Next week (and many to come) will be dominated by coronavirus news. Beyond the ongoing spread of the virus and containment efforts, it’s the response from fiscal and monetary authorities that we (and nervous markets) will remain focused on. This week saw its share of announcements, including a surprise rate cut by the Bank of Canada on Friday afternoon. The BoC’s move was coordinated with other top financial officials and included a number of measures to ensure lower financing costs are passed along to Canadian businesses and that credit channels remain open. Finance Minister Morneau said the government is preparing significant stimulus that will be announced next week. After this week’s $1 billion health package and $10 billion credit facility in support of businesses, it’s likely that next week’s measures will be more focused on Canadian households.
Internationally, we saw sizeable fiscal packages from several governments this week (UK and Australia announcing stimulus of more than 1% of GDP) and are awaiting announcements from others. A call with G7 leaders on Monday could also see more coordinated action across countries. Central banks were also in action with the Bank of England and European Central Bank among those announcing new stimulus while several others injected liquidity to address funding pressures in the financial system. The Fed will make a scheduled rate announcement next Wednesday, having already lowered its policy rate by 1/2 percent (its first move between meetings since 2008). We expect a further 1/2 percent reduction next week though markets see an even larger move as likely and we wouldn’t rule one out. The Fed’s dot plot—indicating how much further it expects to cut rates, and when it might start withdrawing that stimulus as the economy recovers—will get a lot of attention.
As will be the case for the next month or so, next week’s economic data will feel very dated—Canada’s manufacturing and retail activity for January is not of primary concern at this point, and the BoC won’t be paying much attention to CPI data in the near-term. Even February’s housing data isn’t likely to show much coronavirus impact. The manufacturing numbers, though, will show the effect of the GM Oshawa plant closure—one of several one-off or temporary factors that we think kept GDP growth subdued early this year and gave the economy little momentum heading into the dual coronavirus and oil price shocks. We think those shocks will tip Canada’s economy into recession this year.
US data for February—retail sales, industrial production, home sales and housing starts—are a bit timelier but still won’t show much in the way of coronavirus effects (though we could see supply chain disruptions starting to show up in industrial production). Initial jobless claims, which held at a low level in the latest week, are more likely to be the leading edge of domestic coronavirus impacts, so will bear watching on Thursday morning.
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