The big Canadian banks weigh in on the BoC's Business Outlook and Senior Loan Officer Surveys due at 15:30 GMT, 10:30 ET

BMO: The Business Outlook Survey marks the last critical piece of information before the Bank of Canada’s January 17th policy decision. This Q4 version covers the mid-November to early-December period, and follows a more moderate overall picture in the prior reading -recall that future employment, sales growth and M&E investment all pulled back in Q3 after rising strongly through 2016 and early2017. While consumer confidence was surging late in 2017, business confidence was potentially held back by derailing NAFTA talks and looming minimum wage increases in a few provinces. Two key issues on the Bank’s mind are the dynamics of wage growth and inflation, and the evolution of economic capacity - the BOS provides insight into both. On the former, the incidence of labour shortages was steady in Q3 at historically-normal levels, but the intensity of those shortages, where they do exist, rose to the highest since 2006. If that pressure becomes more widespread, the Bank will read it as a hawkish cue on top of two blowout job reports to end the year. On the latter, stronger M&E investment is potentially adding to economic capacity, and therefore holding off capacity pressures. That said, the increase in reported capacity pressure edged up again in Q3, and if it continues to rise, flagging inflation-inducing capacity utilization rates (Q3 was the highest since 2007), that would provide another hawkish reading. Strength in these two indicators could push the Bank to raise rates in January.

CIBC: If the November-December employment surge was real, it should mean that businesses were confident about what lies ahead. That should make for a generally positive Business Outlook Survey on Monday. But watch for colour commentary on what companies are assuming on NAFTA and its risks to capital spending plans, an issue that could see the Bank of Canada pause for longer than the market expects after a January hike.

RBC: The BOS is the last key indicator ahead of the BoC’s January 17th rate meeting and MPR release and should be closely followed, with current pricing ~40% for a hike at the meeting. Although it was a partial retracement from the historically strong Q2 report, the last BOS saw solid readings for the balance of opinion on future sales (+19), M&E Investment (+17), and employment intentions (+34). Moreover, more intense labour shortages and an elevated proportion of firms having difficulty meeting demand, as well as higher inflation expectations, suggested that capacity pressures may be biting. As always, commentary from firm interviews and the overall tone from the BoC should be at least as important as the statistical results.

Scotiabank: The main thing to watch will be what the Business Outlook Survey says regarding the level of confidence or concern in the nation’s c-suites. After the outlook for future sales growth over the coming year slipped somewhat in the October edition of the survey, the main sensitivity will be toward whether respondents are more or less concerned about developments such as NAFTA talks that skidded into the ditch from October onward. Alternatively, are they more focused upon domestic capacity pressures and labour shortages? Recognition of the NAFTA risks was not captured in the October survey since it sampled opinions between August 24th and September 19th. October is when the US negotiating team aggressively laid down hard lines in the sand that have been objectionable to Canada basically since the years leading up to the original Canada-US Free Trade Agreement that was signed into existence twenty-nine years ago almost to the day. Even before NAFTA negotiations stumbled, survey responses regarding hiring and investment plans were coming off the boil albeit from elevated levels. The BoC is aware of the limits to this survey, but may be sensitive to information contained within by way of business expectations as well as plans to invest and hire plus how they view the outlook for price pressures. I would think it would have to be a fairly disastrous overall report to overwhelm the broad tone of other evidence.

08 Jan 2018 - 12:30- EquitiesEconomic Commentary- Source: BMO/CIBC/RBC/Scotiabank

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