(October 8) – In the wake of today’s labour and housing reports, and with a
Throne speech looming next Tuesday, economists at RBC Dominion Securities
Inc. are calling for a realignment of Canada’s monetary and fiscal policies.

DS expects a rate tightening by the middle of next year, although not before
Y2K, on the heels of increasing evidence of a strong economy. It is also
expecting some direction on federal spending in next week’s Throne speech.

DS notes that the Liberal’s official position is to split its surplus with
50% going to increased spending and 50% to tax cuts and debt relief.
Although it notes that the Prime Minister seems to be pushing for increased
spending and Finance minister Martin favours tax cuts. The big question is
how big tax cuts will be. But DS notes regardless of the proportion there is
a definite shift to a more stimulative fiscal policy. Combine these factors
with the improvement in commodity prices and DS sees plenty of support for
the loonie.

Apart from the Throne speech at 14:30 EST on Tuesday, it’s a rather quiet
week on the economic front next week. Although the Consumer Price Index is
out next Friday, and the U.S. will get the Producer Price Index then too. DS
is calling for a 0.3% increase in our CPI, thanks to energy prices, with the
core rate up just 0.1%. It is calling for 0.5% in the U.S. PPI, both on the
core rate and the headline.

Our markets are of course closed for Thanksgiving on Monday, while in the
U.S. the bond market is closed for Columbus Day, but stock markets will be
open. U.S. Federal Reserve Board chair Greenspan speaks on Monday at 10:00
EST, which may be interesting in the wake of today’s critical labour report
in the U.S. Noted hawk, governor Meyer, speaks on Tuesday. U.S. retail sales
numbers are out on Thursday, followed by yet another Greenspan speech.

– IE Staff