Canada: Growth LEI turns higher, switch from long CADCHF to long CADJPY

Our leading indicators point to resilient growth as rate cuts support activity and trade tensions have eased. We still like long CAD exposure but are switching the short leg to JPY.

Our growth LEI for Canada edged higher again last month, with a 6-month forward estimate of real GDP growth of 3.0% YoY. Monetary easing has supported a rebound in construction activity and pushed household interest costs down.

Other coincident growth measures have stablized over the past few months. For example, small business delinquencies and the BoC’s business outlook survey have stopped deteriorating.

Like in the US, the key risk remains that weakness in sales/profits is enough to spur layoffs and kickstart a recession. For now, the labor market is holding up and leading labor indicators have bottomed out over the past few months.