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Briefing highlights

  • Debt and the ‘accident-prone’ consumer
  • Stocks, loonie, oil at a glance
  • British pound in Brexit spotlight
  • More countries ground Boeing Max 8
  • U.S. consumer prices rise modestly
  • From today’s Globe and Mail

Debt and the ‘accident-prone’ consumer

Canadians will get a sense this week of just how "accident-prone" we appear to be.

Some have already had accidents by defaulting on their loans, and their numbers are expected to rise.

Debt (excluding mortgages) and delinquency rates, by city

CityAverage debt, Q4 2018Average debt change*Delinquency rate, Q4 2018Delinquency rate change*
Calgary$30,099 2.10%1.21%3.10%
Edmonton$28,863 6.00%1.41%-3.30%
Halifax$23,680 -0.80%1.54%7.90%
Montreal$17,733 1.70%1.21%-0.10%
Ottawa$22,567 2.40%0.90%-3.90%
Toronto$22,935 4.50%1.12%0.10%
Vancouver$26,518 2.90%0.70%3.50%
St. John's$25,538 0%1.65%15.10%
Fort McMurray$39,914 4.10%1.76%0.40%

*Year-over-year percentage change, Q4 2017 vs. Q4 2018

SOURCE: EQUIFAX

Still, the rate of loan delinquencies is small.

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And on top of that, Canadians have eased their pace of borrowing dramatically, to the slowest in 35 years, amid higher interest rates and mortgage-qualification stress tests that came into effect in early 2018.

But our debts are still fat amid what Bank of Montreal notes is "mediocre" growth in income.

Borrowing and interest rates

Household credit growth (YoY change, left axis)

Bank of Canada key lending rate (right axis)

14%

6%

12

5

4

10

8

3

6

2

4

1

2

0

2006

2010

2014

‘18

Note: Household credit includes mortgages.

THE GLOBE AND MAIL, SOURCE: BANK OF CANADA

Borrowing and interest rates

Household credit growth (YoY % change, left axis)

Bank of Canada overnight lending rate (right axis)

14%

6%

12

5

10

4

3

8

6

2

1

4

2

0

2006

2010

2014

‘18

Note: Household credit includes mortgages.

THE GLOBE AND MAIL, SOURCE: BANK OF CANADA

Borrowing and interest rates

Household credit growth (YoY % change, left axis)

Bank of Canada overnight lending rate (right axis)

6.0%

14%

5.0

12

4.0

10

3.0

8

2.0

6

1.0

4

0.0

2

2006

2008

2010

2012

2014

2016

2018

Note: Household credit includes mortgages.

THE GLOBE AND MAIL, SOURCE: BANK OF CANADA

That's the backdrop to Statistics Canada's report on wealth and debt Thursday, which also comes amid a weak economic climate.

BMO expects Thursday's report to show that the key measure of household debt to disposable income was "flat to slightly lower" in the fourth quarter.

"The housing market slowed dramatically last year and we’re waiting to see signs of stability in the early part of 2019," said Benjamin Reitzes, BMO's Canadian rates and macro strategist.

"That’s driven credit growth substantially lower to the slowest pace in 35 years," he added in a lookahead to the Statistics Canada report.

"Meantime, income growth was mediocre, pushing the annual increase down, limiting any potential improvement in debt ratios."

Thursday's report also looks at wealth, again amid a slower housing market and in a quarter marked by sinking stock prices.

"Net worth as a share of disposable income has been relatively flat since 2017 Q1amid slowing asset gains, though the sharp drop in equities in Q4 suggests we could see a notable dip this time around," Mr. Reitzes said.

For the record, stocks have rebounded since then.

"There are still some challenges in the housing market," said HSBC Securities (Canada) chief economist David Watt.

"This remains the case, even though the overall pace of lending has slowed and mortgage stress tests applied since January, 2018, imply that more recent home buyers are likely better able to manage somewhat higher interest rates."

Mr. Watt also cited reports of monetary authorities pondering what could be done to have more forceful stress tests among private lenders not regulated at the federal level

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"These discussions were the result of concerns that potential borrowers who failed the stress tests at federally regulated lenders would borrow sufficient funds in the unregulated market," Mr. Watt said.

"Thus, there is a risk that there are still borrowers accessing funds who might be ill-prepared to manage interest rate increases, thus posing a potential risk to financial stability," he added.

“Hence, in our view, despite the stress tests, we think the household sector remains accident-prone.”

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Markets at a glance

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More countries ground plane

The grounding of the Boeing 737 Max 8 is spreading among countries and airlines after Sunday’s Ethiopian Airlines crash, the second in less than six months.

As The Globe and Mail’s David Ebner and Les Perreaux report, Canadian Transport Minister Marc Garneau said he believes the plane is safe. Air Canada and WestJet also said they’re confident the plane is safe.

On Monday, China and Indonesia grounded the Max 8 among its carriers, while individual airlines took similar action.

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Today, Britain’s Civil Aviation Authority released a related order, saying it it “issued instructions to stop any commercial passenger flights from any operator arriving, departing or overflying U.K. airspace.” Australia and Singapore took similar moves. as did South Korea’s Easter Jet.

Australian carriers don’t fly the Max 8, but foreign ones fly them to the country.

Sunday’s crash killed 157 people, including 18 Canadians.

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