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A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Citi economist Veronica Clark published a report noting that based on the Canadian yield curve alone, there is a 60-per-cent probability of a domestic recession ahead. However, Ms. Clark believes this number overstates economic risks,

“We estimate a number of models for the probability of recession in Canada using both US and Canadian [two-year/ ten-year bond yield differential] and [three month/ten-year] yield curves … Overall, Canadian 2s10s and US 3m10s were the best predictors of a Canadian recession and both suggest about a 60% probability of a recession within the next 12 months … we would not take the 60% implied probability of a recession in the next 12 months entirely at face value, as Canadian yields are very sensitive to global yields and global factors and thus do not just reflect domestic conditions. .. While exports and business investment still slowed in this period, a key support for overall activity was still-solid consumption … An abundance of data releases will provide the last key data points necessary to fine-tune our tracking of Q2 real GDP growth, which we currently estimate at 3.4%.’

“@SBarlow_ROB C: Canadian yield curve says recession, but can't take that at face value” – (research excerpt) Twitter

“Forecast Update: Trade Risks Should Prompt Bank of Canada to Cut Rates by 50 Basis Points” – Scotiabank


Gluskin Sheff economist David Rosenberg called the focus on the yield curve “ridiculous” in a BNN Bloomberg interview, but that’s because he believes there’s a lot of other things investors should be more worried about,

“'This is going to be a capital-spending-led recession,' Rosenberg, the senior economist and strategist at Gluskin Sheff + Associates told BNN Bloomberg in an interview on Thursday. ‘The consumer will follow like a domino.’'What really hit me in the second quarter was the negative sign in front of U.S. business capital spending. And, what’s happening globally is we are having a collapse in investment growth, and what that’s leading to is a classic savings glut.' … 'Instead of focusing on: ‘Why are interest rates going down so rapidly?’ everyone’s focused on the shape of the yield curve, which I think it ridiculous, because the question that economists should be answering … is why are interest rates plunging?’”

“Focus on yield curve 'ridiculous,' David Rosenberg says” – BNN Bloomberg

“@SBarlow_ROB C: Funding costs and capex “ – (Citi chart) Twitter


Banks in Switzerland are charging wealthy investors to hold their money in savings – the opposite of paying interest on deposits. Merrill Lynch noted that wherever this practice occurs, it will have effects similar to inflation,

“As long as banks do not pass negative rates onto retail depositors, negative policy rates will weigh on their profitability… If banks start passing negative rates onto retail depositors, the effect would be similar to inflation—cash today would be worth more than cash tomorrow. Consumers might respond by consuming more and saving less, boosting GDP growth in the short run. But this “substitution effect” could be offset by what economists call a negative “income effect”: expected erosion of savings could actually make households more conservative”

“@SBarlow_ROB ML: “If banks start passing negative rates onto retail depositors, the effect would be similar to inflation”” – (research excerpt) Twitter


Tweet of the Day:

Diversion: “‘Ringer PhD’: How Do Influencers Make Money?” – The Ringer

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