April 24, 2024, 10:50 AM

CIBC on Economic Forecast, Markets Reaction After Retail Sales Data in Canada

Canadian retail sales retreated further in February, as Canadians are becoming more cautious about spending as mortgages come up for renewal, said CIBC.

Wednesday's 0.1% m/m decline in nominal sales was below the consensus expectation of a 0.1% m/m gain, and sales were down in five of nine subsectors, led by gasoline, and in seven provinces. Things didn't look any better in volume terms, as real sales dropped off by 0.3% m/m, but volumes were flat in the excluding auto/gasoline group.

Overall, Wednesday's report highlights the weak consumer backdrop in Canada, following a boost to sales volumes at the start of the year from warmer-than-normal winter weather and CIBC continued to expect a June rate cut from the Bank of Canada (BoC).

The advance estimate for March suggested that sales were unchanged in that month, although some of that weakness will reflect lower goods prices.

Real goods spending for the quarter as a whole still looks "healthy," but that reflects the boost to activity at the turn of the year from mild winter weather, stated the bank. Momentum has waned since then, and spending will remain under pressure with the unemployment rate rising and mortgages continuing to renew at higher interest rates. As a result, the BoC will likely start trimming interest rates in June.

Bond yields and the Canadian dollar (CAD or loonie) fell slightly following the downside surprise in the retail sales release, added CIBC.

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