Canada: Retail sales likely to come in flat - TDS

Canadian retailers should end 2017 on a relatively soft note owing to a cold snap of winter weather and a pullback in motor vehicle sales, according to analysts at TDS.

Key Quotes

“We expect retail sales to come in flat while ex-auto sales should post a 0.2% increase. After a strong performance in 2017, industry reports suggest motor-vehicles spending should continue cooling to a more sustainable pace and level as consumers turn more cautious on debt-financed, big-ticket items. Gasoline sales should make a positive contribution due to higher prices. Meanwhile, unseasonably cold weather should hold back holiday spending. We also expect sales of electronics to unwind most of November's 12.9% gain, which was caused by the iPhone X release outside of the regular product launch schedule (typically September). We expect real retail sales to decline modestly on higher seasonally adjusted consumer prices, though volumes should still post a 4.3% increase in Q4. After a soft Q3, this should allow for a stronger contribution to growth from households' goods spending.”

“FX

• If our forecast is realized, USDCAD should respect the broad 1.25/1.27 range. More importantly, data surprises will resonate as the currency pair continues to exhibit a stronger contemporaneous correlation with data surprises, more so than rate spreads and oil prices. Retail sales volume should receive considerable attention given its implication for monthly GDP tracking and the broader narrative of a deceleration in growth.
• Taken in tandem with what is deemed to be a still too optimistic expectation for BoC rate hikes before July, we are comfortable in holding a defensive stance on CAD especially as the USD has regained a minor tactical footing recently. 1.2690 will be the key litmus test on the topside as this was the post-LFS high, and failure to hold will open considerable upside potential ahead of CPI on Friday. Look for dips towards 1.2550/1.2600 to act as firm support.”