THE WEEK AHEAD Economics - CIBC Economics
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Economics
THE WEEK AHEAD
August 2-6, 2021
Delta downgrade? Maybe not
by Avery Shenfeld avery.shenfeld@cibc.com
The bond market has rendered its judgement: a Delta that when Covid first hit, mask use was limited to heath care
downgrade. At least some of the drop in long term yields owes workers. Ventilation improvements and HEPA filters are other
to fears that the latest Covid-19 variant will hold back the options being put to use to minimize infections.
recovery for longer than earlier expected. But while that risk is
out there, particularly in the developing world, we’re not ready Finally, while views are divided on whether “vaccine passports”
to pare back our Canadian forecasts just yet. will be needed, our forecast assumes that if we were to see
a material fall wave of serious illness associated with indoor
In part, that reflects some caution we baked into our existing activities, governments would choose that option over a full
forecast. We left room for some of Canada’s recovery in Covid- scale shutdown. It’s hard to see why, if it comes to that choice,
sensitive sectors like travel and indoor entertainment to be governments would opt to keep 100% of Canadians out of bars,
deferred into 2022. But it also reflects a much broader array of restaurants or gyms, when we could allow what will soon be a
weapons available to fend off a future Covid wave. vast majority of us who are vaccinated to continue to use them
in relative safety.
The virus has upgraded its offence, but we’ve replaced last
year’s high school defensive line with the front four of the Sure, there are still some concerns over how long vaccine
Pittsburgh Steelers. When Covid-19 hit in 2020, our options for protection will last, and whether booster shots might be
defense went from washing our hands (and grocery packages!), needed. International travel is still a morass of inconsistent
installing plexiglass shields, and when those failed, shutting restrictions. But the bond market seems a bit too worried about
businesses and staying home. Drinking disinfectant was wisely how much we’ll have to hold back economic liberties instead of
left untested. using the other lines of defense that are now available.
In the developed world at least, it’s now a much different story.
Chart: Defending against Delta: A new ballgame
Vaccines top the defensive strategy, no more so than in Canada,
which has jumped to the top of the chart in their usage. Yes,
case upturns are visible in some highly vaccinated countries and
in parts of Canada, but disproportionately among the
unvaccinated, and fatalities are much rarer. Fifty days into its
third wave, the UK has seen roughly the same escalation in
cases as in wave two, but only a tiny fraction of the prior wave’s
death toll (Chart). Vaccines account for that dramatic
difference, as in their absence, the delta variant might be more
lethal than its precursors.
Governments will be less willing to sacrifice as much economic
activity to trim case counts if hospitalizations and fatalities
stay contained. And before resorting to outright shutdowns,
there are other defenses that can be deployed at much lower
costs. Some jurisdictions are retaining or reinstating low-cost
strategies like mask mandates for indoor spaces. Remember
Source: UK government, ONS, CIBC
CIBC Capital Markets The Week Ahead | 1Week Ahead Calendar And Forecast—Canada
H, M, L = High, Medium or Low Significance
SAAR = Seasonally Adjusted Annual Rate
Consensus Source: Bloomberg
Date Time Economic Releases, Auctions and Speakers Month Significance CIBC Consensus Prior
Monday, August 2 - Markets Closed (Civic Holiday) - - - - -
Tuesday, August 3 - Government Bond Purchase Program (GBPP): 5-YR - - - - -
Tuesday, August 3 - AUCTION: 3-M BILLS $11B, 6-M BILLS $4B, 1-YR - - - - -
BILLS $4B
Tuesday, August 3 8:30 AM LEADING INDICATORS M/M (Jun) (L) - - 1.4%
Wednesday, August 4 - Government Bond Purchase Program (GBPP): 10-YR - - - - -
Wednesday, August 4 - AUCTION: 10-YR CANADAS $5.5B - - - - -
Wednesday, August 4 8:30 AM BUILDING PERMITS M/M (Jun) (M) - - -14.8%
Thursday, August 5 - Government Bond Purchase Program (GBPP): 2-YR - - - - -
Thursday, August 5 - AUCTION: 2-YR CANADAS $4.5B - - - - -
Thursday, August 5 8:30 AM MERCHANDISE TRADE BALANCE (Jun) (H) -$0.8B - -$1.39B
Friday, August 6 - Government Bond Purchase Program (GBPP): 30-YR - - - - -
Friday, August 6 8:30 AM EMPLOYMENT CHANGE (Jul) (H) 100K - 230.7K
Friday, August 6 8:30 AM UNEMPLOYMENT RATE (Jul) (H) 7.4% - 7.8%
Friday, August 6 10:00 AM IVEY PMI (Jul) (L) - - 71.9
CIBC Capital Markets The Week Ahead | 2Week Ahead Calendar And Forecast—United States
H, M, L = High, Medium or Low Significance
SAAR = Seasonally Adjusted Annual Rate
Consensus Source: Bloomberg
Date Time Economic Releases, Auctions and Speakers Month Significance CIBC Consensus Prior
Monday, August 2 9:45 AM MARKIT US MANUFACTURING PMI (Jul F) (L) - 63.1 63.1
Monday, August 2 10:00 AM ISM - MANUFACTURING (Jul) (H) 61.3 60.7 60.6
Monday, August 2 10:00 AM CONSTRUCTION SPENDING M/M (Jun) (M) - 0.4% -0.3%
Tuesday, August 3 10:00 AM FACTORY ORDERS M/M (Jun) (M) 1.1% 1.1% 1.7%
Tuesday, August 3 - NEW VEHICLE SALES (Jul) (M) - 15.70M 15.36M
Tuesday, August 3 2:00 PM Speaker: Michelle W Bowman (Governor) (Voter) - - - - -
Wednesday, August 4 7:00 AM MBA-APPLICATIONS (Jul 30) (L) - - 5.7%
Wednesday, August 4 8:15 AM ADP EMPLOYMENT CHANGE (Jul) (M) - 650K 692K
Wednesday, August 4 9:45 AM MARKIT US SERVICES PMI (Jul F) (L) - 59.8 59.8
Wednesday, August 4 9:45 AM MARKIT US COMPOSITE PMI (Jul F) (L) - - 59.7
Wednesday, August 4 10:00 AM ISM - SERVICES (Jul) (M) 61.0 60.5 60.1
Wednesday, August 4 10:00 AM Speaker: AM Richard Clarida (Governor) (Voter) - - - - -
Thursday, August 5 8:30 AM INITIAL CLAIMS (Jul 31) (M) - 375K 400K
Thursday, August 5 8:30 AM CONTINUING CLAIMS (Jul 24) (L) - - 3269K
Thursday, August 5 8:30 AM GOODS & SERVICES TRADE BALANCE (Jun) (H) -$74.2B -$73.0B -$71.2B
Thursday, August 5 10:00 AM Speaker: Christopher J. Waller (Governor) (Voter) - - - - -
Friday, August 6 8:30 AM NON-FARM PAYROLLS (Jul) (H) 1010K 900K 850K
Friday, August 6 8:30 AM UNEMPLOYMENT RATE (Jul) (H) 5.6% 5.6% 5.9%
Friday, August 6 8:30 AM AVERAGE HOURLY EARNINGS ALL EMPLOYEES (Jul) (H) 0.3% 0.3% 0.3%
M/M
Friday, August 6 8:30 AM AVERAGE WEEKLY HOURS ALL EMPLOYEES (Jul) (H) - 34.7 34.7
Friday, August 6 8:30 AM MANUFACTURING PAYROLLS (Jul) (H) - 35K 15K
Friday, August 6 10:00 AM WHOLESALE INVENTORIES M/M (Jun F) (L) - - 0.8%
Friday, August 6 3:00 PM CONSUMER CREDIT (Jun) (L) - $20.5B $35.28B
CIBC Capital Markets The Week Ahead | 3Week Ahead’s market call
by Andrew Grantham
In the US, payroll growth could have accelerated as expanded unemployment benefits ceased in a number
of states between this survey period and the prior one. Meanwhile, state and local government employment
likely recovered further due to increased funding and upward seasonal adjustments in education over the
summer months. Wage pressures will appear muted on the headlines, but that’s due to the fact payroll gains
have been tilted towards lower-paying industries. The factory ISM’s suppliers’ deliveries and prices paid
indexes will once again be the most important aspect of that release, to see if delivery bottlenecks and related
inflationary pressures are easing.
In Canada, employment growth will have cooled from June’s blistering pace, but the 100K gain we expect
would still leave employment back above it’s pre-third wave level. Monthly vacancy data suggest that service
industries such as food and accommodation may be having difficulty in recruiting sufficient staff, which could
start to show up in higher wages.
CIBC Capital Markets The Week Ahead | 4Week Ahead’s key Canadian number: Chart: Canadian employment
Labour force survey—July
(Friday, 8:30 am)
Royce Mendes royce.mendes@cibc.com
Labour force survey CIBC Market Prior
Employment (m/m) 100K - 230.7K
Unemployment rate 7.4% - 7.8%
Source: Statistics Canada, Haver Analytics, CIBC
There’s nothing like getting good news on top of good news. suggest that sourcing workers has been somewhat difficult even
That’s why informercials never miss a chance to repeat the in industries less affected by Covid. It could become more of an
phrase, “But wait there’s more!” In this case, though, we’re issue later this summer as idle labour supply falls even further.
talking about the Canadian labour market. On top of the very
good news for employment in June, which coincided with the Forecast Implications — Another month of robust job creation
reopening of many businesses, we expect the Labour Force would suggest that the economic momentum that began in
Survey will show another solid increase in hiring for July. Job June continued into July. However, even after another solid
creation likely continued during the month in the sectors that month for hiring in July, the economy would still need to see
had been hardest hit by Covid restrictions earlier in the year. roughly 400K more people get back to work before reaching its
The addition of 100K more jobs would mean that the combined pre-pandemic employment rate. Any signs of labour shortages
hiring in June and July added up to more than the number lost might be a signal that the pace of hiring could slow in the
during the third wave. months ahead, reinforcing our call that it will take until the latter
half of next year for the economy to return to full health.
There might, however, be some evidence of labour shortages,
similar to those seen in the US during the early days of its
reopening, albeit likely to a lesser extent. Anecdotal evidence
from conversations with a range of businesses in Canada
Other Canadian releases:
Merchandise trade balance—June
(Thursday, 8:30 am)
Canada’s trade balance posted a surprise deficit in May, and the
red ink likely extended into June. Looking at the advance data
for the US, it appears that trade in motor vehicles remained
depressed. The weakness in the Canadian dollar also would
have made imports more expensive before affecting exports.
That said, the energy sector might have kept the overall trade
shortfall from being as deep as it was in May. Both crude oil
and natural gas prices rose in June, as did volumes of crude oil
sent to the US. As a result, we’re forecasting that the deficit
narrowed to $0.8bn in June, less than the $1.3bn of red ink seen
in May.
CIBC Capital Markets The Week Ahead | 5Week Ahead’s key US number: Chart: US payroll employment
Employment situation—July
(Friday, 8:30 am)
Katherine Judge katherine.judge@cibc.com
Variable CIBC Market Prior
Employment (m/m) 1010K 900K 850K
Unemployment rate 5.6% 5.6% 5.9%
Avg hourly earnings (m/m) 0.3% 0.3% 0.3%
Source: BLS, Haver Analytics, CIBC
Job creation likely heated up in the US in July as higher wages Forecast Implications — Even our projected gain in jobs would
along with recruitment efforts could have paid off for employers still leave 5.8mn fewer Americans employed than prior to the
in service sectors. OpenTable data showed a further recovery in pandemic, as unemployment benefit top-ups in many larger
restaurant reservations over the reference period, which likely states continue to hold back participation. With wages rising
required higher staffing levels. State and local governments that and those benefits fading out in September, however, it’s likely
have received federal support recently could have also brought that employment gains accelerate from here, a necessary
back more workers. Jobs remained plentiful during the month condition for the Fed to announce an early 2022 tapering at its
according to the Conference Board’s consumer confidence September meeting.
survey, with the labor differential at its highest level since 2000.
It’s therefore likely that hiring accelerated to 1010K in July, Market Impact — We’re above the consensus which could be
pushing the unemployment rate down to 5.6%. supportive for the USD and bond yields.
Other US Releases:
ISM Manufacturing—July
(Monday, 10:00 am)
Regional manufacturing PMIs suggest a rise in the ISM’s
gauge in July, to 61.3. That could have reflected a rise in the
employment and production sub-indices as orders of core
capital goods have continued to climb lately. Moreover, it looks
like the supplier deliveries index will have remained elevated as
supply chain bottlenecks continue to weigh on the auto sector
in particular.
CIBC Capital Markets The Week Ahead | 6Contacts: Avery Shenfeld Benjamin Tal Andrew Grantham 416 594-7356 416 956-3698 416 956-3219 avery.shenfeld@cibc.com benjamin.tal@cibc.com andrew.grantham@cibc.com Royce Mendes Katherine Judge 416 594-7354 416 956-6527 royce.mendes@cibc.com katherine.judge@cibc.com CIBC Capital Markets PO Box 500 161 Bay Street, Brookfield Place Toronto, Canada, M5J 2S8 Bloomberg @ CIBC economics.cibccm.com CIBC World Markets Inc., CIBC World Markets Corp., CIBC World Markets Plc., CIBC Australia Limited and certain other corporate banking and capital markets activities of Canadian Imperial Bank of Commerce operate under the brand name CIBC Capital Markets. This report is issued and approved for distribution by (a) in Canada, CIBC World Markets Inc., a member of the Investment Industry Regulatory Organization of Canada, the Toronto Stock Exchange, the TSX Venture Exchange and a Member of the Canadian Investor Protection Fund, (b) in the United Kingdom, CIBC World Markets plc, which is regulated by the Financial Services Authority, and (c) in Australia, CIBC Australia Limited, a member of the Australian Stock Exchange and regulated by the ASIC (collectively, “CIBC”) and (d) in the United States either by (i) CIBC World Markets Inc. for distribution only to U.S. Major Institutional Investors (“MII”) (as such term is defined in SEC Rule 15a-6) or (ii) CIBC World Markets Corp., a member of the Financial Industry Regulatory Authority. U.S. MIIs receiving this report from CIBC World Markets Inc. (the Canadian broker-dealer) are required to effect transactions (other than negotiating their terms) in securities discussed in the report through CIBC World Markets Corp. (the U.S. broker-dealer). This report is provided, for informational purposes only, to institutional investor and retail clients of CIBC World Markets Inc. in Canada, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. This document and any of the products and information contained herein are not intended for the use of private investors in the United Kingdom. Such investors will not be able to enter into agreements or purchase products mentioned herein from CIBC World Markets plc. The comments and views expressed in this document are meant for the general interests of wholesale clients of CIBC Australia Limited. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of CIBC. Before making an investment decision on the basis of any information contained in this report, the recipient should consider whether such information is appropriate given the recipient’s particular investment needs, objectives and financial circumstances. CIBC suggests that, prior to acting on any information contained herein, you contact one of our client advisers in your jurisdiction to discuss your particular circumstances. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice; as with any transaction having potential tax implications, clients should consult with their own tax advisors. Past performance is not a guarantee of future results. The information and any statistical data contained herein were obtained from sources that we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, Internet web sites. CIBC has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient’s convenience and information, and the content of linked third-party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. © 2021 CIBC World Markets Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure without the prior written permission of CIBC World Markets Inc. is prohibited by law and may result in prosecution. The CIBC logo is a trademark of CIBC. CIBC Capital Markets The Week Ahead | 7
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