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Briefing highlights

  • Default rates on rise
  • Stocks, Canadian dollar, oil at a glance
  • Transat profit rises in quarter
  • Aramco tops $2-trillion valuation
  • What analysts are saying today
  • Required Reading

Default rates on rise

The trend may be “relatively modest,” but defaults on non-mortgage debt in Canada is now at its highest for a third quarter since 2012.

The rate of delinquencies of more than 90 days now stands at 1.15 per cent, Equifax Canada said in its report.

British Columbia led the increase in the rate from the same period a year ago, followed by Ontario and Alberta, Equifax said.

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Mortgage defaults also rose, with the rate up to 0.18 per cent, led this time by Ontario, British Columbia and Alberta.

“The most recent rise in mortgage delinquency extends the streak to four straight quarters,” the group said.

Debt (excluding mortgages) & delinquency rates

Q3 2019

CityAverage debtAverage debt change vs. Q3 2018Delinquency Rate
Calgary$29,878 -0.53%1.33%
Edmonton$28,444 -0.27%1.56%
Halifax$23,622 -0.55%1.54%
Montreal$18,009 1.66%1.21%
Ottawa$22,843 1.11%0.96%
Toronto$23,494 3.23%1.23%
Vancouver$26,729 0.65%0.78%
St. John's$25,636 0.41%1.77%
Fort McMurray$39,838 0.37%1.91%

SOURCE: EQUIFAX CANADA

One of the interesting tidbits in the report is that Canadians appeared to tame their credit habits in the third quarter.

Canadian consumers owed an average $72,500 by the end of the quarter, which was up 2.1 per cent from a year earlier. But non-mortgage debt rose 1.5 per cent to $23,800, which marked a “significant slowing from recent trends.”

That’s “a positive sign, as other indicators suggest more people are challenged with their current financial situation,” Equifax vice president of data analytics, Bill Johnston, said in releasing the numbers.

Still, “while the uptrend in delinquencies has been relatively modest, it has been masked by a significant increase in consumer bankruptcies,” he added.

“Consumer proposals, where a licensed insolvency trustee negotiates debt repayments, remain on a strong rising trend and that is coming at the expense of traditional delinquencies.”

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Indeed, as The Globe and Mail’s Matt Lundy reports, insolvencies among Canadian consumers hit their highest in a decade in October.

Insolvencies come in two forms: The first is traditional bankruptcy, and the second is via a proposal, where new terms are negotiated with a lender.

We’ll learn more Friday morning when Statistics Canada releases its third-quarter look at debt and wealth.

The key ratio of household credit market debt to disposable income stood at 177.1 per cent in the second quarter, down from a year earlier, but still high. And it’s something the Bank of Canada is watching.

Bank of Montreal expects Friday’s report to show that that key measure “likely moved somewhat higher” given the rebound in Canadian housing market.

“While income growth perked up in the quarter, mortgage credit growth accelerated strongly with the dollar volumes of home sales surging 12 per cent, quarter over quarter, (the best since 2015 Q2)” said Benjamin Reitzes, BMO’s Canadian rates and macro strategist.

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“Note that the seasonal pattern has seen the ratio rise in every year on record in Q3, except for 1990, so some increase is the norm,” he added.

“This release also includes details on household assets. Net worth as a share of disposable income likely moved up for a third straight quarter in Q3, as stocks and home prices rose.”

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Markets at a glance

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Ticker

ECB holds steady

From Reuters: The European Central Bank left policy unchanged at new ECB president Christine Lagarde’s first meeting, keeping money taps wide open and further stimulus ready as the euro zone economy continues to suffer from broader global turmoil. With growth still well below potential in the 19-member currency bloc and inflation short of target, the ECB unleashed a fresh stimulus package in September. That means policy is effectively on auto pilot for months to come, giving Ms. Lagarde time and space to find her footing. The ECB’s rate on bank overnight deposits, its primary interest rate tool, remains at a record low of -0.5 per cent. The ECB also tweaked its inflation and growth projections, making only small changes and continuing to predict a slow but steady recovery in the coming years. Ms. Lagarde also the central bank expects to begin in January a strategic review of how it does business and conclude it by the end of 2020.

Transat profit rises

Montreal-based airline and tour operator Transat AT Inc. posted a bigger profit in the fourth quarter as higher ticket prices offset rising costs, The Globe and Mail’s Eric Atkins reports. Revenue rose almost 4 per cent to $690-million in the three months ending Oct. 31, compared with a year earlier. Profit rose to $20-million, or 54 cents a share, from $6.8-million or 18 cents, Transat said.

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Oil market to remain oversupplied: IEA

From Reuters: Global oil inventories could rise sharply despite an agreement by OPEC and its allies to deepen output cuts as well as lower expected production by the U.S. and other non-OPEC countries, the International Energy Agency said. “Despite the additional curbs ... and a reduction in our forecast of 2020 non-OPEC supply growth to 2.1 million barrels per day, global oil inventories could build by 700,000 bpd in Q1 2020,” the Paris-based IEA said in a monthly report.

Aramco tops $2-trillion

From Reuters: Saudi Aramco achieved the US$2-trillion valuation sought by Saudi leader Crown Prince Mohammed bin Salman as the newly-listed state-owned oil company’s shares rose sharply on their second day of trading. The Saudi Crown Prince has made the Aramco initial public listing the centerpiece of his plan to diversify the Kingdom’s economy away from its dependence on oil production by using the US$25.6-billion raised to develop other sectors. But that was well below the Crown Prince’s plan announced in 2016, which called for raising as much as US$100-billion via international and domestic listings of a 5-per-cent stake in Aramco.

Japan unveils tax measures

From Reuters: Japan unveiled tax measures aimed at encouraging companies to spend their cash piles on start-ups and other investments and stimulating a slowing economy, while also helping firms to compete with China’s advance in 5G technology. The annual tax revision for fiscal 2020, formally decided by the ruling Liberal Democratic Party and its coalition ally Komeito party, focused on steps to encourage Japanese firms to spend their internal reserves of over ¥460-trillion, lawmakers said. For years Japanese companies have been sitting on a record cash-pile as they remain wary about boosting wages and investment.

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Also ...

What analysts are saying today

“The U.K. goes to the polls today as voting gets underway with the pound remaining steady as markets look to the next event risk, which will be tonight’s exit poll, when we’ll get early indications which way voters have jumped, in terms of their next choice for U.K. prime minister.” Michael Hewson, chief analyst, CMC Markets

“All anyone is telling me is that there are queues of people voting early. That may indicate high turnout or may indicate a large number of people voting early because there are Christmas partiers to go to this evening. The last time the U.K. voted in a December general election was in 1923 and resulted in the Conservatives losing their overall majority. I’m not sure if there are any lessons from that!” Kit Juckes, global fixed income strategist, Société Générale

Required Reading

Don’t get too comfortable

The Federal Reserve shouldn’t get too comfortable with its decision to leave interest rates steady in this environment, economics columnist David Parkinson argues.

Green light for carbon tax

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New Brunswick has struck a carbon-tax truce with the federal government, agreeing to impose its own greenhouse-gas levy on consumers, but the province is blunting the impact by cutting the provincial gas tax at the same time. Patrick Brethour reports.

Opposition grills Trudeau

The three largest opposition parties are criticizing Prime Minister Justin Trudeau over the latest version of the new North American free-trade agreement, accusing the Liberals of failing to secure enough protection for Canada’s aluminum sector, Bill Curry writes. Mr. Trudeau rejected their concerns and pledged to work with the opposition to ratify the deal as soon as possible.

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