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Briefing highlights

* Many Canadians face mortgage heartache

* And look at those gas prices

* What to expect from Poloz today

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* Markets at a glance

* Canada’s economy perks up

* Encana profit slips in first quarter

* Watch iPhone sales when Apple reports

* BMO to acquire KGS-Alpha Capital Markets

* Shopify sinks on earnings

Dental surgery

Canadians face heartache as borrowing costs rise, and markets will be watching Poloz today

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Many Canadians are headed for the mortgage equivalent of dental surgery.

Both can hurt – a lot – but your banker doesn’t give you the benefit of freezing as you sit trembling in the chair.

And as David Rosenberg and other analysts point out, many of us are headed for untreated pain in the wake of Canadian banks beginning to raise their rates as bond yields rise.

“This is going to be problematic for the 47 per cent of Canadian mortgages set to be refinanced over the coming year,” said Mr. Rosenberg, chief economist at Gluskin Sheff + Associates, also citing the impact on the housing market from what are known as the new B20 mortgage-qualification rules.

“Not to mention the 53 per cent of Canadians with loan-to-value ratios of 80 per cent or more, considering that the rise in mortgage rates, layered on top of the recent B20 rules, will crimp housing affordability and demand and exacerbate the downtrend in home prices – in the [Greater Toronto Area], in particular – as they continue to roll off their bubbly peaks,” he added.

“Even among low-ratio mortgage borrowers, the leverage is so acute that 34 per cent have loan-to-income ratios greater than 450 per cent in Toronto (up from 25 per cent in 2014), and in Vancouver that share is at 38 per cent at last count (from 33 per cent in 2014).“

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We’ll hear more about this today when Bank of Canada governor Stephen Poloz speaks to a business group in Yellowknife.

Bank of Canada governor Stephen Poloz

Justin Tang/The Canadian Press

Mr. Poloz’s topic is household debt, for which we Canadians are famous, and just how big the problem is.

“The governor is scheduled to deliver what will be a closely watched speech on household debt, responding to concerns raised in recent monetary policy reports as he reviews vulnerabilities that have grown within Canada’s spectacularly indebted household sector – but traders shouldn’t expect him to express any sense of alarm,” said Karl Schamotta, director of global market strategy at Cambridge Global Payments.

“Policy makers have previously highlighted higher levels of interest-rate sensitivity as a factor in keeping the bank on a very gradual monetary policy tightening path, and Poloz will likely cite recent evidence indicating that debt accumulation has finally begun to slow,” Mr. Schamotta added.

This comes, of course, as gas prices are rising at the same time. That’s not pretty, either.

“The incremental debt-servicing strains are going to put the domestic consumer in the penalty box for an extended period of time,” Mr. Rosenberg said of household debt.

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“The extra bite from higher gasoline prices isn’t going to help out, either.”

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Markets at a glance

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Economy perks up

Canada’s economy is picking up after kicking off the year with a mild contraction.

Gross domestic product expanded in February by 0.4 per cent, having dipped in January.

“That’s the biggest monthly increase since May last year,” noted National Bank senior economist Krishen Rangasamy.

“The breadth of increases is encouraging, particularly rebounds in agriculture, mining, oil and gas, retail, arts-recreation, professional services and information,” he added.

“Weakness in real estate persisted, albeit not surprising in light of sinking home sales during the month. The overall results, while positive, are unlikely to result in real GDP growth north of 2 per cent annualized in Q1.”

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Encana profit slips

Encana Corp. profit slipped in the first quarter, though the Canadian energy giant heralded “solid” results on operating earnings.

“The first quarter marked a solid start to the year and reinforces our confidence in our plan to deliver more than 30-per-cent growth within corporate cash flow,” chief executive officer Doug Suttles said in unveiling the numbers.

Profit slipped to $151-million from $431-million a year earlier, while operating results rose to $156-million from $104-million.

“The company is on track to increase total production by more than 30 per cent in 2018 compared to 2017, adjusted for 2017 dispositions,” Encana added.

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Apple in spotlight

Markets are awaiting Apple Inc. results amid questions about slowing iPhone sales.

The tech giant reports after markets close today.

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“We are lowering our Apple estimates ahead of the May 1 earnings call, as we believe Apple will guide down on weaker iPhone expectations,” said Bank of Montreal analyst Tim Long.

“We believe price elasticity and lengthening smartphone replacement cycles are mostly to blame, and we do not expect the issue to be solved by the next cycle.”

Canaccord Genuity analyst T. Michael Walkley also flagged the issue after talking to industry contacts, believing slow iPhone sales “will likely persist” until Septembers launch of new products.

As for shareholders, “we anticipate Apple will likely announce an increase to its share repurchase program and dividends on the May 1 earnings call,” Mr. Walkley said.

“Therefore, we have increased our share repurchase expectations to somewhat offset our lowered iPhone unit estimates,” he added, now expecting earnings per share of US$11.38 this year and US$12.52 next, down from US$11.60 and US$12.57, respectively.

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