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Briefing highlights

  • Toronto home prices rise
  • Stocks, Canadian dollar, oil at a glance
  • CIBC, TD quarterly profit slips
  • Canada’s trade deficit narrows
  • Aramco prices IPO at top of range
  • Japan unveils stimulus package
  • Huawei fights back against FCC
  • What analysts are saying today
  • The Canadian dollar ‘looks cheap’
  • Pound ‘continues to carry all before it’
  • India’s central bank holds steady
  • Required Reading

Unaffordability

It shouldn’t take too much longer for the average price of a detached home to hit $1.5-million again in Toronto’s 416 area code.

As The Globe and Mail’s Rachelle Younglai reports, the average price rose 5 per cent from a year earlier to $1.36-million in November.

It has been higher. Indeed, the average topped $1.5-million for a stretch in 2017, peaking at $1.58-million that April, according to the Toronto Real Estate Board.

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But along came the federal bank regulator’s mortgage-qualification stress tests, aimed at heading off a credit bubble, which knocked down Canadian housing markets.

Markets are now on the rebound, with November sales surging 55 per cent in the Vancouver area and 14 per cent in the Toronto region.

The average price across the Greater Toronto Area, which includes the 416 – the city proper – and the suburban 905 area code, stood at just over $1-million in November, with the 905 alone coming in at just shy of $945,000.

The MLS home price index rose 6.8 per cent from a year earlier. Both that and the average price for the GTA marked the “strongest annual rates of price growth” this year, the real estate board said.

Here’s the thing: New listings in the Toronto area tumbled by almost 18 per cent in November from a year earlier, with active listings down more than 27 per cent.

Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist, noted that Toronto’s market has “tightened very quickly,” so the price appreciation is no surprise.

“If the market stays this tight, we could see further acceleration,” he added.

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Jason Mercer, the real estate board’s chief market analyst, agreed.

“Strong population growth in the GTA coupled with declining negotiated mortgage rates resulted in sales accounting for a greater share of listings in November and throughout the second half of 2019,” Mr. Mercer said.

“Increased competition between buyers has resulted in an acceleration in price growth. Expect the rate of price growth to increase further if we see no relief on the listings supply front.”

Just today, KPMG released a survey showing high home prices and consumer debt levels “are making it impossible for many millennials, even those with good-paying jobs, to ever afford a home.”

Seventy-two per cent of millennials want a home, but 46 per cent “say home ownership is a pipe dream,” the poll of 2,500 people, including 1,000 millennials, found.

“The combination of rising house prices, high levels of personal debt and annual incomes that are just a fraction of the cost of buying a home compared with their parents’ generation, is pushing the dream of home ownership out of reach for many millennials,” KPMG partner Martin Joyce said in a statement releasing the findings.

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“This is particularly challenging in the markets of Vancouver and Toronto.”

Affordability is a huge issue in the Toronto and Vancouver areas.

While it improved in the third quarter, according to National Bank of Canada, it still took 89 months to save for a down payment on a Toronto home and 55.9 per cent of income for mortgage payments.

The Toronto Real Estate Board has called for new policies to help deal with the problem.

“The Greater Toronto Area needs flexible housing market policies that will help sustain balanced market conditions over the long term,” John DiMichele, its chief executive officer, said in a statement unveiling the latest numbers.

“All levels of government in Canada plus reputable international bodies have acknowledged that we have a housing supply problem,” he added.

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“In 2020, policy makers need to translate their acknowledgment of supply issues into concrete solutions to bring a greater array of ownership and rental housing online.”

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Markets at a glance

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CIBC profit slips

Canadian Imperial Bank of Commerce posted a dip in fourth-quarter profit.

Profit slipped to $1.19-billion, or $2.58 a share, diluted, from $1.27-billion or $2.80 a share a year earlier.

On an adjusted basis, profit fell to $1.3-billion or $2.84 a share, from $1.36-billion or $3.

Return on equity declined to 12.9 per cent from 15.3 per cent. Adjusted, those numbers were 14.2 and 16.4 per cent, respectively.

Loan loss provisions rose in the quarter to $402-million from $264-million.

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National Bank analyst Gabriel Dechaine described the impact as “negative,” citing the higher provisions in CIBC’s Canadian personal and commercial business, among other things.

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TD profit declines

Toronto-Dominion Bank, in turn, also reported a dip in fourth-quarter profit, to $2.86-billion, or $1.54 a share, from $2.96-billion or $1.58.

Adjusted, profit slipped to $2.95-billion or $1.59 from $3.05-billion or $1.63.

Return on equity slipped to 13.6 per cent from 15.8 per cent. Adjusted, it declined to 14 per cent from 16.3 per cent.

Loan loss provisions climbed to $891-million from $670-million.

National Bank’s Mr. Dechaine also described the impact of TD’s quarter as “negative,” citing loan losses, among other things.

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Citigroup analyst Maria Semikhatova said the miss on analysts’ estimates was “driven by weaker-than-anticipated performance across all the divisions.”

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Trade gap narrows

It’s not much, but we’ll take what we can get: Canada’s merchandise trade deficit narrowed marginally to $1.1-billion in October from September’s revised $1.2-billion, partly because of an art show.

This came as exports climbed 0.8 per cent, eclipsing the 0.5-per-cent rise in imports, Statistics Canada said today.

Stripping out price effects, export volumes climbed 0.7 per cent.

“Exports of consumer goods rose 5.5 per cent in October, mainly on higher exports of miscellaneous goods and supplies,” the statistics agency said.

“This category, which includes a wide variety of products, posted a significant increase of $532-million in October as a result of higher exports of art work such as paintings and sculptures,” it added.

“These fine art pieces were destined to an art fair in New York that began at the end of October. Items that do not sell could be brought back and subsequently included in Canada's import statistics.”

Energy exports also rose.

And here’s the China impact:

“Partially offsetting the overall gain, exports of farm and fishing products (-12.6 per cent) posted the largest decline in October, mostly on lower shipments of other crop products (mainly soybeans) to China,” Statistics Canada said.

“Following a strong start in the first of half of 2019, exports of other crop products have decreased significantly in the past two months, reaching their lowest level since 2012. In 2018, more than one-third of these exports were destined to China; this ratio has fallen to less than 11 per cent so far in 2019.”

BMO senior economist Robert Kavcic said of the report: “Trade remains sturdy and unlikely to add or subtract meaningfully from Q4 growth. And there’s little here to alter this week’s Bank of Canada tone, which has shown increasing disinterest in cutting rates.”

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BoC sees no need to move in lockstep

Bank of Canada deputy governor Timothy Lane defended the central bank’s unique course on interest rates, saying the “resilient” Canadian economy has dictated that the bank not move in lock-step with rate cuts this year in the United States and elsewhere, The Globe and Mail’s David Parkinson reports.

In the prepared text of a speech in Ottawa, Mr. Lane said the divergence of Canadian and U.S. rate policy this year - the U.S. Federal Reserve has cut three times, while the Bank of Canada has held steady - reflects not only the different paths the two countries’ economies have taken in recent years, but also the risks Canada faces from elevated, rate-sensitive household debts.

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Ticker

Aramco prices IPO at top of range

From Reuters: State-owned oil giant Saudi Aramco’s initial public offering will be the biggest in history, but will still fall significantly short of the US$2-trillion valuation long sought by Crown Prince Mohammed bin Salman. Aramco priced its IPO at 32 riyals (US$8.53) per share, the top of its indicative range, according to three sources familiar with the decision, raising US$25.6-billion and beating Alibaba’s record US$25-billion listing in 2014. At that level, Aramco has a market valuation of US$1.7-trillion, comfortably overtaking Apple as the world’s most valuable listed firm.

Japan unveils stimulus

From Reuters: Japan’s cabinet approved an economic stimulus package worth YEN 26-trillion yen, with fiscal spending of YEN 13.2-trillion yen, aimed at preventing overseas risks from damaging both exports and domestic demand, government officials said. The government said the new economic package would boost real domestic product by 1.4 per cent through the fiscal year to March, 2022.

Stroll seeks Aston Martin stake: report

From Reuters: Canadian billionaire Lawrence Stroll, owner of Formula One team Racing Point, is preparing a bid for a major stake in Aston Martin, Autocar magazine reported, sending the luxury sports car maker’s battered shares up sharply. Aston Martin, the drive of choice for fictional British secret agent James Bond, has seen its shares slump since its flotation in October, 2018, as sales have failed to meet expectations. Stroll, who is the father of Formula One driver Lance Stroll, is heading up a consortium looking to take a “major shareholding” in the British company, Autocar and the racefans.net website reported.

Huawei fights back

From Reuters: China’s Huawei has mounted a legal challenge against the U.S. Federal Communications Commission after the body designated the technology giant as a security threat and moved to bar it from a government subsidy program. The FCC last month voted unanimously to designate Huawei and peer ZTE Corp. as national security risks, barring their U.S. rural carrier customers from tapping an government fund to purchase Huawei or ZTE telecommunications equipment. Huawei said Thursday it filed a petition with the Fifth Circuit Court in New Orleans challenging the FCC decision.

Also ...

What analysts are saying today

“Yesterday's policy inaction from the Bank of Canada gave the [Canadian dollar] a lift, just as the [Reserve Bank of Australia’s] less-dovish-than-expected meeting had supported the [Australian dollar]. The Canadian dollar looks cheap relative to recent rate and yield moves (it ought to be closer to 1.25) and expensive relative oil prices. It's cheap to the dollar on a [purchasing power parity] basis, and surely that ought to matter given the length of the joint border (oh, no it doesn't, cries the audience). But we still prefer [the Canadian dollar] to either [the Australian dollar] or the mysteriously strong [New Zealand dollar]. Kit Juckes, global fixed income strategist, Société Générale

“Another U.K. election poll last night continues to give the Conservatives a solid 10-point lead over Labour, as the final week of campaigning gets underway. The pound continues to carry all before it, hitting a seven-month high versus the dollar, while against the euro it is unstoppable, reaching levels not seen since May, 2017. All this could look decidedly wrong-headed if the election does not go the way the polls suggest, but sterling bulls continue to enjoy their day in the sun.” Chris Beauchamp, chief market analyst, IG

“There continues to be chatter that both [the U.S. and China] are looking to strike phase one of the trade deal this month - which would probably include the rolling back of tariffs. That being said, dealers haven’t forgotten the remarks from President Trump that a deal could be delayed until after the 2020 presidential election. The unpredictability of Mr Trump has not been forgotten by some dealers, which is why European equity markets don’t have a clear direction.” David Madden, analyst, CMC Markets

“The Reserve Bank of India (RBI) surprised market participants today by leaving the benchmark repo and reverse repo rates unchanged at 5.15 per cent and 4.9 per cent, respectively. The decision follows five consecutive interest rate reductions between February and October, totalling 135 basis points … There was an unanimous agreement within the six-member monetary policy committee (MPC) to leave interest rates on hold while maintaining an ‘accommodative’ monetary policy stance. Despite India’s current weak economic growth momentum that highlights the need for continued stimulus efforts, the MPC decided to pay more attention to the country’s recent inflation dynamics.” Tuuli McCully, head of Asia-Pacific economics, Bank of Nova Scotia

Required Reading

As good as it gets

Richard Baker’s bid for HBC is as good as it gets, says head of company’s special committee. Andrew Willis and David Milstead report.

Telus to buy German company

Telus Corp. is buying control of a German business-services company in a $1.3-billion deal to bulk up its international unit, which the Canadian telecom company says it plans to take public. Alexandra Posadzki reports.

How long?

Despite a flurry of global rate cuts, the Bank of Canada is holding steady. But how long will this last, economics writer David Parkinson asks.

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