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Briefing highlights

  • What it takes to buy a home
  • Germany skirts recession
  • Stocks, Canadian dollar, oil at a glance
  • CPPIB sees 2.3-per-cent return
  • Quote of the day
  • Canopy Growth posts bigger loss
  • Trade war hits Japan’s economy
  • Walmart tops analyst estimates
  • What analysts are saying today
  • What to watch for today
  • Required Reading

What it takes

Here’s what it takes to buy a home in several cities, according to National Bank of Canada:

Housing affordability statistics

Median home priceDown paymentMonths of saving for down paymentMortgage payment as percentage of income
Urban Composite $569,652 $31,965 54.343.0%
Toronto $855,999 $60,600 89.055.9%
Montreal $354,615 $17,731 33.429.7%
Vancouver $1,010,437 $202,087 311.269.1%
Calgary $432,331 $21,617 30.226.8%
Edmonton $388,959 $19,448 27.924.8%
Ottawa/Gatineau $416,969 $20,848 32.428.8%
Quebec $282,768 $14,138 22.219.8%
Winnipeg $321,302 $16,065 27.924.8%
Hamilton $576,147 $32,615 50.739.8%
Victoria $793,023 $54,302 94.361.2%

SOURCE: NATIONAL BANK OF CANADA

As The Globe and Mail’s Matt Lundy reports, affordability is improving, though pricey cities such as Vancouver and Toronto are far out of reach for many potential buyers.

Nonetheless, affordability improved in the third quarter, continuing a stretch of easier conditions to buy.

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“The most significant factor to this development was the decline in mortgage rates,” National Bank deputy chief economist Matthieu Arseneau and economist Kyle Dahms said in their study, which uses median-priced homes, a five-year term and 25-year amortization.

“Indeed, the free-fall in financing costs over the last nine months was the most substantial since 2012 (minus 87 basis points),” they added.

“The booming labour market also played a significant role in this development as income grew at a whopping 5.1 per cent annualized over that period while home prices did not materially change at the national level.”

It’s interesting to note that Mr. Arseneau and Mr. Dahms found that Vancouver, Victoria, Toronto and Hamilton showed the biggest improvement in affordability. In fact, Vancouver “is now at its most affordable level since 2016,” they said.

Of course, many people couldn’t afford Vancouver in 2016, and, thus, still can’t.

This comes as a new, third-quarter ranking of prime real estate puts Vancouver in second-last spot among 45 cities measured.

The ranking by consultants Knight Frank, which tracks property price changes, includes the top 5 per cent of local markets. On that score, Vancouver prices dropped 10.2 per cent over 12 months and 1.1 per cent over three.

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That 12-month decline is actually a slower pace than the 13.6-per-cent drop in the 12 months ending in the second quarter.

“An uncertain climate pervades at both a global and local level, with strict property market regulations still in place, but there are some market segments that are showing signs of a tentative recovery, with sales volumes for detached homes and townhouses starting to increase,” said Knight Frank partner Kate Everett-Allen.

Toronto, in turn, ranked No. 19, with prime real estate up 2.2 per cent over 12 months and down 1.4 per cent over three.

Moscow, with a 12-month increase of 11.1 per cent, ranked No. 1, followed by Frankfurt at 10.3 per cent, Taipei at 8.9 per cent, Manila at 7.4 per cent and Berlin at 6.5 per cent.

At the very bottom, just below Vancouver, was Seoul, with a 12-month decline of 12.9 per cent. Above Vancouver, to round out the bottom five, were London, down 3.9 per cent, New York, down 4.4 per cent, and Nairobi, down 5.4 per cent.

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Germany skirts recession

Germany managed to skirt a recession in the third quarter, but economic growth was soft, at just 0.1 per cent.

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All eyes had been on the European powerhouse given what its performance means to the rest of the continent.

“German GDP in the third-quarter came in at 0.1 per cent, while economists were expecting -0.1 per cent,” said CMC Markets analyst David Madden.

“The economy contracted by -0.1 per cent in the second-quarter, so the largest economy in Europe managed to avoid a technical recession,” he added.

“This morning’s news is positive, but let’s remember that minimal growth is noting to get overly excited about.”

For the euro zone as a whole, the economy expanded in the quarter by 0.2 per cent.

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Markets at a glance

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CPPIB sees 2.3-per-cent return

Canada Pension Plan Investment Board posted a 2.3-per-cent return in the quarter ended Sept. 30, helping it maintain double-digit long-term returns and add nearly $10-billion to its total assets, The Globe and Mail’s David Milstead reports.

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CPPIB, the investment manager for the Canada Pension Plan, said its five-year and 10-year returns through Sept. 30 averaged 10.3 and 10.2 per cent over the period, and it closed the quarter with assets of $409.5-billion.

CPPIB didn’t break out returns by asset class, but said the group that actively manages its equity investments, as well as its private equities division, were “strong contributors.”

It received “modest gains” from its passive portfolio, a style of investing designed to match the overall market.

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SAA cancels flights

South Africa’s state-owned airline has announced the cancellation of almost all of its flights over the next two days as it battles with unions over planned job cuts that have emerged as a major test of the government’s efforts to slash its spiraling debt, our Africa bureau chief Geoffrey York reports.

The airline, SAA, is losing about US$35-million a month and has warned its survival could be jeopardized if unions go ahead with their threat to launch “the mother of all strikes” on Friday.

The airline, one of the biggest in Africa with close to 7 million passengers annually, announced a restructuring this week that could require the layoffs of nearly one-fifth of its 5,150 workers. Despite a US$360-million bailout by the government this year, the airline still has massive debts and is technically insolvent.

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Quote of the day

The last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market. However, we believe these conditions are a short-term headwind in what is a brand-new industry …

— Mark Zekulin, chief executive officer, Canopy Growth

Ticker

Canopy posts bigger loss

From Reuters: Canopy Growth Corp. reported a wider-than-expected quarterly loss on soaring expenses and said it would not make any large investments to expand in Canada amid surplus supply and tepid demand for weed and weed products. The decision to hold expansion plans follows a wave of enthusiastic spending by marijuana companies to scale up production, expand in new markets and on research after Canada’s legalization of recreational weed last year. However, demand has not kept up with expectations as the country struggles with a slow roll out of retail stores among other problems. Canopy also took a restructuring charge of $32.7-million in the second quarter to account for returns, return provisions and price cuts for its softgel and oil products. Canopy also took a $15.9-million charge related to its inventory. Adjusted core loss of $155.75-million was wider than analysts’ expectation, as operating expenses surged 48.2 per cent. On an adjusted basis, net loss was 96 cents per share. Net revenue rose more than three-fold to $76.6-million.

Trade war hits Japan

From Reuters: Japan’s economy ground to a near standstill in the third quarter with growth at its weakest in a year as the U.S.-China trade war and soft global demand knocked exports, keeping pressure on policy makers to ramp up stimulus to bolster a fragile recovery. The world’s third-largest economy grew an annualized 0.2 per cent in the third quarter, slowing sharply from a revised 1.8-per-cent expansion in April-June, preliminary gross domestic product data showed.

Walmart tops estimates

From Reuters: Walmart Inc. reported better-than-expected third quarter U.S. comparable sales as people spent more at its stores and website, and the retailer raised its earnings outlook for the year. Sales at U.S. stores open at least a year rose 3.2 per cent, excluding fuel, in the quarter ended Oct. 31. Adjusted earnings per share increased to US$1.16 per share, beating expectations of US$1.09 per share.

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Cineplex profit rises

From The Canadian Press: Cineplex Inc. reported a third-quarter profit of $13.4-million, up from $10.2-million in the same quarter last year, as revenue rose 8.3 per cent, helped by the new Lion King and Spider-Man movies. The movie theatre company said profit amounted to 21 cents a share for the quarter ended Sept. 30 compared with 16 cents a year earlier. Revenue totalled $418.4-million, up from $386.4-million, as theatre attendance increased 1.8 per cent due to what Cineplex called a stronger film slate compared with last year.

Daimler to cut costs

From Reuters: Tougher emissions rules will hit Daimler’s profits in 2020 and 2021, prompting the German car maker to seek more than €1-billion in savings from cutting staff costs at its Mercedes-Benz business by the end of 2022, it said. Management positions will be cut by around 10 per cent, and the company said it would also seek more than €300-million from cutting personnel costs - plus another €250-million in fixed costs - at its trucks business.

U.K. shoppers pull back

From Reuters: British consumers, whose spending has helped the economy through the Brexit crisis, cut back on their shopping in October, according to official data that added to signs of weak overall economic growth. In the three months to October, sales rose at the weakest pace in a year-and-a-half, the Office for National Statistics said. Monthly retail sales volumes unexpectedly fell, down by 0.1 per cent. Compared with October 2018, sales were up by 3.1 per cent.

Also ...

What to watch for today

Bank of Canada Governor Stephen Poloz speaks in San Francisco.

“We do not expect that any comments on the economic outlook or monetary policy will sound too different from the October BoC meeting,” Citigroup economists said in a report.

“Since then, the only key data releases have been August GDP by industry, which was modest but still consistent with the 1.3-per-cent GDP growth that the BoC has pencilled in for Q3, and a softer October jobs report which followed two very strong months of job growth,” they added.

“While the BoC could prepare markets for a potential cut as early as the December meeting if it sees fit, policy makers are unlikely to have seen anything in the past two weeks that would lead them to that decision, especially given favourable developments in trade tensions between the U.S. and China.”

What analysts are saying today

“The Dow Jones hit a new record on Wednesday, boosted by a 7.32-per-cent rally in Walt Disney shares as the family-friendly company’s new video-streaming service Disney+ attracted 10 million subscribers after its Tuesday launch. As such, the remarkable inauguration of Disney+ dropped a bombshell in the video-streaming industry. Netflix plunged 3.05 per cent, Discovery erased 2.8 per cent, as CBS and Viacom declined 2.41 per cent and 2.24 per cent, respectively.” Ipek Ozkardeskaya, senior market analyst, London Capital Group

“Bond yields marched to the top of the hill, had a look, and appear to be marching back down. The global economy is growing, but slowly. And there aren’t enough ‘safe’ assets.” Kit Juckes, global fixed income strategist, Société Générale

“Thursday’s theme appears to be the good, the bad and the ugly … The Good (EU) Germany avoided its first recession since the financial crisis … The Bad (China) Three huge readings on Chinese industrial production, retail sales and fixed asset investment all posted terrible readings last night, prompting investor concern China’s growth next year is at risk of falling below 6 per cent ... The Ugly (Hong Kong) No one knows how Hong Kong’s protest will evolve, but the risk of disruptions to Chinese access to global financial services are growing as the unrest intensified for a fourth consecutive day. We may be getting closer to seeing Beijing abandon the ‘one country, two systems’ model, a possible cataclysmic outcome that would derail the bull argument for global equities.” Edward Moya, senior market analyst, Oanda

“The importance of getting some sort of [U.S.-China trade] deal was illustrated this morning by way of the latest Chinese retail sales and industrial production data for October, which came in much worse than expected after seeing a bit of a recovery in September. As dead cat bounces go, the inability to sustain the September rebound in economic activity is quite worrying. Industrial production slid sharply to 4.7 per cent from 5.8 per cent, while retail sales came in at 7.2 per cent, both missing expectations sharply, and giving up most if not all of their recovery from disappointing numbers in August.” Michael Hewson, chief analysts, CMC Markets

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Required Reading

Kenney seeks funds

Alberta Premier Jason Kenney is seeking nearly $1.7-billion from Ottawa under a little-used federal program after a collapse in oil prices that sent the provincial economy into a tailspin, Justin Giovannetti reports.

Drillers sound alarm

Canada’s oil drillers say demand for their services is at historic lows as companies send equipment and people abroad, mainly to the U.S. Pointing to the foreign capital flight from Canada over the past several years, the Canadian Association of Oilwell Drilling Contractors says while the number of new wells drilled in 2020 will remain flat, the number of rigs in Western Canada will drop to 497 from 545. Emma Graney and Kelly Cryderman report.

Sabia guided Caisse well

Michael Sabia could hardly pick a better moment to step down as head of Caisse de dépot et placement du Québec, having guided the giant provincial pension-fund manager out of the mess it was in when he arrived nearly 11 years ago and leaving before the next recession plunges it back into the dumps. Columnist Konrad Yakabuski shares his thoughts.

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