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Canada's Friday Producer Prices May Further Inform on Pass-Through to Consumers, says Scotiabank

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Canada updates industrial producer (IPPI) and raw materials (RMPI) prices with April readings at 8:30 a.m. ET on Friday, and it may inform on lagging consumer pass through, notes Scotiabank.

"The broad trend to the volatile readings is unambiguously pointed higher and suggests pass through risk into consumer prices with a lag," said the bank, adding: "What happens to the consumer price index and core CPI will be patiently observed as Scotiabank remains at a highly nascent stage for evaluating inflationary pressures driven by pre Iran war and wartime influences."

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BMO on The Day Ahead in Canada

Canada will release the retail sales for March and the preliminary April figure at 8:30 a.m. ET on Friday, said Bank of Montreal (BMO).Consumers, who have been relatively resilient against a number of headwinds in recent years, face yet another shock in the Iran war and its resulting spike in energy prices, stated the bank.BMO noted that, while it expects retail sales increased in March -- the bank's call of 0.5% month over month is a tenth softer than Statistics Canada's flash estimate -- it suspects the strength was largely driven by higher gasoline prices. Auto sales were a touch softer in the month, so sales excluding autos look to rise 1.0%.Still, non-discretionary spending could take a hit as more household budgets are allocated to essentials like gasoline and home heating. Highlighting that point, BMO wouldn't be surprised to see an outright decline in spending volumes. The April flash estimate will provide a clue to the direction of spending beyond the immediate outbreak of the Iran warInvestors will also get industrial product (IPPI) and raw materials (RMPI) prices for April at 8:30 a.m. ET Friday, with both expected to post "chunky" monthly increases, given the higher commodity prices, added the bank.The Bank of Canada's Senior Loan Officer Survey for Q1 will be released at 10:30 a.m. ET.The recent backup in bond yields isn't helping housing markets in Canada or the United States, according to BMO. In Canada, the bank advises watching for buyers -- or the wave of those renewing -- to shift further into variable rates with the Bank of Canada on hold, possibly for the year.That will come as fixed mortgage rates get pulled higher by the recent rise in the government of Canada (GoC) yields. In the U.S., the 30-year mortgage rate rose to 6.5% this week, or the highest level since last summer. Both markets look to remain quiet in the months ahead.

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BMO Sees Canada's Variable Mortgage Rates Below 4% for Rest of Year

With Canadian five-year bond yields pushing multi-year highs in recent days, the path of least resistance for Canadian fixed mortgage rates is higher, said Bank of Montreal (BMO).That's certainly not going to help the bull case for a late-spring/summer revival in Canadian housing, noted the bank.The incremental tightening is also not going to help the wave of renewals, which will be peaking in numbers by around June. That said, with the Bank of Canada firmly on hold in BMO's view, variable mortgage rates should remain tucked below 4% for the rest of the year.As the market -- renewals or new buyers -- shifts in that direction, it will limit the impact of higher fixed rates, stated the bank.In recent months, roughly 40% of new mortgages have been in variable, which is already on the high side, added BMO.

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Commerzbank on Overnight News

Commerzbank in its "European Sunrise" note of Friday highlighted:Markets: United States Treasuries volatile into the New York close, calm down in Asia along optimism in equity futures. Oil sideways after Thursday's drop, US dollar (USD) recovers overnight Thursday.Fed: Chicago Federal Reserve President Austan Goolsbee is focusing on developing "pretty significant inflation problem," sees the employment side "mostly stable." Richmond Fed President Thomas Barkin says repeated shocks test anchoring of inflation expectations. President Donald Trump to swear in Kevin Warsh as Fed chair on Friday.U.S.: President Trump to postpone executive order on Artificial Intelligence-oversight (Politico).NATO: President Trump says the U.S. will send an additional 5,000 troops to Poland.Iran war: Secretary of State Marco Rubio sees "good signs" for a deal, with Pakistanis said to travel to Tehran on Friday (FT). Iran and Oman are in talks to set up a permanent toll system in the Strait of Hormuz. President Trump said he wants a free and open Strait of Hormuz without tolls.==EUROPE:ECB: The European Central Bank will soon publish research on how degradation of nature could hurt banks' loan books, says Governing Council member Frank Elderson.Germany: Finance Minister Lars Klingbeil supports blanket proposal for subsidy cuts.France: Budget Minister David Amiel pledged an additional 710 million euros to offset high energy costs.U.K.: British GfK Consumer Confidence unexpectedly rose in May.==ASIA:Taiwan: The U.S. delays $14 billion arms sale.Japan: April's consumer price index rose less than expected.

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