"The Week Ahead" - November 1-5th

"The Week Ahead" - November 1-5th

CIBC Economic's "The Week Ahead".

Key Highlights

The Fed looks likely to match what is now the conventional wisdom, offering up a mid-sized dose of, say, a half trillion in quantitative easing doled out at a pace of roughly $100 bn per month, with nothing said about what happens after that. Fiscal policy will be tricky work in Washington in the months ahead. Keeping the economy moving in the near term will require a soft hand on any fiscal tightening in 2011, and if things get worse, even another dose of stimulus.

Key Numbers to watch this week:

• Canada – Labour Force Survey – October (Fri – 7:00AM) – We see a gain of 10K jobs in October which would keep the unemployment rate at 8.0%, in line with the slowdown in the pace of job creation in recent months.
• US – Employment Situation - October - (Fri - 8:30AM) – We expect the jobless rate to increase slightly to 9.7%, the highest level since May.

Equity Insights:

• If there’s one message from expectations of a 28% rise in S&P 500 earnings in Q3 on the back of only a 7% yr/yr rise in sales, it’s that cost cutting is still alive and well in America’s mills, mines and factories.
• The Fed’s unlikely to leave investors in the lurch next Wednesday, but recent estimates by some observers of as much as $2 trillion of asset purchases do not square with the recent cautious remarks by Bernanke and Yellen.
• Relative to the average of the last ten years, utilities, materials, and consumer staples firms are paying out the least dividends at present, for each dollar of earnings. That would seem to suggest potential room for dividend hikes by some of those firms.

Currency Currents:

• The decrease in merchandise trade surplus over the past eight years should be attributed to the Canadian dollar’s appreciation which has effectively eroded our manufacturing base to the point that our share of the US market is now under 15% versus 20% before the loonie started its run in 2002.
• As recent restrictions on foreign capital inflows by the Brazilian government have dampened real sentiment, hot money flows may be finding their way into the Mexican bond market, adding support to the peso.
• If inflationary pressures persist, any upward moves in PBOC bill rates would increase the cost of draining yuan printed to buy US Treasuries. To take the pressure off, the PBOC may consider slowing the pace of its US Treasury purchases and allow a modest appreciation of the yuan over the next year.