Canada: Business sentiment still positive, despite trade uncertainties - RBC

 Analysts at RBC Capital Markets, point out that the Bank of Canada Business Outlook Survey was upbeat with business investment intentions rising despite the survey being conducted prior to the US, Canada, and Mexico agreeing to a NAFTA replacement earlier this month. They see that that data should only further cement expectations for gradual rate hikes.

Key Quotes: 

“Businesses remained upbeat in the Bank of Canada’s Q3 (Autumn) Business Outlook Survey — and that despite interviews being conducted before the U.S., Canada, and Mexico agreed on a NAFTA replacement earlier this month. Indeed, the survey broadly supported the view that increasing domestic capacity constraints and tight labour markets had become a more significant impediment to growth than trade uncertainty, even before the NAFTA renegotiation resolution.”

“US trade policy was cited as a concern for some businesses but overall machinery and equipment investment intentions nonetheless jumped higher — driven by strong demand (including export demand) and the need to expand existing capacity.”

“Most businesses (62%) continued to anticipate consumer price inflation to be at or above the 2% midpoint of the Bank of Canada’s 1% to 3% inflation target range.”

“In terms of near-term policy implications, a soft survey result in Q3 would likely have been discounted given NAFTA renegotiation concerns over the survey period have now eased. In the event, a firmer report only further cements the odds that the Bank of Canada will remain on a gradual rate hiking path with the next 25 basis point hike to the overnight target rate coming at next week’s policy meeting.”