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Briefing highlights

  • Inflation won’t nudge Bank of Canada
  • Stocks, loonie, oil at a glance
  • Canadian home sales, prices climb
  • Trade war hits economic growth: IMF
  • Big U.S. banks report quarterly results
  • J&J raises its outlook
  • Trade, Brexit: What analysts are saying today
  • Required Reading

You still wake up sometimes, don’t you? You wake up in the dark and hear the screaming of the lambs

— Hannibal Lecter to Clarice Starling in the 1991 film The Silence of the Lambs

Various measures of inflation are running close to the Bank of Canada’s target, meaning there should be little in this week’s reading of consumer prices to nudge the central bank.

Bank of Canada Governor Stephen Poloz, senior deputy governor Carolyn Wilkins and their colleagues have been sitting out the recent rounds of easing among other major central banks.

Bank of Canada senior deputy governor Carolyn Wilkins and Governor Stephen Poloz

Adrian Wyld/The Canadian Press

And they're expected to do so again when they meet late this month.

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Which makes Wednesday's September report on inflation important. Or rather, it would be more important but for the fact that economists expect it to be tame.

Observers generally expect Statistics Canada to report that consumer prices fell in September from August, by about 0.2 to 0.4 per cent, primarily because of seasonal factors related to airline fares. Food costs also are believed to have fallen.

The annual inflation rate, in turn, is projected to come in at between 1.9 and 2.1 per cent, close to or possibly bang on the Bank of Canada's target of 2 per cent.

The central bank’s various measures of so-called core prices, which factor out volatile costs, have also been running close to 2 per cent.

“As both headline and core inflation measures are tracking the Bank of Canada’s 2-per-cent target, there’s no reason for monetary policy makers to give a heavy weighting to consumer prices in their upcoming deliberations,” said CIBC World Markets senior economist Royce Mendes.

"Rather, it will be the outlook for growth, particularly the deterioration in the external environment, which will hold their attention."

As for lamb, Statistics Canada doesn't break out the cost. The agency does, though, track lamb and mutton in an index that measures "other fresh or frozen meat," excluding poultry.

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It may be expensive – “Ontario lamb rack whole” was going for almost $41.45 a kilo at a local grocery - but the butcher told me the price has been stable for quite some time.

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Markets at a glance

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Home sales, prices climb

Canadian home sales and prices climbed in September as housing markets continued to awaken from the policy-induced slumbers.

Sales rose 0.6 per cent from August and 15.5 per cent from a year earlier, the Canadian Real Estate Association said.

Average prices climbed 5.3 per cent from a year earlier, with the MLS home price index, which is considered the best measure, up 1.3 per cent.

Today’s results marked the seventh straight month of sales gains, the group said, putting them 18 per cent above the lows hit in February but 8 per cent below the highs of 2016-17.

Markets, of course, had declined amid measures in B.C. and Ontario to cool them down, and, most importantly, new federal mortgage-qualification stress tests. Now, the risks are different.

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“Home sales activity and prices are improving after having weakened significantly in a number of housing markets,” said Gregory Klump, the group’s chief economist.

“How long the current rebound continues depends on economic growth, which is being subdued by trade and business investment uncertainties.”

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Trade war hits growth

From Reuters:

The U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, the International Monetary Fund warned, adding that the outlook could darken considerably if trade tensions remain unresolved.

The IMF said its latest World Economic Outlook projections show 2019 GDP growth at 3 per cent, down from 3.2 per cent in a July forecast, largely due to increasing fallout from global trade friction.

The forecasts set a gloomy backdrop for the IMF and World Bank annual meetings this week in Washington, where the group’s new managing director, Kristalina Georgieva, is inheriting a range of problems, from stagnating trade to political backlash in some emerging market countries struggling with IMF-mandated austerity programs.

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JPMorgan profit climbs

From Reuters: JPMorgan Chase & Co. reported an 8.4-per-cent rise in quarterly profit, driven by higher revenue from its bond trading business and gains in debt and equity underwriting. Profit for the quarter ended Sept. 30 was US$9.08-billion, or US$2.68 per share, compared with US$8.38-billion, or US$2.34 per share, a year earlier. Analysts on average had expected the bank to earn US$2.45 per share, according to Refinitiv data.

J&J raises outlook

From Reuters: Johnson & Johnson boosted its full-year adjusted profit forecast, as multibillion-dollar sales of its cancer drugs Darzalex and Imbruvica helped it beat estimates for third-quarter profit. J&J said it now expects full-year adjusted earnings per share in the range of US$8.62 to US$8.67. Profit rose to US$4.83-billion, or US$1.81 per share, in the quarter, from US$3.93 billion, or US$1.44 per share, a year earlier. Excluding items, the company earned US$2.12 per share, beating analysts’ expectations of US$2.01 per share, according to IBES data from Refinitiv.

Carney sees smooth transition

From Reuters: Bank of England Governor Mark Carney said there is ample time to ensure an orderly handover to his successor before his scheduled departure next year, and played down the possibility that an interim governor might be needed. “At the moment the commitment is to have an orderly transition from myself to the next governor. There is ample time in order to accomplish that. There’s a wide range of qualified candidates,” he told a panel of lawmakers.

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Chinese factory prices fall

From Reuters: China’s factory gate prices declined at the fastest pace in more than three years in September, reinforcing the case for Beijing to unveil further stimulus as manufacturing cools on weak demand and U.S. trade pressures. September’s producer price index, considered a key barometer for corporate profitability, dropped 1.2 per cent, year over year, National Bureau of Statistics data showed.

German investor sentiment falls less than expected

From Reuters: The mood among German investors worsened less in October than analysts had expected, a survey showed, amid concern that Europe’s biggest economy might be headed for a recession. In its monthly survey, ZEW said that an index showing economic sentiment among investors fell to -22.8 points in October from -22.5 points in the previous month.

Hyundai to invest billions

From Reuters: Hyundai Motor Group said it plans to invest US$34.65-billion) in mobility technology and strategic investments by 2025, as South Korea’s top automaker accelerates its attempts to catch up in the self-driving car race.

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Also ...

What analysts are saying today

“There is reason to be optimistic on the two big issues - U.S./China trade and Brexit - that have been hurting broader economic growth, but there are still plenty of unknowns.” Jennifer Lee, senior economist, Bank of Montreal

“The rally in sterling does reflect a growing feeling the Boris will take the U.K. out of the EU with a deal, even if it includes a short extension. For all the talk of a no-deal Brexit, we are seeing very clear signs that Johnson wants to strike a deal which could spark a huge sterling revival. It seems unlikely that a deal will be agreed and drawn up in time for this week’s meeting, yet the headway made over recent days does signal the possibility of another emergency meeting before the month-end deadline.” Joshua Mahony, senior market analyst IG

“Asia Pacific equities have proven more resilient to the S&P500 as they contain fewer growth stocks. They are somewhat cheap and should benefit from more aggressive monetary easing. Having said that we still have two difficult quarters ahead of us for China. This suggests that some patience is warranted, but the outlook for Asia Pacific equities is more constructive as is the one for local currency and hard currency debt.” Sébastien Galy, senior macro strategist, Nordea Asset Management

“[The Turkish lira is the] best performer overnight, bouncing after yesterday’s selloff on U.S. sanctions, which were milder than they could have been and talk of USD selling from local banks.” Elsa Lignos, global head of foreign exchange strategy, Royal Bank of Canada

“Chinese officials threw cold water on the optimism about Donald Trump’s first phase trade agreement, as they said to be willing to discuss more before signing a deal. We could already feel that the Chinese were not fully satisfied with their Washington visit, unlike Donald Trump. It now looks like Donald Trump needs a deal more than his Chinese counterparts. This is of course just a game of power. The latest trade metrics in China suggest that the emerging market giant also has growing interest in strengthening its trade ties with the U.S.” Ipek Ozkardeskaya, senior market analyst, London Capital Group

“Talks between the EU and U.K. still appear to be stuck in the same old rut, though optimism was rising that some compromises might be forthcoming in the coming days, given comments yesterday from Finnish PM Antti Rinne that more time was needed, raising the prospect of an emergency Brexit summit next week, as well as indications from officials on both sides that there could be a compromise on the Irish border. It still seems likely that an extension will be the most probable outcome given the tightness of the timelines, as well as the proximity of this week’s EU council meeting, and the lack of a majority for anything in the U.K. parliament.” Michael Hewson, chief analyst, CMC Markets

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Required Reading

CannTrust to destroy cannabis

CannTrust Holdings Inc. says it will destroy $77-million worth of cannabis in an attempt to get Health Canada to restore its licences, $26-million more than the previously disclosed estimate of the amount it would have to discard. David Milstead and Mark Rendel report.

Holes and contradictions

Party platforms are pocked with glaring holes and outright contradictions, Barrie McKenna argues.

About those returns

Personal finance columnist Rob Carrick looks at five costs that are killing your investment returns, and what to do about them.

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