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Business Briefing Canada’s housing market in a funk, as key price measure turns in worst showing in almost 10 years

Briefing highlights

  • Housing market in a funk
  • Stocks, loonie, oil at a glance
  • Business sentiment gloomier
  • Germany not likely to block Huawei
  • Goldman Sachs profit slips
  • Citigroup profit rises
  • Lundin buys Yamana mine
  • What to watch for from Beijing
  • What else to watch for this week
  • Required Reading

Housing funk

Canada’s housing market is in a funk, with March numbers better than a depressed February but still well below year-earlier levels.

And notably, a key price measure turned in its worst showing in almost a decade.

Markets differ on a regional basis, of course.

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But Monday’s national reading from the Canadian Real Estate Association showed sales rose 0.9 per cent in March from what had been a weather-depressed February.

That, CREA said, left “activity near some of the lowest levels recorded in the last six years.”

March sales, CREA added, were down 4.6 per cent from a year earlier.

Average prices fell 1.8 per cent from a year earlier, to $481,745, while the MLS home price index, which is adjusted and deemed a better measure, fell 0.5 per cent.

The last time it slumped that badly was in September, 2009, CREA said.

“Canadian housing activity remains lacklustre, at best,” said Bank of Montreal chief economist Douglas Porter, though he noted some “crucial caveats.”

“First, the regional divide is wide," he added.

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"Second, fundamentals actually look to become a bit more supportive in the year ahead, with the policy tightening likely having run its course. And, finally, the weather can’t get any worse … right? We continue to contend that prices, sales and starts are likely to hold broadly stable nationally in 2019 amid the many moving parts for the market.”

Provincial policy measures aimed at cooling home prices in British Columbia and Ontario, and federal mortgage-qualification stress tests aimed at heading off a debt bubble have taken their toll on the housing market.

Thus, it’s by design that markets are subdued.

Or, as CREA chief economist Gregory Klump put it, they’re “largely in a holding pattern.”

The March drop in the home price index was the second in a row, though the February decline was less than 0.1 per cent, a CREA spokesperson said. Which puts the latest reading at its weakest since the end of the recession.

“Among Canada’s larger cities, activity improved in Victoria, the Greater Toronto Area (GTA), Oakville-Milton and Ottawa, whereas it declined in Greater Vancouver, Edmonton, Regina, Saskatoon, London and St. Thomas, Sudbury and Quebec City,” CREA said.

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Notable, too, is that it was the weakest sales showing nationally for March since 2013, with transactions almost 12 per cent below their 10-year average for the month.

"It will be some time before policy measures announced in the recent federal budget designed to help first-time homebuyers take effect," CREA president Jason Stephen said in releasing the numbers.

“In the meantime, many prospective homebuyers remain sidelined by the mortgage stress test to varying degrees depending on where they are looking to buy.”

For the first quarter as a whole, noted Toronto-Dominion Bank economist Rishi Sondhi, activity slumped more than 2.5 per cent.

“The downward surprise in Q1 sales is largely explained by two factors: poor weather and mortgage rates not yet matching the sharp decline in bond yields,” Mr. Rishi said.

“Looking ahead, some likely reversal of these factors bodes well for activity,” he added.

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“A modest improvement in sales is anticipated over the remainder of 2019, as demand is supported by resilient labour markets and healthy population growth. However, past rate hikes are still working their way through the system, providing a counter to these positive forces.”

Are you a suburban homeowner worried about rising interest rates? If you would like to share your story with The Globe and Mail, contact reporter Rachelle Younglai at ryounglai@globeandmail.com

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Markets at a glance

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Business sentiment gloomier

The Bank of Canada’s gauge of business sentiment has turned negative for the first time in nearly three years, weighed down by the energy slump, slowing housing activity and global trade tensions, The Globe and Mail’s Barrie McKenna writes.

The Bank of Canada said more companies than not are planning to boost investment and hiring in the next year, particularly outside western Canada, but they are generally gloomier about their overall prospects.

More companies reported lower sales, as well as weaker hiring and investment plans in the quarter, compared to the previous survey.

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Germany won’t ban Huawei

Germany appears headed toward allowing China’s Huawei to join in its 5G network.

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Jochen Homann, chief of the country’s telecom regulatory body, told the Financial Times that the position of his group, the Bundesnetzagentur, is “that no equipment supplier, including Huawei, should, or may, be specifically excluded.”

The United States is on a campaign to have its allies bar Huawei from 5G construction for security reasons. The saga is playing out in Canada, where the company’s chief financial officer has been arrested at the request of the Americans, who want her extradited.

Mr. Homann told the news organization it has seen no evidence to suggest Huawei is a security risk.

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Ticker

Goldman profit slips

Goldman Sachs Group Inc. reported a 20-per-cent drop in quarterly profit as equities and bond trading fell, Reuters reports. Profit attributable to common shareholders fell to US$2.18-billion, or US$5.71 per share, in the first quarter from US$2.74-billion, or US$6.95 per share, a year earlier.

Citi profit rises

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Citigroup Inc. reported a 2-per-cent rise in quarterly profit as investment banking revenue surged and net interest margin expanded. Profit rose to US$4.71-billion, or US$1.87 per share, for the first quarter from US$4.62-billion, or US$1.68 per share, a year earlier. Reuters reports.

Lundin swallows Yamana mine

Lundin Mining Corp. is buying a copper gold mine from Yamana Gold Inc. worth US$1-billion, the latest big deal during a hectic period for M&A in the mining sector, The Globe and Mail’s Niall McGee reports. Lundin is buying the Chapada mine in Brazil, which produced just under 59,000 tonnes of copper last year and 121,000 ounces of gold.

What to watch for this week

These will be a busy few days, on both the economic and corporate fronts.

Where the economy is concerned, some of what we'll learn will feed into the Bank of Canada's next decision. And on the corporate side, investors will get a sense of where earnings stand.

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Here's what to watch for:

MONDAY

Besides the CREA report, the Bank of Canada releases its widely watched business outlook survey, which has generally been fairly solid. This will give us a sense of sentiment among the country's businesses.

"The Bank of Canada’s outlook survey has been more optimistic in its tone than the hard data, so is this the quarter in which it gets more into line with the mediocre pace of growth since mid-2017?" said CIBC World Markets chief economist Avery Shenfeld.

Corporate earnings include those from Aphria Inc., Goldman Sachs Group Inc. and Citigroup Inc.

TUESDAY

A big day, this, particularly for the oil patch as Alberta goes to the polls.

We'll also get Statistics Canada's monthly report on the manufacturing sector, which economists generally expect to show a drop in sales of 0.5 per cent in February from January.

And some heavyweights report quarterly results, including Bank of America Corp., BlackRock Inc., CSX Corp., IBM and Johnson & Johnson.

Plus Netflix Inc., which is always interesting given the race to control our entertainment habits.

"In an increasingly competitive market place, Netflix remains the market leader in this particular space, and for all the talk of Apple’s new streaming service being a 'Netflix killer' it is unlikely to be anything but in the short term," said CMC Markets chief analyst Michael Hewson.

"The news that Disney is also launching its own streaming service Disney+ in November is another added element of competition that will keep the pressure on Netflix," he added.

“That being said, the valuation for Netflix is still way ahead of the challenges it is likely to face in the short term. Shrinking margins as the company spends more and more money on adding content is likely to exert upward pressure on subscription prices.”

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WEDNESDAY

Another big day, this, starting with a meeting of OPEC officials in Vienna and a raft of economic indicators from Beijing, including first-quarter economic growth.

Economists frequently question Beijing’s official numbers, but they are key to markets amid concerns over the global economy. Growth in gross domestic product is forecast at 6.3 per cent, Mr. Hewson noted.

"While the Q1 GDP data will get the most attention, those figures have been implausibly stable in recent years," added Chang Liu of Capital Economics.

"The activity and spending data for March will be a better gauge of recent economic performance, which we think will show a slight improvement. But we doubt that will last."

Also on tap is a double blast from Statistics Canada, which reports March inflation levels and February trade results.

BMO's Mr. Reitzes believes consumer prices rose markedly, by 0.8 per cent, from February, lifting the annual inflation rate to 2 per cent from 1.5 per cent.

"Gasoline is the key culprit, with prices surging 12 per cent in the month, reversing most of the decline seen since October."

As for trade, economists generally expect Statistics Canada to report that the country's deficit narrowed in February from January's $4.2-billion, though their numbers differ.

"The trade deficit remained just a hair away from its widest point on record [in January], but there could be some good news in store," said CIBC senior economist Royce Mendes.

"Part of [January's] shortfall came as a result of greater imports in the always-volatile aircraft sector, something that isn’t expected to have been repeated in February," he added.

"A slightly stronger Canadian dollar cheapens imports and leaves some reason to believe that the deficit narrowed further to $3.1-billion in the latest month."

The U.S. also reports its February trade numbers, and economists expect a fatter deficit of US$53.5-billion.

Quarterly results include those from Bank of New York Mellon, Kinder Morgan Canada Ltd., Metro Inc. and PepsiCo Inc.

THURSDAY

Analysts expect Statistics Canada to report some good news among retailers, with sales rising in February by 0.5 per cent, having dipped a month earlier.

"Monthly GDP was able to brush off the weakness in retailing in January, raising our quarterly growth forecast for the Canadian economy to just under 1.5 per cent annualized for Q1," said CIBC's Mr. Mendes.

"A return to the malls by Canadians in February will support that forecast, helping to put the lacklustre fourth-quarter numbers further in the rearview mirror."

The U.S. retail sales report, in turn, is expected to show a jump of up to 1 per cent in March.

"A healthy labour market and tame inflation will support real consumer spending ahead, especially with the Fed now poised to remain on hold for 2019," said CIBC economist Katherine Judge.

“As job creation slows, a sizeable savings cushion will also be a key source of ammunition for household spending.”

Big earnings day: American Express Co., Kinder Morgan Inc., Philip Morris International Inc. and Rogers Communications Inc.

Required Reading

CIBC shuffles ranks

Canadian Imperial Bank of Commerce is making significant leadership changes that span wealth management, capital markets and retail banking, including naming CEO Victor Dodig’s brother as head of retail brokerage Wood Gundy. Clare O’Hara, Tim Kiladze and James Bradshaw report.

Indigenous-focused fund first of its kind

A new fund dedicated to financing Indigenous economic development offers Canadians the rare opportunity to invest in on-reserve projects through a private asset manager, Tim Kiladze writes. Launched this month, the Indigenous Impact Fund is the first of its kind.

Trump versus the Fed

U.S. President Donald Trump is showing the world how not to run a central bank, Barrie McKenna writes.

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