Three Bullets Left for Canada

There is the risk that a Canada's market reaction may be difficult to discern independent of Chair Yellen's Congressional testimony at the same time. At present, markets are applying slightly better odds that the BoC will hold and high odds of a rate cut later in the year conditional upon how the economy and markets evolve over the summer months.

Limited macro data may assist in forming such expectations next week but too late to inform the BoC's decision or at least the market's reading of BoC risks. 

"Headline inflation is likely bottoming at just shy of 1% y/y or will do so soon over coming months. On year-ago base effects when comparing to the trough in oil prices earlier this year, headline inflation will probably rise back up to 2% by early 2016", forecasts Scoita bank. 

If that was only due to base effects then policy should look through the rise, even if it did so less than perfectly when headline inflation was temporarily falling via a possibly asymmetric inflation bias. 

The bigger issue here is whether core inflation remains north of 2% as it has for ten consecutive months. What also matters is whether the breadth of the gains in core prices will remain fairly strong and not just focused upon the highest outliers like meat and telecommunications prices.

Wednesday's manufacturing shipments will arrive just before the BoC reports land 90 minutes later. They are likely to follow the already released export figures lower if the breadth of the export weakness is any indication. 

"Home resales could post a fifth consecutive rise if numbers out of some of the biggest cities are any indication", added Scotia bank.