A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Bloomberg’s review of Canadian bank earnings includes a warning about weakening credit conditions,
“Toronto-Dominion, Canada’s second-largest lender by assets, set aside C$850 million ($645 million) for soured loans in the quarter ended Jan. 31, up 23 percent from a year earlier and the highest level in at least two years .. CIBC’s provisions more than doubled across the bank, surging to C$338 million -- also the highest in at least two years. Most came from Canadian personal and small-business banking, the lender’s largest division, which saw a 41 percent jump in provisions to C$208 million.”
“Credit Concerns Emerge in Canada as TD, CIBC Miss Estimates” – Bloomberg
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BMO economists noted a near collapse in construction activity underlying the disappointing gross domestic product results last week,
“The big story in Canada’s latest GDP report was not so much the soggy headline (0.4% annualized, in Q4), but the breadth of the disappointment… the low-light was construction: Output in the sector fell 0.9% in December alone, is now down 7 consecutive months, and has dropped a whopping 6.3% y/y. That is by far the weakest major industry component of GDP in the past year … Canadian residential investment (which includes new construction, resale activity and renovations) has fallen in three of the past four months, and is now down 7.5% from a year ago in real terms. Historically, declines of this magnitude in such an important sector have usually correlated with a broader recession (1995 was one false positive, but that wasn’t exactly a jubilant time).”
“@SBarlow_ROB BMO on residential investment: "Historically, declines of this magnitude in such an important sector have usually correlated with a broader recession"” – (research excerpt) Twitter
“Grimmer fairy tales: The ‘Three Bears’ of Canada’s economy” – Babad, Report on Business
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The economic news is not all bad this morning as signs of stability were apparent in European data.
The EU has been the centre of the global slowdown in recent months, to the point where Mohamed El-Erian warned investors that “People are underestimating how quickly Europe is slowing."
“Euro Area’s Resilient Services Puts Mild Gloss on Economy” – Bloomberg
“Europe's slowdown is worse than investors imagined: El-Erian” – Reuters
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The Financial Times’ Michael Mackenzie believes that ‘the easy money has been made’ on the 2019 equity rally,
“The easy money has been made, with a classic rebound gaining plenty of support from central banks spooked by financial turmoil that peaked in December… A very interesting development over the past month has been the notable slide in the Citi Economic Surprise index for the US and one that has taken out its 2018 nadir…. This brings us to the market’s great hope of a silver bullet for risk in the form of a trade deal. Not so fast, argues Neil Shearing at Capital Economics, who takes aim at the popular market narrative by pointing out that weakening global trade in recent months does not reflect US-China protectionism.”
“A V-shaped recovery needs more rocket fuel” – Financial Times (paywall)
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Tweet of the day:
Diversion: “What Was the Happiest Day on the Internet This Decade?” – The Ringer