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business briefing

Briefing highlights

  • Are debt fears overblown?
  • Stocks, Canadian dollar, oil at a glance
  • Scotiabank tops estimates
  • BMO profit climbs
  • Thomson Reuters names new CEO
  • What to watch for today


Derek Holt, Bank of Nova Scotia’s head of capital markets economics, questions whether our concerns over Canadian consumer debt levels are overblown.

The Bank of Canada has cited financial stability as a key issue, while the headlines, including mine, frequently warn about obese debts. And our consumers are well known the world over for their credit habits. This comes, too, as housing markets rebound after government measures to cool inflated prices and head off a credit bubble.

“How concerned should the BoC be toward financial stability issues surrounding housing and household debt markets?” Scotiabank’s Mr. Holt said in a recent “sweep” of the indicators, adding it’s “easy to exaggerate” it.

"Over all, I’m of the view that the stability concerns that may hold back monetary easing are misplaced or at least highly exaggerated," he added.

Here's what Mr. Holt found:

One: Existing home sales are not "surging off the charts." Sales peaked in the first half of 2019 on a monthly seasonally adjusted basis, with "very little growth" since.

Two: Nor are price increases in the resale market off the charts. The Teranet-National Bank home price measure has gained only 2 per cent from a year ago, while the MLS home price index has climbed 4.7 per cent. Said Mr. Holt: “Strip [consumer price index] inflation off of both and real house price gains are running at minus 0.4 per cent year over year and 2.3 per cent year over year using Teranet and MLS figures respectively.”

Three: Homebuilders are not "going crazy with their own price hikes." Indeed, prices are "dead flat" and increases haven't been so soft since the financial crisis.

Four: Growth in credit is not “wickedly strong to match all of the hype.” What Mr. Holt found: “Inflation-adjusted growth in consumer lending is at zippo in year-over-year terms. This combines all non-mortgage lending products (lines, cards, personal loans, etc). Inflation-adjusted mortgage growth has accelerated, but only to 2.7 per cent. That’s toward the slowest growth of the cycle. Therefore debt growth is at a weak point in the cycle. Total household debt growth is rising by just 1.9 per cent, year over year, in inflation-adjusted terms. Take population growth out of that and there is essentially no material growth in debt per capita.”

Five: Bankruptcies are not surging. Insolvencies have been climbing but they break down into two types: Along with traditional bankruptcies are what are known as proposals, under which troubled borrowers restructure loans with new terms. These have been on the rise. Said Mr. Holt: “There can be many drivers of insolvencies as previously written, including both economic drivers and social drivers. The end outcome to it all, however, is that the rate at which consumers are going into bankruptcy is at rock bottom.”

Mr. Holt and others believe the spring housing market will tell the tale, particularly after the federal government adjusted the mortgage-qualification stress tests to help ease an affordability crisis in some cities.

“How likely is a repeat of the frenzy that gripped the nation three years ago?” asked Bank of Montreal senior economist Sal Guatieri.

“We wouldn’t dismiss it, but we wouldn’t bet on it, either,” he said.

“First, the government is tweaking the stress test, not shelving it, and Ontario and B.C. still have hefty foreign buyers’ taxes in place. Second, households are wary of debt amid a record servicing burden.”

Along with that is an expected cooling in the jobs market as economic growth slows.

But "all bets are off" if the Bank of Canada trims interest rates as it did a few years ago, Mr. Guatieri said.

"The combo of lower borrowing costs and lower qualifying rates could toss a couple of logs on an anticipated hot spring buying season."

The housing rebound indicates that consumers have “adjusted” to the stress tests, added CIBC World Markets deputy chief economist Benjamin Tal.

"While we believe that it’s premature to compare current activity to the roaring levels of 2016 (due to the lack of a pronounced speculative element in today’s market), it’s becoming more and more apparent that, short of drastic measures, it’s impossible to fight supply issues with demand tools," he said.

"Increased supply (rental or otherwise) is the only reasonable solution to the housing affordability crisis that many Canadians are facing."

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Markets at a glance

Scotiabank tops estimates

From Reuters:

Bank of Nova Scotia beat Wall Street estimates for quarterly profit, boosted by strong growth in its global banking and markets unit.

Net income rose to $2.26-billion, or $1.84 per share, in the quarter ended Jan. 31, from $2.11-billion, or $1.71 per share, a year earlier.

On an adjusted basis, the lender earned $1.83 per share, compared with analysts’ estimate for profit of $1.74 per share, according to IBES data from Refinitiv.

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BMO profit climbs

From The Canadian Press:

Bank of Montreal beat expectations as it reported a first-quarter profit of $1.59-billion, up from $1.51 billion-in the same quarter a year earlier.

The bank says its profit for the quarter ended Jan. 31 amounted to $2.37 per diluted share, up from $2.28 per diluted share.

Revenue totalled nearly-$6.75 billion, up from nearly $6.52-billion.

On an adjusted basis, BMO says it earned $2.41 per diluted share, up from $2.32 per diluted share in the same quarter a year earlier.

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Thomson Reuters names new CEO

From Reuters:

Thomson Reuters Corp. said on Tuesday it had appointed former Nielsen Holdings Plc president Steve Hasker as its new chief executive officer, succeeding Jim Smith.

The parent of Reuters News also announced higher-than-expected fourth-quarter earnings on Tuesday, reporting a 60-per-cent year-on-year rise in operating profit.

Mr. Hasker, most recently a top executive at Hollywood talent agency CAA, will assume his new role on March 15, Thomson Reuters said. Smith, a former journalist who oversaw a period of major change at the company, will stay on for a transition period through 2020 and become chairman of the Thomson Reuters Foundation.

Stephane Bello, Chief Financial Officer, will also step down from his role and will be succeeded by Mike Eastwood, current Senior Vice President of Corporate Finance. Bello will oversee strategy and business development into 2021, the company said.

Adjusted earnings in the quarter rose to US$216-million or 37 US cents per share from US$135-million or 19 US cents a share. Analysts, on average, expected 33 US cents a share, according to IBES from Refinitiv.

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What to watch for today

Watch for the Liberal budget in Nova Scotia.

"It should be a good-news (fiscal) story with a fifth consecutive budgetary surplus expected for [fiscal year 2020] supported by a stronger-than-anticipated economic outlook," said Scotiabank's Rebekah Young.

"With an economy operating close to full speed and some headwinds on the horizon, including trade exposure to China, we do not expect major new spending in this budget," she added.

“Rather, we look for targeted measures that further support business development and diversification that has been a theme of past budgets.”