The early focus this week will be the federal budget on Tuesday. Later in the week, markets will be watching retail trade numbers and a slew of U.S. economic reports.

RBC Financial says that the federal budget should grab most of the attention this week. “A balanced budget will be maintained with contingency and economic prudence reserves to be incorporated into the budget exercise. A surge in tax revenues in later 2003 suggests that the fiscal year 2003-04 surplus could come in the $5 billion range,” it predicts. “Funding for the $2 billion payment to the provinces for health care and the $0.5-$1 billion to help the cattle industry will come out of this fiscal year’s surplus. Other, smaller spending and tax initiatives will also be announced but will have only a modest impact on the economic outlook for the year ahead.”

BMO Nesbitt Burns is expecting a “prudent” budget that emphasizes spending controls and debt reduction. “The primary areas of focus will be cities and students. Municipalities have already been given a $600 million GST rebate. Student loan limits may be raised and aid boosted. Reportedly, major new funding for defence, aboriginals, and even health care will be deferred,” it says. “Some possible items on the revenue side to watch for are accelerated depreciation allowances of M&E purchases by business, so-called ‘learning bonds’, and a long shot is the introduction of tax pre-paid savings plans (mentioned in last year’s budget). The trial balloons on changes to income trusts were shot down quickly, but the issue is not dead.”

CIBC World Markets is less excited about the budget, noting that practice of leaking details has taken away some of the room for surprises. It says Friday’s retail sales report will the focus otherwise. “The market is now more or less fully priced for a cut at the Bank of Canada’s April 13th setting. A number much below the consensus could reinforce expectations for more trimming beyond that.”

Wholesale trade numbers will also be out on Friday, along with the leading indicator on Tuesday and Alberta’s budget on Wednesday. Nesbitt expects wholesale trade to edge lower, but retail sales are expected to show a bit more life.

TD Bank also notes that Bank of Canada deputy governor Duguay is due to give a speech on Monday, giving the Bank an opportunity to communicate its thoughts on the economic and monetary policy outlook. “However, either way, our view is that the risks have decidedly increased of a 25-basis-point cut in April,” it says.

South of the border

In the U.S. this week, February durable goods orders and new home sales are out on Wednesday. RBC notes that fourth quarter GDP and, most importantly, corporate profits for the final quarter of 2003 come out on Thursday, along with February existing home sales. February personal income and consumption numbers come out on Friday along with March consumer confidence too, it says.

Nesbitt says that durable goods numbers are likely to be the headline figures out in the coming week. “We believe that core durable goods orders will reflect the ISM strength more fully in February. Good gains are anticipated in the metals and machinery categories. Tech orders should be fine, as well. In total, the core orders increase is placed near 2%,” it says. Nesbitt also expects February new- and existing-home sales to show declines, reflecting the drop in single-family housing starts already reported.

CIBC predicts that a rebound in durable goods orders, “should provide evidence that firms are using their rising cash flows to re-equip. That could help solidify expectations for a decent Q1 growth number. Although new home sales likely fell a bit in February, low interest rates continue to support housing.”

It’s also looking forward to two conference speeches by Fed chairman Alan Greenspan, on Thursday and Friday. “Greenspan may reiterate the view that the overall inflation picture remains good despite energy pressures, countering concerns from the PPI, to the benefit of bonds,” it says.

Corporate earnings

The earnings schedule is very light this week, although that also means that pre-announcements may be in the cards. Bow Valley Energy Ltd. and Viking Energy Royalty Trust report on Monday.

Crescent Point Energy Trust, Forzani Group Ltd., and Royal Host REIT report on Wednesday.

Thursday brings Cognos and Northern Property REIT. Focus Energy Trust reports on Friday.

@page_break@