Aurelia Butler

This beat analysts’ expectations for annual inflation to remain at 4.0%.STORIES:Market reaction: CAD/Link:https://www150.statcan.gc.ca/n1/daily-quotidien/231017/dq231017a-eng.htmCOMMENTARYMICHAEL GREENBERG, SVP AND PORTFOLIO MANAGER, FRANKLIN TEMPLETON INVESTMENT SOLUTIONS”Me and the market probably had a sigh of relief with today’s report, just given we had a pretty big jump last month. We saw the headline come under expectations, down from last month, and of course the preferred core measures that the Bank of Canada tracks also decelerated, also came under expectations.””All in all, this is clearly a better report. And some of the recent data from things like the Canadian business survey that showed inflation sentiment really falling to its weakest level since 2020 are all pointing to a slowing economy, which the Bank of Canada wants. But the employment market is still strong, inflation is still not there yet, so there is still some pressure on the Bank of Canada, clearly, to keep rates higher.””Putting it all together in our view is really the Bank of Canada can be patient and allow these rate hikes that are already in the system to do their thing and remain on pause mode for the rest of the year. They clearly need to deal with the still too high inflation but they don’t have any desire to tank the economy either. Neither of those outcomes would be good for Canadian households.”JULES BOUDREAU, SENIOR ECONOMIST AT MACKENZIE INVESTMENTS: “It’s nothing like a disinflationary print, but it shows that the August print was probably a little bit of an outlier. That was a big risk – that big August print meant kind of a new upturn in inflation after this disinflationary month that we had before that. And it probably means that one print was more of an outlier, and that we’re going to be more in the 3% inflation range over the next few months than 4-4.5%.”It’s pretty clear that (the central bank) won’t be raising rates in my opinion in October. We saw that the Business Outlook Survey that came out this week showed a decent pickup in the economy, but lower inflation expectations and nothing on the growth front to make them hike more. I think (the central bank) will probably be satisfied with the two hikes they did in June and July, giving them a little more time to act on the economy. I think if we had gotten another inflation print like August in September – that was the big risk to have another hike. And I think now, we won’t have one. There’s no chance that they come out and say we’re pausing or this might be the last one. They won’t say anything. They’ll just say: We’re not hiking this one. We’ll see in December.”DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS AT SCOTIABANK “I think on a trend basis, the Bank of Canada is behind the inflation wage cycles. They have unmoored inflation expectations way above their 2% target, and it’s changing behavior in a way that has people demanding wage gains that are way above the pace of their 2% inflation target and amidst tumbling productivity, and we have very strong immigration and housing inventory strong terms of trade commodity drivers, so on a trend basis we can easily craft a story for how they should remain in a hike mode.” More

JERUSALEM (Reuters) – The Bank of Israel hinted on Tuesday that it was in no rush to lower interest rates despite Israel’s war with Hamas in Gaza, since doing so would likely weaken the shekel and push inflation higher.The central bank next decides on rates on Monday and the bond market has begun to price in the start of rate cuts. Policymakers have raised the rate to 4.75% since April 2022, when it was 0.1%, but left rates unchanged at its last two meetings in July and September.During a meeting with economists, deputy governor Andrew Abir said the central bank was focused on stabilising financial markets and creating maximal certainty for the economy and the public at this time.To that end, the bank last week said it would sell up to $30 billion of foreign currency to prevent a steep weakening of the shekel, which had already depreciated some 10% versus the dollar this year before Israel’s war with Hamas broke out on Oct. 7.Since the start of the latest conflict, the shekel has shed another 4% and stands at 4 per dollar. It reached that level on Monday for the first time since 2015.”The bank has started using a dedicated tool to stabilise the foreign exchange market, which has contributed to stabilising and calming other markets as well,” the central bank cited Abir as telling economists. “And our aim is that the other monetary policy tools will not pose a challenge to this objective in the immediate term.” He reiterated comments from Governor Amir Yaron this week that the main inflationary risk in the past nine months was depreciation of the shekel and would continue to be so.The central bank has said that the influence of shekel movements on inflation is up to 20% or 1.5 points. On Sunday, official data showed Israel’s inflation rate eased to 3.8% in September from 4.1% in August, still above an official target of 1-3%. A Reuters poll had forecast a 4.1% rate.Abir also said that to ease the burden of loan repayments for households and businesses, and to provide greater certainty, the Bank of Israel had presented a broad outline for delaying such payments to the entire population, especially for people who have been harmed by the conflict, without interest or fees. More

Retail sales rose 0.7% last month, the Commerce Department said on Tuesday. Data for August was revised higher to show sales advancing 0.8% instead of 0.6% as previously reported.Economists polled by Reuters had forecast retail sales rising 0.3%. Retail sales are mostly goods and are not adjusted for inflation. They were also likely flattered by higher gasoline prices, which boosted receipts at service stations.Despite the show of resilience, headwinds are rising for consumers. Higher interest rates as the Federal Reserve tackles inflation have pushed credit card delinquencies to an 11-year high. Consumers are increasingly relying on credit cards to fund purchases. Millions of Americans resumed payments on student loans in October, which economists estimated equal to roughly $70 billion, or around 0.3% of disposable personal income.Nevertheless, consumer spending continues to be driven by a tight labor market, with the economy creating 336,000 jobs in September. Excess savings accumulated during the COVID-19 pandemic remain higher than previously estimated. Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.6% in September. Data for August was revised up to show these so-called core retail sales gaining 0.2% instead of 0.1% as previously reported.Core retail sales correspond most closely with the consumer spending component of GDP. Consumer spending is expected to have accelerated in the third quarter, thanks to a surge in July. Spending on services also remains solid, which should lift overall consumption. Gross domestic product growth estimates for the third quarter are currently as high as a 5.1% annualized rate. The economy grew at a 2.1% pace in the April-June quarter, and continues to push ahead despite the Fed hiking its benchmark overnight interest rate by 525 basis points since March 2022 to the current 5.25%-5.50% range. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Biden administration is tightening export controls for cutting-edge artificial intelligence chips, in an update to existing rules that will severely limit the ability of Nvidia and other manufacturers to sell high-performance semiconductors to China. The US commerce department on Tuesday extended the sweeping export controls that were first introduced in October 2022, in an effort to reflect technological advances and also to make it harder for companies to find ways to work around the restrictions. Commerce secretary Gina Raimondo said the goal of the update was to curb China’s access to advanced chips that “could fuel breakthroughs in artificial intelligence and sophisticated computers” that are critical for the Chinese military. It comes weeks before a possible summit between Joe Biden and Xi Jinping if the Chinese leader attends the Asia-Pacific Economic Cooperation forum in San Francisco. China has slammed the US over its export controls. During recent visits to Beijing, however, US officials have stressed that while the Biden administration wants more engagement, it would not avoid taking national security actions when warranted. Graphics processing units produced by Nvidia, AMD and Intel have become an indispensable component for training large AI models for tech companies, governments and start-ups, sparking a rush for the latest chips. After the introduction of last year’s rules, Nvidia designed new versions of its top-tier H100 and A100 GPUs specifically for Chinese customers, bringing them below the performance threshold set by the US. Chinese tech companies have been rushing to buy these modified H800 and A800 GPUs, which are critical for generative AI, amid concern that the US would tighten restrictions. One US official said the new rule would bar Nvidia from selling A800 and H800 GPUs chips in China. The updated rules will also impact Gaudi2, an Intel AI chip. A second official said the administration had taken into account how groups were “trying to work around our parameters” in drafting the update. Nvidia chief executive Jensen Huang told the Financial Times earlier this year that the 2022 controls had left the Silicon Valley company with its “hands tied behind our back” by barring sales of its most advanced chips to China. He has said further restrictions could seriously harm US chipmakers by eating into their ability to finance investment. Nvidia, which depends on China for as much as 25 per cent of its data centre chip revenues, did not comment on the updated rules. “The most immediate effect will be cutting China off from advanced AI chips, including the modified versions of chips that Nvidia specifically designed to comply with last year’s controls,” said Gregory Allen, an AI expert at the CSIS think-tank. “Now [Chinese companies] are looking at years where the AI chips that China can access are significantly inferior to what is available in the west.” Under the 2022 rule, the US barred exports of chips that exceeded two thresholds: one for power and the other for the speed at which chips talk to each other. The commerce department is replacing the latter with a “performance density” measure that is explicitly designed to stop companies from finding workaround solutions. The revamped export controls will prohibit the sale to Chinese groups of data centre chips that are capable of operating at speeds of 300 teraflops — meaning they can calculate 300tn operations per second — and above. Sales of chips with speeds of 150 to 300 teraflops will be barred if they have a performance density of 370 gigaflops (bn calculations) per square millimetre or more. Chips that operate at those speeds but with lower performance density fall into a “grey zone”, meaning firms must notify the government about sales to China. Raimondo said the rules would exempt chips for consumer products, such as for smartphones and gaming. But the officials said exporters would have to notify the government when they exported chips with speeds of more than 300 teraflops. The updated rules also expand the list of chipmaking tools that cannot be sold to China. The second official said the US would also add two Chinese groups to the “entity list”, making it extremely hard for them to get US technology. He said the two groups were involved in the design of chips that undermined US national security. More

China is also willing to boost imports of Indonesia’s agricultural and fishery products, Xi said in a meeting with Indonesian President Joko Widodo on the sidelines of the Belt and Road Forum, according to state media China Central Television.Xi said the two sides should deepen the integration of industrial chains and supply chains, and jointly promote the construction of a “regional comprehensive economic corridor.”In October, Widodo inaugurated a $7.3 billion high-speed railway connecting the country’s capital with the city of Bandung.The railway, one of the president’s flagship infrastructure projects and part of China’s Belt and Road Initiative, has faced problems ranging from land procurement issues, pandemic-related delays and ballooning costs.Xi labeled the high-speed railway a “golden brand” of China-Indonesia cooperation in building the Belt and Road, in his talks with Widodo, who has made trips to China over the past few months.Widodo said Indonesia regards China as an important strategic partner in national economic development and construction, and “looks forward to further strengthening communication and cooperation with China,” state media reported.Xi said the two sides should work closely together to safeguard the Association of Southeast Asian Nations’ (ASEAN) centrality, promote open regionalism, and demonstrate the responsibility of major developing countries. More