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business briefing

Briefing highlights

  • Where housing markets stand
  • Stocks, loonie, oil at a glance
  • GMP sells capital markets business
  • Huawei expects hit from U.S. ban
  • Deutsche to create ‘bad bank': source
  • Lufthansa profit warning spooks sector
  • Required Reading

‘Green shoots’

Economists say they're seeing signs of "green shoots" in Canadian housing markets.

"Further broad-based improvements in sales activity alongside balanced conditions in most regions continue to point to a return to a more vibrant market following the widespread slump in February," said Bank of Nova Scotia provincial economist Marc Desormeaux.

His comments followed the Canadian Real Estate Association's latest sales report, which showed the national market making further gains in May.

Home sales climbed 1.9 per cent in May from April, and 6.7 per cent from a year earlier. Average prices rose 1.8 per cent from a year earlier, while the MLS home price index, which is considered a better measure, slipped 0.6 per cent from last May.

"Past softness in the market is still holding prices in check, but sales activity leads prices, so that may change," said Bank of Montreal chief economist Douglas Porter.

Questions remain, of course, notably about the Vancouver area, but there are "more green shoots popping up in Canada’s housing market," said Royal Bank of Canada senior economist Robert Hogue.

Those buds largely refer to B.C., where sales in Vancouver and Victoria rose 24 and 10 per cent from April, respectively, and Alberta, with month-over-month gains in Calgary of 6.8 per cent and in Edmonton of 3.5 per cent.

“These are the green shoots we have long been waiting for – early signs that the cyclical bottom has been reached in that region of the country,” Mr. Hogue said. “Market conditions are still soft, though.”

Scotiabank’s Mr. Desormeaux, in turn, said, “It’s still too early to call for a recovery in southern B.C. after a period of prolonged weakness.”

Friday’s numbers also suggest the provincial and federal policy makers who engineered the slowdown via tax and other measures, along with new mortgage-qualification stress tests, give themselves a pat on the back.

“The May numbers paint the picture policy makers want to see – generally soft but stable conditions in previously overheated markets, with prices continuing to correct in Vancouver where affordability remains a big issue,” Mr. Hogue said.

Analysts also suggest the B.C. and Ontario governments, which moved to cool down the Vancouver and Toronto area markets, and the federal bank regulator, which brought in the stress tests at the beginning of last year, need not fear a return to the bubbly days.

"Defying the gloom-and-doomers, the Canadian housing market is gradually regaining strength, powered by falling long-term interest rates and the fastest population gains in a generation," said BMO's Mr. Porter.

"Still, we're not looking for a breakout in activity, as past restraint measures are still acting as a dampener."

What potential buyers and sellers want to know, of course, is where things stand for them.

Here, Scotiabank's Mr. Desormeaux took a cross-country look based on the ratio of sales to new listings.

These show whether a market "is tilted towards sellers, and likely to witness upward pressure on prices," or "is considered a buyer's market and likely to see a flat or downward trend in prices over the next six months," he said.

His work, below, is "ordered from most- to least-tilted towards sellers."

Open this photo in gallery:

Source: Bank of Nova ScotiaThe Globe and Mail

"Moncton reclaimed the top spot in our rankings of market tightness in Canada’s major centres, propelled by a 27.2-per-cent sales jump in May," Mr. Desormeaux said.

"Montreal and Ottawa, with the #2 and #3 spots, respectively, continued to witness historically seller-friendly conditions, as growth in sales outpaced that of new listings and continued to drive above-trend [home price index] gains," he added.

“Demand-supply tightness also persisted in major markets in Atlantic Canada and in London and Windsor.”

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Markets at a glance

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GMP sells capital markets business

Canadian investment bank GMP Capital Inc. has agreed to sell the bulk of its capital markets business to Stifel Financial Corp. in a deal worth about $70-million, The Globe and Mail’s Niall McGee reports.

Toronto-based GMP will hold on to its U.S. marijuana sector in capital markets, and its wealth management business. In fact, GMP intends to focus almost entirely on wealth management and will attempt to buy the approximately two-thirds share in Richardson GMP Ltd. it doesn’t already own.

GMP said it has engaged in talks with the RGMP’s other shareholders, the Richardson family and the adviser network, with the view to getting a deal done. RGMP services high net worth clients and has assets under management of $30-billion.

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U.S. ban to crimp Huawei revenue

From Reuters:

Huawei Technologies Co. founder and CEO Ren Zhengfei said the impact of a U.S. ban on the Chinese company was more severe than expected and warned revenue would dip to around US$100-billion this year and next.

This is the first time Huawei has quantified the impact of the U.S. action against the company and Mr. Ren’s downbeat assessment comes after weeks of defiant comments from company executives who maintained Huawei was technologically self-sufficient.

Huawei had not expected that U.S. determination to “crack” the company would be “so strong and so pervasive,” he said, speaking at the company’s Shenzhen headquarters on Monday.

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Deutsche to create ‘bad bank’: source

From Reuters: Deutsche Bank plans to overhaul its trading operations by creating a so-called bad bank to hold tens of billions of euros of non-core assets, a source close to the matter said. The overhaul, first reported by the Financial Times, will also include shrinking or shutting equity and rates trading businesses outside of Europe.

Lufthansa warns

From Reuters: Germany’s Lufthansa sent shockwaves through the European airline sector as it cut its full-year profit forecast, with lower prices and higher fuel costs compounding the effect of losses at its budget subsidiary Eurowings.

Boeing officials apologize

From Reuters: Boeing executives took turns apologizing for the loss of life in two 737 MAX crashes and pledged to apply lessons of the crisis to future planes as the world’s largest aerospace company struck a chastened tone at the opening of the Paris Airshow.

Also ...

Required Reading

Fall to earth

With his trademark Marine-style haircut, baggy jeans and T-shirts, Neil Woodford has never been quite like any other British fund manager. Now, Paul Waldie documents his fall to earth.

Collateral damage

Canadian farmers, Barrie McKenna argues, are the collateral damage of the China-U.S. feud.

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