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Briefing highlights

  • No backyard
  • Stocks, loonie, oil at a glance
  • Canada’s jobs market strengthens
  • Renault names new CEO
  • What analysts are saying today
  • U.S.-China talks buoy investors
  • Required Reading

No backyard

Yes, you may be able to afford a new home in Toronto. No, you may not be able to afford a backyard.

Because that home may well be a condo.

Bank of Montreal senior economist Robert Kavcic noted that housing starts for single-family homes in the Greater Toronto Area have averaged only 4,300, at an annual pace, in the last year. That’s the lowest on record since 1990, he said.

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Construction starts for condominiums, on the other hand, have topped 30,000, also at an annual pace.

“This goes back to land-use constraints and intensification requirements that continue to render single-detached homes more scarce as a share of the overall housing stock, year after year,” Mr. Kavcic said.

“This comes at a time when the leading edge of the millennial group is having their first or second child – and looking for a backyard,” he added in a report titled “Toronto backyards still scarce.”

“As a result, the sudden firmness in the $1-million to $1.5-million range of the resale market (i.e., the cheapest single-detached homes in the city) is no surprise after a brief correction. In econ-nerd terms: The demand curve keeps shifting out, but the supply curve isn’t moving, and keeps steepening.”

Housing markets have rebounded from the lows sparked by the federal bank regulator’s new mortgage-qualification stress tests at the start of 2018.

Buoying those markets are a drop in mortgage rates, solid job gains, a new program for first-time buyers, and population increases, said Mr. Kavcic’s colleague, BMO senior economist Sal Guatieri.

“Home sales and prices are likely to continue rising at a more measured pace in 2020, while construction will need to stay elevated to keep pace with household formations,” Mr. Guatieri said in an economic forecast.

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Supply is a big issue, and affordability and home ownership is playing into the federal election campaign.

On Thursday, for example, Royal LePage chief executive Phil Soper warned the political parties against making promises that could inflate prices amid low supply.

The Liberals want to tax non-resident foreign owners of real estate, among other measures already introduced, while the Conservatives promise to extend amortizations to 30 years for insured mortgages.

The Tories have also said they’ll re-examine the new stress test.

“Well-intentioned election promises aimed at making housing more accessible and affordable to first-time buyers will fall flat if they trigger a surge in demand without a corresponding increase in the supply of homes,” Mr. Soper said in releasing Royal LePage’s latest look at housing markets.

If you look at all housing starts across the country, you’ll see that not that much has changed, though September saw a dip from August, according to the latest numbers from Canada Mortgage and Housing Corp.

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But for the third quarter, noted David Rosenberg, chief economist at Gluskin Sheff + Associates, starts were running at an annual pace of 223,300, little changed from the second quarter’s 223,700.

“To be sure, this further ratifies the recovery in Canadian housing data from the beginning of the year as have now returned to building above the 200,000 (annualized) trend in household formation,” Mr. Rosenberg said in a report.

But he noted, too, that starts on multiple units across Canada have “taken a bit of a breather,” declining for the third straight month, and it is this housing type that “has been the main driver this cycle so a slowdown here is important to look out for.”

“For example, lowering monthly mortgage payments by stretching repayment over a longer time period looks great on the surface, yet a surge in new buyers could cause prices to escalate, erasing the enhanced purchasing power.”

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Markets at a glance

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Jobs market strengthens

The labour market turned in another solid performance in September, according to the latest measure by Statistics Canada, with 54,000 net job gains and unemployment declining to 5.5 per cent from 5.7 per cent.

Those numbers are far better than economists had projected.

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Not only that, Statistics Canada said the economy created 70,000 full-time positions, with a loss of more than 16,000 in part-time work. Self-employment rose by 42,000.

The private sector lost 21,000 jobs.

“Canada's labour market seems to have been vaccinated against the global economic flu going around,” said CIBC World Markets chief economist Avery Shenfeld.

“With resources a key exception, the 12-month trends are generally healthy, and average wages for permanent workers were up 4.3 per cent from a year ago, a figure that does look suspiciously high but does signal a firming in pay scales,” he added.

“A jobless rate of only 5.5 per cent will cement the case for the Bank of Canada to remain on hold in October, but we continue to look ahead towards the global slowdown impacting Canadian data over the balance of the year.”

Ontario alone chalked up 41,000 new jobs, with unemployment in the province dropping 0.3 of a percentage point to 5.3 per cent. Nova Scotia also saw gains.

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Over the course of a year, employment has now climbed 2.4 per cent, or by 456,000 positions.

“There were more people working in health care and social assistance, as well as in accommodation and food services,” Statistics Canada said.

“At the same time, there were declines in information, culture and recreation, and in natural resources,” the agency added.

“The number of self-employed workers increased, as did the number of employees in the public sector.”

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Renault names new chief

Renault has shuffled its top ranks, replacing Thierry Bolloré as chief executive officer with Clotilde Delbos on an interim basis.

Ms. Delbos, who has been with Renault since 2012, was most recently chief financial officer of Groupe Renault.

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“At this meeting, the board of directors decided to end the mandate of Mr. Thierry Bolloré as chief executive officer of Renault SA and president of Renault s.a.s. with immediate effect,” the French auto maker said.

“The board of directors also decided to appoint, with immediate effect, Mrs. Clotilde Dlebos as chief executive officer of Renault SA for an interim period, until a process is completed to appoint a new chief executive officer.”

Bolloré wasn’t in the job that long, taking over from Carlos Ghosn who faces charges in relation to compensation. Ghosn disputes the allegations, and none have been proven in court.

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What analysts are saying today

“Positive vibes around U.S., China trade talks as well as Brexit talks has seen the pound and global stock markets rise strongly over the last 24 hours, as optimism grows that we might see a breakthrough in one, or even both … On U.S., China trade we’ve also seen rising optimism after President Trump said that talks were going well and that he would be meeting Chinese vice Premier Liu He later today. There is no doubt that a pause in further tariffs would be welcome, while a partial agreement on aspects that were agreed before the breakdown in talks would also be positive. The question is on whether either side can sell this at home, with Chinese leaders also under pressure to not be seen to bend too much. “ Michael Hewson, chief analyst, CMC Markets

“Irrespective of the lack of progress at the talks potentially, one should focus on the fact that the president was willing to hold against conservatives, making a trade deal far more likely. We are in the first steps of a first pass agreement likely covering agriculture and some manufacturing, with more to be negotiated in the next quarters.” Sébastien Galy, senior macro strategist, Nordea Asset Management

“Regardless of the present optimism, it is important to keep our feet on the ground. Positive news does not necessarily mean that China would get away with more tariffs on its U.S. exports as scheduled for next week, unless both parties explicitly state the contrary.” Ipek Ozkardeskaya, senior market analyst, London Capital Group

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Ticker

BP to divest, take charges

From Reuters: BP will take charges of US$2-billion to US$3-billion in the third quarter, the British energy firm said, as it looks to reach divestments worth US$10-billion by the end of 2019, a year ahead of schedule. In a statement, London-based BP said it expects to agree to asset sales of US$10-billion by the end of the year after its US$5.6-billion sale of its Alaskan business to Hilcorp and divestments in U.S. shale gas.

Oil markets quickly recovered: IEA

From Reuters: Global oil markets have quickly recovered from attacks on Saudi oil facilities last month and even face oversupply next year as global demand slows, the International Energy Agency said. “Oil markets in September withstood a textbook case of a large-scale supply disruption,” the Paris-based agency said. “Prices fell back as it became clear that the damage, although serious, would not cause long-lasting disruption to markets.”

Hugo Boss trims forecast

From Reuters: German fashion house Hugo Boss cut its 2019 earnings forecast again, citing weak demand in the United States and Hong Kong, and reported third quarter results that were below its expectations. Hugo Boss now expects 2019 operating earnings before interest and tax to fall to between €330-million and €340-million, down from €347-million last year.

Hyundai, Kia earmark money

From Reuters: Hyundai Motor Co. and affiliate Kia Motors Corp. have earmarked a total of US$757.86-million to settle U.S. class action litigation and address engine-related issues in the United States and South Korea. The latest settlement provides installation of a software update to boost safety and performance, as well as cash compensation options, lifetime warranties, free inspection and repair of the covered engines, the auto makers said in a statement.

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What analysts are saying today

“Positive vibes around U.S., China trade talks as well as Brexit talks has seen the pound and global stock markets rise strongly over the last 24 hours, as optimism grows that we might see a breakthrough in one, or even both … On U.S., China trade we’ve also seen rising optimism after President Trump said that talks were going well and that he would be meeting Chinese vice Premier Liu He later today. There is no doubt that a pause in further tariffs would be welcome, while a partial agreement on aspects that were agreed before the breakdown in talks would also be positive. The question is on whether either side can sell this at home, with Chinese leaders also under pressure to not be seen to bend too much. “ Michael Hewson, chief analyst, CMC Markets

“Irrespective of the lack of progress at the talks potentially, one should focus on the fact that the president was willing to hold against conservatives, making a trade deal far more likely. We are in the first steps of a first pass agreement likely covering agriculture and some manufacturing, with more to be negotiated in the next quarters.” Sébastien Galy, senior macro strategist, Nordea Asset Management

“Regardless of the present optimism, it is important to keep our feet on the ground. Positive news does not necessarily mean that China would get away with more tariffs on its U.S. exports as scheduled for next week, unless both parties explicitly state the contrary.” Ipek Ozkardeskaya, senior market analyst, London Capital Group

Required Reading

No clauses, regulator says

Canada’s investment-industry regulator says firms must stop inserting clauses in their contracts with investors that limit the firms’ liability for losses – even in cases where the firm’s employees have broken rules and recommended unsuitable investments. David Milstead and Clare O’Hara report.

Pot sector selloff

Hexo Corp. says it expects fourth-quarter sales to be much lower than previously estimated and withdrew its 2020 revenue forecast amid a sluggish industry-wide environment for Canada’s licensed cannabis producers, sending the company’s shares plummeting and sparking a sector selloff, Niall McGee writes.

Saving to spending

It’s hard to go from saving to spending when you retire, personal finance columnist Rob Carrick says.

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