31 May

Odds of a Rate Cut Next Week Rise with Disappointed Canadian GDP Growth

General

Posted by: Mike Hattim

The likelihood of a rate cut next week has increased due to disappointing Canadian GDP growth. Real gross domestic product (GDP) only rose by 1.7% (seasonally adjusted annual rate) in the first quarter of this year, which is well below the expected 2.2% and the Bank of Canada’s forecast of 2.8%. Fourth-quarter economic growth was revised to just 0.1% from 1.0%. These figures have led traders to increase their bets on a Bank of Canada rate cut when they meet again next week.

In the first quarter of 2024, higher household spending on services—primarily telecom services, rent, and air transport—was the top contributor to the increase in GDP, while slower inventory accumulation moderated overall growth. Household spending on goods increased modestly, with higher expenditures on new trucks, vans and sport utility vehicles.

On a per capita basis, household final consumption expenditures rose moderately in the first quarter, following three-quarters of declines. Per capita spending on services increased, while per capita spending on goods fell for the 10th consecutive quarter.

Business capital investment rose in the first quarter, driven by increased spending on engineering structures, primarily within the oil and gas sector. Business investment in machinery and equipment also increased, coinciding with increased imports of industrial machinery, equipment and parts.

Resale activity picked up in Q1, driving the rise in housing investment, while new construction was flat. Ontario, British Columbia and Quebec posted the most significant volume increases in resales, while prices in these provinces fell in the first quarter.

New housing construction (+0.1%) was little changed in the first quarter, as work put in place decreased for all dwelling types except double houses. Costs related to new construction, such as taxes and closing fees upon change in ownership, increased in the quarter and were mainly attributable to newly absorbed apartment units in Ontario.

The household savings rate reached 7.0% in the first quarter, the highest rate since the first quarter of 2022, as gains in disposable income outweighed increases in nominal consumption expenditure. Income gains were derived mainly from wages and net investment income.

Investment income grew strongly in the first quarter of 2024 due to widespread gains from interest-bearing instruments and dividends. Higher-income households benefit more from interest rate increases through property income received.

Household property income payments, comprised of mortgage and non-mortgage interest expenses, posted the lowest increases since the first quarter of 2022, when the Bank of Canada’s policy rate increases began.

Bottom Line

This is the last major economic release before the Bank of Canada meets again on June 5. Traders in overnight markets put the odds of a rate cut at next week’s meeting at about 75%, up from 66% the day before. Bonds rallied, and the yield on the Canadian government two-year note fell sharply, reflecting this change in sentiment.

The Bank of Canada has good reason to cut the overnight policy rate next week. Core inflation measures have decelerated sharply in recent months, and the economy is growing at a much slower pace than the central bank expected. The Bank has been very cautious, and there remains the possibility that they will wait another month before pulling the trigger on rate cuts, but at this point, we see no reason to delay any further.

Dr. Sherry Cooper
21 May

BoC may cut rates three times before US Fed acts, analysts say

General

Posted by: Mike Hattim

The Bank of Canada would be prepared to cut interest rates three times ahead of the Federal Reserve’s first rate reduction even if it means further weakening the Canadian dollar, according to analyst estimates.

Investors anticipate the Canadian central bank to start cutting rates in June or July, with today’s inflation reading being a critical factor, Reuters reported.

Meanwhile, the Federal Reserve is expected to hold off on rate cuts until September, despite cooler-than-expected US inflation data released on Wednesday.

Currently, the BoC’s benchmark interest rate is at 5%, 38 basis points below the midpoint of the Federal Reserve’s policy rate range. Any further widening of this differential could put additional pressure on the Canadian dollar.

However, analysts suggest it would take a significant drop in the currency to impact import costs enough to jeopardize the central bank’s goal of reducing inflation to 2%.

“Although there’s a theoretical limit to how far the Bank of Canada can set its own policy rate beneath the Fed funds rate, it’s likely well below current levels,” Corpay chief market strategist Karl Schamotta said in an interview with Reuters. “The exchange rate could weaken if interest differentials were to widen further … but the passthrough to inflation should be relatively modest.”

The Canadian dollar has already depreciated nearly 2.7% against the US dollar this year as the greenback strengthened. While a weaker loonie could increase import costs and inflation, analysts argue the central bank has room to act before this becomes a concern.

“As a rule of thumb, a 10% fall in the loonie would boost core goods prices by 2.5%,” said Olivia Cross of Capital Economics, noting that core goods comprise about 30% of the Canadian CPI basket.

With the Bank of Canada’s key rate at 5%, already 38 basis points below the Fed’s midpoint, investors anticipate Canadian rate cuts as early as June or July. The April inflation data, due on May 21, will provide crucial input, with forecasts pointing to a year-over-year increase of 2.8%.

The interest rate differential has stayed within 100 basis points since the 2008-09 financial crisis. However, Bank of Canada Governor Tiff Macklem said, “We’re certainly not close to that limit,” suggesting more room for divergence if Canada’s economic outlook deteriorates further.

“A larger-than-expected drag on the household sector from mortgage renewalscould give the Bank more license to diverge from the Fed,” TD Securities macro strategist Robert Both said.

Source CMP
By Candyd Mendoza

14 May

April’s Strong Job Gains Likely Postpone Rate Cuts Until July

General

Posted by: Mike Hattim

Today’s StatsCanada Labour Force Survey for April blindsided economists by coming in much more robust than expected. Employment in Canada rose a whopping 90,400 in April, the most in 15 months, following a decline in March, surpassing forecasts by a large margin. Substantial job gains were posted in both full-time and part-time work.

After four months of little change, private sector jobs finally took the lead in April. Employment gains were widespread across various industries within the services-producing sector, particularly in professional, scientific and technical services (+26,000; +1.3%), accommodation and food services (+24,000; +2.2%), health care and social assistance (+17,000; +0.6%) and natural resources (+7,700; +2.3%). However, there were declines in the goods-producing sector, notably utilities (-5,000; -3.1%).

Across Canadian provinces, employment increased in Ontario (+25,000; +0.3%), British Columbia (+23,000; +0.8%), Quebec (+19,000 +0.4%) and New Brunswick (+7,800; +2.0%).

Despite the surge in net new jobs, the unemployment rate remained steady at 6.1%. The jobless rate in April was up 1.0 percentage points from a year ago.
Average hourly wages among employees rose 4.7% in April, down meaningfully from the 5.1% pace in March. This is good news for the Bank of Canada and keeps the door open to rate cuts, probably in July. The overall strength of today’s report gives the Bank breathing room to postpone the next rate cut from June to July.
Bottom Line

The central bank meets again on June 5. The April CPI report will be released on May 21. This is by far the most important economic report for the Bank. They will look at the three-month trend in the core inflation measures. These figures have already fallen sharply, but given the strength in the jobs report, the central bank will likely wait another month before they begin cutting interest rates.

Dr. Sherry Cooper
6 May

Yard Appeal Ideas for The Biggest ROI

General

Posted by: Mike Hattim

Summer is coming up and you don’t want to miss your chance to make the most of your yard! To help you enjoy your space this year, I have broken down some of the top yard appeal ideas with the biggest ROI giving you the most bang for your buck and can increase your home’s equity and curb appeal at the same time!

  • Embrace Sustainable Landscaping: Incorporating native plants, drought-resistant foliage, and xeriscaping techniques not only reduces water consumption but also creates an eco-friendly landscape. Consider installing a rain garden or a drip irrigation system to conserve water and enhance the natural beauty of your yard.
  • Install Outdoor Structures: Adding functional outdoor structures like pergolas, arbors, or gazebos can provide shade, define spaces, and add architectural interest to your yard. These structures can serve as focal points and create inviting outdoor living areas for entertaining or relaxation.
  • Upgrade Your Lawn: A lush, well-maintained lawn instantly elevates the appearance of your yard. Invest in professional lawn care services, aerate and overseed to fill in bare patches, and regularly fertilize and water your lawn to keep it healthy and green. Consider alternatives like artificial turf for low-maintenance options.
  • Incorporate Water Features: Incorporating a water feature such as a fountain, pond, or waterfall adds visual interest, tranquility, and a sense of luxury to your yard. The soothing sound of running water can create a serene ambiance and attract wildlife, enhancing the overall appeal of your outdoor space.
  • Enhance Privacy: Increase the comfort and enjoyment of your yard by enhancing privacy with strategic landscaping, fencing, or screening options. Planting tall hedges, installing lattice panels, or adding trellises with climbing plants can create secluded areas and block unsightly views while adding beauty and greenery to your yard.

By implementing these additional ideas alongside the ones you’ve already outlined, you can transform your yard into a welcoming oasis that not only enhances your enjoyment but also offers a significant return on investment.

6 May

What to Know at Renewal

General

Posted by: Mike Hattim

Is your mortgage coming up for renewal this year or in 2025?

Do you know about all the incredible options renewing your mortgage can afford you?

If not, I have all the details here on how to make the most of your renewal!

Get a Better Rate: Did you know that when you receive notice that your mortgage is coming up for renewal, it’s the best time to shop around for a more favorable interest rate? At renewal time, it’s easy to explore other lenders for a preferable interest rate without breaking your mortgage. With interest rates expected to start coming down next month, reaching out and exploring the market could potentially save you a significant amount of money!

Consolidate Debt: Renewal time is also an excellent opportunity to assess your existing debt and decide whether consolidating it into your mortgage is beneficial. Whether it’s holiday credit card debt, car loans, education loans, or other debts, consolidating your mortgage streamlines your payments into one, potentially at a lower interest rate compared to other sources.

Invest in Renovations: Do you have home improvement projects waiting to be tackled? Renewal time provides a great opportunity to tap into your home equity for renovations, whether it’s your dream kitchen, bathroom upgrades, or even investing in a vacation property. Utilizing your equity can bring your renovation dreams to life.

Adjust Your Mortgage Product: Not satisfied with your current mortgage product? Whether it’s fluctuations in variable rates or seeking a different payment or amortization schedule, renewal time allows you to switch things up. You can lock in a fixed rate for stability or opt for a variable rate if you anticipate changes in interest rates. Adjusting your mortgage product can align it better with your financial goals.

Summer is coming up and you don’t want to miss your chance to make the most of your yard! To help you enjoy your space this year, I have broken down some of the top yard appeal ideas with the biggest ROI giving you the most bang for your buck and can increase your home’s equity and curb appeal at the same time!

2 May

No signs of mortgage crisis yet, say Bank of Canada officials

General

Posted by: Mike Hattim

Bank of Canada Governor Tiff Macklem faced a Senate committee hearing on Wednesday, defending the central bank’s approach to inflation and signalling that interest rate cuts might be further off than some Canadians might hope.

When asked by Senate Banking Committee chair Pamela Wallin why the Bank doesn’t simply raise the target to 3%, closer to current inflation levels after two years of rate hikes, Macklem fired back: “Why not 4%, why not 5%? If you’re going to change your target when it gets difficult, you don’t have a target.”

Macklem said the 2% benchmark has been a stable metric since 1995, helping guide Canada through various economic upheavals, including the recent COVID-19 pandemic and escalating geopolitical tensions.

“It’s what anchors expectations,” Macklem said. “I don’t think, on the fly, you want to throw the towel in because it’s tough.”

The governor also addressed the outlook on interest rates, noting the central bank’s cautious approach towards any potential cuts.

He reiterated the BoC needs sustained evidence that inflation will return to 2% before cutting rates from the current 5% level.

“We are getting closer,” he said. “We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained.”

Housing crisis

Senators also questioned the role of monetary policy in creating a potential housing crisis as many mortgages come up for renewal at much higher interest rates.

Senior deputy governor Carolyn Rogers noted that while the news headlines raise alarm, data so far indicates that most Canadians are managing.

“About half the mortgages [in the category] have renewed,” she said, adding that despite higher rates, default rates remain historically low. Rogers did acknowledge greater stress within the rental market, suggesting that more vulnerability lies within that sector.

“The data is not telling us so far that we have a mortgage crisis, as the headlines would tell you,” Rogers said. “What banks are telling us is they are reaching out proactively to those borrowers, and most of them are preparing. We do see people holding more savings.”

Productivity emergency

Rogers warned senators the bank expects future economic shocks that could impact inflation from demographic shifts, geopolitics, consumption patterns, supply chains and commodity prices.

She said this is why she labelled Canada’s lagging productivity a “break-the-glass emergency” in a March speech.

While acknowledging the role of interest rates in influencing demand, both Macklem and Rogers stressed that monetary policy cannot solve supply-side problems in productivity.

“Interest rates and monetary policy do have a bearing on demand, not so much on supply — and policies that focus on supply (including productivity), that is going to be increasingly important going forward in Canada,” Macklem said.

Macklem added that boosting productivity requires a concerted effort from governments and the private sector. He also suggested that governments could improve their own productivity through investments in technology and skills training.

The session also touched on the federal government’s recent budget proposal to increase the capital gains inclusion rate for corporations and individuals, a policy change that has sparked debate among venture capital and private equity sectors.

Macklem and Rogers declined to comment on this fiscal measure, reiterating their focus on monetary policy rather than specific fiscal policies.

Source CMP
By Candyd Mendoza