month of spending in October. Restaurant sales were the
outlier—holding up through November.

Their measure of discretionary goods spending fell 0.9% while discretionary services rose 0.2% m/m.

The drop comes after a better start in Q4 that leaves it on track to be a solid quarter but the momentum isn’t great.

“Holiday spending was slightly below (-1.1%) 2023 levels over the Black Friday weekend (from the eve of Black Friday through Cyber Monday). Overall, holiday spending was 2% below a year ago in November”

The caveat here is that Canada started a two-month GST (Canada’s VAT) holiday on December 14 so some spending may have been pushed back. Canadians were also dealing with a postal strike in November and early December.

This article was written by Adam Button at www.forexlive.com.

It increasingly looks like we’re in the end-game of Justin Trudeau’s Liberals. They’ve been far behind in the polls for two years and sinking further despite some last-ditch efforts to right the ship.

Finance Minister Chyrstia Freeland left cabinet on Monday and fellow cabinet member Sean Fraser quit politics. Today, another cabinet shuffle is coming and there’s talk of 10 replacements.

There is also this rumour from a Canadian political strategist:

I’ve seen some better-connected people shut that down but the rumors are everywhere. On BNN on Thursday, former cabinet Liberal John Manley said this:

John Manley says “he wouldn’t be surprised” if
Canada’s Liberal party executives met in the near future and asked newly
appointed Minister of Finance Dominic LeBlanc to take over as acting
leader from embattled Prime Minister Justin Trudeau and lead the party
into an election.

“You heard it here first –
just a hunch that I have,” said Manley, chairman of Jeffries Canada and
former finance minister and deputy prime minister under Jean Chrétien,
in an interview with BNN Bloomberg on Thursday.

Finally, the Globe and Mail reports this:

Prime Minister Justin Trudeau
is holding discussions with cabinet ministers and senior party leaders
about stepping down early in the new year, but close confidants have
walked away from these conversations with starkly different conclusions
about where he stands.

The Globe also reports that he was prepared to step down on Monday but was talked out of leaving.

I think the best-case scenario for the loonie is that Trudeau calls elections and takes his medicine and we quickly get a new government. If he steps aside and prorogues parliament while the Liberals hold a leadership race, it could stretch the timeline to summer.

Even in the second scenario, I don’t see how a different leader would change the outcome given the unpopularity of the Liberals but politics are tough to predict.

The cabinet shuffle will come at 11:30 am ET.

This article was written by Adam Button at www.forexlive.com.