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Briefing highlights

  • What building numbers show
  • ECB moves to boost economy
  • Stocks, loonie, oil at a glance
  • Aurora Cannabis shares slide
  • U.S. inflation won’t sway Fed
  • HBC posts wider loss
  • Transat posts deeper loss
  • Required Reading

‘Renters and condo dwellers’

Economist David Rosenberg finds the number of cranes in Toronto and Vancouver “pretty scary.”

Like other analysts, the chief economist at Gluskin Sheff + Associates cited the strength of the residential construction sector after the latest numbers this week.

That latest report from Canada Mortgage and Housing Corp. showed the number of dwelling starts rose in August to an annual pace of 226,639, more than observers had expected and, as Bank of Montreal senior economist Robert Kavcic put it, “continuing the relentless level of building activity.”

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Source: Bank of Montreal

Starts on multiple units, such as condos, accounted for 160,388 of those.

“Canada has become a country of renters and condo dwellers – you look at the cranes in Toronto and Vancouver and it’s actually a pretty scary picture,” Mr. Rosenberg said in a report to Gluskin Sheff clients.

The overall number of starts, he added, topped the 12-month trend of 210,000, reflecting “the response from lower mortgage rates, the pickup in wage growth and, most importantly, the immigration boost that has taken place.”

BMO’s Mr. Kavcic agreed.

“This reflects strong demographic demand, both from international inflows and new households created within Canada,” he said.

“It also just reinforces that the correction we saw in the resale market has remained contained. The construction side of the Canadian housing market still looks rock solid.”

This comes as a study by Century 21 showed this week that the price for a downtown Vancouver condo is now $1,241 per square foot, marking the highest housing cost in Canada. Second to Vancouver, at $994 per square foot, is a downtown Toronto condo.

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Housing starts in Vancouver slipped in August, falling 17 per cent.

“However, the year-to-date starts in the [census metropolitan area] remained fairly stable due to a decline in singles starts which was offset by an increase in the multi-units segment,” CMHC said.

As for Toronto, the housing agency said total starts rose in August for all types of homes except semi-detached units.

“Multi-unit home starts are being led by condominium apartments breaking ground because of strong pre-construction sales over the past two years,” CMHC said.

“Despite single-detached homes trending higher in August, demand for this housing type continues to wane due to rising home ownership costs.”

Toronto home prices are poised to rise, given that housing starts there “have yet to break out on the high side,” said senior economist Sal Guatieri, Mr. Kavcic’s colleague at BMO.

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“Given strong demographic demand and the current tiny level of standing inventory of new homes, the imbalance between demand and supply can only point to higher prices unless we get a burst of new construction soon,” Mr. Guatieri said.

“The fact that the vast majority of new units are not single family homes (which can house more people than a condo) only adds to the upward pressure on prices.”

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ECB moves to boost economy

The European Central Bank moved today to juice the foundering economy, cutting a key interest rate and launching another asset-buying program.

The ECB trimmed its deposit rate to -0.5 per cent, down from -0.4 per cent, while announcing it will buy bonds again to the tune of €20-billion a month, starting in November.

“The governing council expects [the bond purchases] to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates,” the central bank said.

Two other rates stayed the same.

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“While the ECB appears to exceeded expectations in terms of stimulus, it’s still unclear just how much the measures announced today will do to support economic growth and inflation in the region,” said CIBC World Markets senior economist Andrew Grantham.

“While the ECB’s earlier [quantitative easing] program did appear to boost growth, that was largely due to stronger exports thanks to the weaker euro,” he added.

“Domestic demand was never particularly strong. Given the current economic and political environment globally, such a surge in exports is unlikely to be repeated.”

Indeed, fiscal policy in the euro zone will be more crucial from here on in, Mr. Grantham said.

“Encouragingly, as the German economy has slowed and appears headed for a mild recession, sentiment is turning in terms of fiscal stimulus following years of prudence,” Mr. Gratham said.

“Unfortunately, it would still be difficult for Germany to provide a big enough fiscal boost in 2020 to eclipse that seen already this year,” he added.

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“It may not be until 2021, when we assume Germany will be willing to run larger deficits, that we see a fiscal boost strong enough to accelerate the euro zone economy.”

BMO senior economist Jennifer Lee agreed on the fiscal issue.

“The ECB pulled quite a few rabbits out of its hat today, and although there are more tools in the toolbox to be used (issuer limits, different kinds of assets), the onus is now on governments (the ones with fiscal space) to act,” she said.

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Markets at a glance

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Aurora Cannabis slides

Shares of Aurora Cannabis Inc. slumped today after its quarterly results missed expectations late Wednesday.

Aurora posted a fourth-quarter loss of $2.2-million, with revenue of $98.9 million. The latter was up from $19-million a year earlier, though Aurora had projected higher revenues.

The average price of cannabis, by the way, fell by $1.08 a gram in the fourth quarter from the third, to $5.32.

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“This decrease is primarily attributable to the increase in sale volumes to consumer and bulk wholesale markets which yield lower average net selling prices as compared to medical markets,” the company said.

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U.S. underlying prices rise solidly

From Reuters: U.S. underlying consumer prices increased solidly in August, leading to the largest annual gain in a year, but rising inflation is unlikely to deter the Federal Reserve from cutting interest rates again next week to support a slowing economy. The Labor Department said its consumer price index excluding the volatile food and energy components gained 0.3 per cent for a third straight month. A decline in energy prices held back the increase in the overall CPI to 0.1 per cent. In the 12 months through August, the CPI increased 1.7 per cent after advancing 1.8 per cent in July.

HBC posts wider loss

From Reuters: Hudson’s Bay Co. reported a wider second-quarter loss, hurt by several shuttered stores and declining sales at its namesake brand. Its net loss from continuing operations widened to $462-million, or $2.51 a share, from $104-million, or 58 cents a year earlier. Total revenue fell to $1.85-billion from $1.86-billion.

Transat posts deeper loss

Airline and tour operator Transat AT Inc.’s third-quarter loss more than doubled due to fees and executive compensation related to its deal to be taken over by rival Air Canada, Eric Atkins reports. Transat said it lost $11-million, or 29 cents a share, compared with a loss of $5-million or 13 cents in the same period of 2018.

OPEC to ask Iraq, Nigeria to cut

From Reuters: OPEC agreed to trim oil output by asking over-producing members Iraq and Nigeria to bring production in line with their targets as the group strives to prevent a glut amid soaring U.S. production and a slowing global economy.

Yuan rises

From Reuters: The yuan rose to its strongest level in three weeks after President Donald Trump postponed ramping up tariffs on Chinese goods “as a gesture of goodwill” following Beijing’s decision hours earlier to spare duties on some U.S. exports.

Signs of further thaw

From Reuters: China said Chinese companies have started to inquire about prices for U.S. agricultural goods purchases, in a further sign of a potential de-escalation in a bitter trade war between the two countries.

Turkey’s central bank cuts key rate

From Reuters: Turkey’s central bank cut its policy rate by 325 points to 16.5 per cent, its second marked policy easing in two months as it seeks to boost a recession-hit economy in which inflation has recently eased.

U.S. briefly tops Saudi Arabia as biggest oil exporter

From Reuters: Global oil demand is weathering economic headwinds, the International Energy Agency said, buoyed by lower prices brought on by abundant supply as the United States briefly dethroned Saudi Arabia as the world’s top exporter.


Required Reading

Boeing complains about disagreements

The head of Boeing Co. says the 737 Max passenger planes could be cleared to resume flying before the end of the year, but that timeline is jeopardized by disagreements among the world’s regulators over approvals to the model that was grounded after two crashes that killed 346 people. Eric Atkins reports.

Whither the economy

Forget recession, Ian McGugan writes. The real challenge for investors now is slow growth

Purdue in tentative deal

Purdue Pharma and its owners have reached a tentative, multibillion-dollar settlement with local and state governments in the United States that would resolve thousands of lawsuits against a company blamed for fuelling North America’s deadly opioid epidemic, Karen Howlett reports.

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