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Top Links: ‘Hooked on housing’ economy presents political dilemma

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

Merrill Lynch economist Emanuella Enenajor writes that the Canadian economy is "hooked on housing" and this provides a difficult dilemma for domestic politicians, particularly in Ontario. Ms. Enenajour writes, "In the past eight quarters, residential construction has directly added an average 0.3 pp to real GDP growth. This is around a third of total economic growth [and] Gains in residential real estate and land have accounted for roughly half of the increase in household net worth over the past year."

CIBC is recommending that governments take measures to curb foreign housing sales in Toronto, but it's not hard to see why Premier Kathleen Wynne might be reluctant to do so. A sharp drop in real estate activity means a significant drop in economic growth and nothing causes election losses like a weak economy.

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"@SBarlow_ROB ML: Canada's economy 'hooked on housing' pic.twitter.com/Brj8o8WLle " – (research excerpt) Twitter
"Ontario has little choice but to tax foreign home buyers, CIBC economist warns" – Financial Post

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U.S. economists overwhelmingly expect the U.S. Federal Reserve to refrain from raising rates Wednesday, but two major research houses are warning clients of a "shock hike,"

"Two of the Fed's 23 preferred bond-trading partners - Barclays Plc and BNP Paribas SA - are betting against their peers and the bond market by forecasting officials will raise rates Wednesday. … 'There is no perfect time - there will always be some uncertainties in the data,' said Laura Rosner, senior U.S. economist in New York at BNP. 'Despite a multitude of shocks through the last nine months, which have delayed the Fed, hiring has continued to be robust. There is a window of opportunity for the Fed to continue normalizing, and we think it'll take it.'"

"Two of Fed's Own Primary Dealers Warn Shock Hike Awaits Markets" – Bloomberg
"Largest Junk Bond ETF Sees Bearish Bets Spike Before Fed Meeting" – Bloomberg
See also: "The canary in the 35-year bond bull market is singing" – CNBC

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Bloomberg's Gadfly site warns that little is changing in oil markets and "lower for longer" for crude prices is becoming the consensus view,

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"While talking about freezing supply may have helped to put a floor under oil prices, the outcome of the meeting itself is becoming more redundant by the day as almost all the world's top producers do exactly the opposite. The big-4 Gulf Arab OPEC countries - Saudi Arabia, Iraq, the U.A.E. and Kuwait - are all producing at, or very close to, record levels."

"Introducing The Pre-Freeze Oil Boil" – Gadfly
"Hedge funds turn strongly bullish on U.S. natural gas: Kemp" – Reuters

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Tweet of the day: @NickatFP "Markets are priced for a benign 1986-style scenario" says DB pic.twitter.com/rLIHePT2rl " – Twitter (research excerpt)

Diversion: This is a much more interesting and important report than it sounds from the title, "Sugar and health: Current evidence on sugar and health." – The Royal Society of New Zealand

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