Skip to main content
investor newsletter

Citi global strategist Yasmin Younes has developed the Global Macro Strategy Housing Vulnerability scorecard to assess developed world economies’ sensitivity to rising interest rates. Canada ranks first.

Five criteria were used in the scorecard, a weighted average of private sector credit growth and nominal home price appreciation since 2020, housing price to income, year-over-year change in mortgage rate and percentage of mortgages with terms less than five years. Bloomberg, Macrobond and internal Citi data sources were used.

In terms of credit growth, Canadians’ 18.3 per cent increase easily outdistanced Australia’s second place 14.7 per cent. (Australia was also second in the overall ranking.)

The domestic house price rise of 16.4 per cent was below Australia’s 22.1 per cent, U.K.’s 26.4 per cent and New Zealand’s 26.9 per cent.

But Canada’s 136.3 per cent housing price to income ratio was the highest in the developed world, challenged only by New Zealand’s 131.9 per cent and the U.S.’s 133.0 per cent. The 1.9 percentage point increase in shorter-term mortgage rates was largely in line with the G10 average.

The scorecard was initially designed to allow the strategy team to anticipate central bank policy. Countries like Canada with high rate sensitivity, for instance, should have seen central banks stop raising rates sooner to avoid housing price calamity and significant financial system stress.

Instead, the Bank of Canada has been among the more aggressive central banks in tightening monetary policy, in part because the housing market has apparently bottomed and seems set to move higher and increase inflationary pressure.

There is no consensus as to what the Bank of Canada will do in July. Consider that just yesterday, a BMO strategist published a report predicting further rate hikes while a BofA Securities economist forecasted a pause.

Citi’s housing vulnerability test is a reminder of the heightened economic risk currently embedded in our economy and the extreme downward pressure on financial stocks.

The central bank will have to thread the figurative needle, raising rates enough to quell inflation but not too much and cause a disorderly unwinding of housing-based consumer debt.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Empire Company Ltd. (EMP-A-T) Shares in the grocery retailer jumped this week after the company reported better-than-expected quarterly earnings. As Jennifer Dowty tells us, the company boasts strong leadership, a positive outlook for same-store sales growth and a dividend currently yielding 2 per cent - but near-term price momentum may soon stall.

TerraVest Industries Inc. (TRRVF) With the 2022-23 school year at its end, Dr. George Athanassakos’s MBA value-investing students submitted their final stock picks and analysis. This industrial goods company in particular got the professor’s attention.

The Rundown

Contrarian investors bet U.S. energy shares will shake doldrums in 2023′s second half

A blazing U.S. stock market rally left shares of energy companies behind in the first six months of 2023 as faltering global growth sapped expectations of oil demand. As Reuters reports, some contrarian investors are betting a second half rebound may be in the works.

Also see: Commodity price volatility set to continue amid economic uncertainty

U.S. bond investors eked out positive returns so far this year, see better second half

U.S. government bond investors have racked up positive returns so far this year. It’s a turnaround from the losses of 2022, which marked the end of a 40-year bull market in bonds, as the U.S. central bank rapidly hiked rates to curb the hottest inflation in more than four decades. Reuters reports on why the second half of this year may offer even more opportunity for fixed income investors.

Bitcoin bounces on BlackRock buzz

Bitcoin, the currency created to subvert the financial establishment, has shaken off weeks of sickness with the support of Wall Street’s finest. The original crypto coin has leapt 20% to two-month highs at $30,182 over the past 11 days after BlackRock, the world’s largest asset manager, revealed hopes for a spot bitcoin exchange-traded fund in the United States. Reuters looks at whether the winning streak will continue.

Others (for subscribers)

Wednesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: Business mogul invests $15 million in this dividend stock

Tuesday’s analyst upgrades and downgrades

Economists and markets react: How this week’s inflation report has shifted views on what the Bank of Canada will do next

What’s up in the days ahead

Veteran fixed income fund manager Tom Czitron will share his thoughts on which terms offer the best opportunity in bonds right now.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

Compiled by Globe Investor Staff

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe