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Canadian retail sales decline revives Bank of Canada rate cut bets

By Kelsey Johnson

OTTAWA (Reuters) – Canadian retail sales plummeted unexpectedly in October, the latest in a series of disappointing economic data releases that analysts say could force the Bank of Canada to consider a rate cut.

Statistics Canada said on Friday that retail trade dropped by 1.2% on lower sales of motor vehicles and parts. Analysts in a Reuters poll had forecast a gain of 0.5%.

The Bank of Canada, which has kept its overnight interest rate unchanged for more than a year even as several of its international counterparts eased, projected a 1.3% increase in domestic fourth quarter growth in October.

Yet the growth data so far has been underwhelming, analysts said on Friday.

“The weakness of GDP growth in the fourth quarter will clearly concern policymakers and means that we can’t completely rule out an insurance interest rate cut in the new year,” said Stephen Brown, a senior Canada economist with Capital Economics.

Chances of a cut over the coming year, which had dwindled in recent weeks, jumped to nearly 50% from about 25% before the data, the overnight index swaps market indicated. <BOCWATCH>

Lower sales were reported in 8 of 11 subsectors, representing 81% of retail trade. The Canadian dollar weakened as much as 0.4% to 1.3181 to the U.S dollar, giving up its gains for the week.

“Apparently, Canadians were in no mood to spend in October,” said CIBC Capital Markets Senior Economist Royce Mendes in a note to clients.

Recent releases, he said, “are likely enough for central bankers to at least begin discussing again whether easier financial conditions will be warranted in 2020”.

Statistics Canada data earlier this week showed wholesale trade fell 1.1% in October on weaker sales of machinery equipment and supplies, while factory sales fell 0.7%.

When Finance Minister Bill Morneau announced on Monday that budget deficits would be larger than forecast for the next five years, he said the economy was doing well.

Canada shed an unexpected 71,200 jobs in November, the biggest decline since 2009, while the national unemployment rate rose to 5.9%, the highest in more than a year.

“The numbers will keep concerns alive that the domestic Canadian economic growth backdrop has lost its footing somewhat at the end of the year,” said RBC Senior Economist Nathan Janzen in a note, especially given the softer employment data.

In a separate release, Statistics Canada said new home prices unexpectedly fell 0.1% in November.

(Additional reporting by Fergal Smith in Toronto; Editing by David Ljunggren and Chizu Nomiyama)


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