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Briefing highlights

  • What a housing bust would mean
  • What to expect on home prices this week
  • What to watch for on household debt
  • Our special executive compensation report
  • Immelt to retire from GE
  • Extreme shorting of loonie eases
  • What to watch for from the Fed

First, the good news

We’re going to hear a lot this week about our nasty credit habits and the inflated home prices for which we’re using that borrowed money.

But first, the good news (or small comfort, or whatever you want to call it): The Bank of Canada says a bust in the frothy Toronto or Vancouver housing markets wouldn’t drag the country down with it.

That was one of the takeaways from the central bank’s review of the financial system last week, as The Globe and Mail’s David Parkinson reported, and one of the new noteworthy elements of that report.

The central bank cited mounting concerns over household debt and bubbly housing markets, but added that the threat of a U.S.-style meltdown that would lead to a broader crisis isn’t part of the scenario.

The central bank also said Ontario’s new measures to tame the overheated markets in and around Toronto should ease the risk. But remember, Vancouver is now on the rebound after slumping in the immediate aftermath of B.C.’s measures.

To be clear, most observers aren’t forecasting an all-out meltdown, but rather a modest correction, or soft landing, as they say. But the threat is certainly there.

As the Bank of Canada sees it, a full-on bust in the Toronto and Vancouver regions would have “modest direct spillovers to housing markets in the rest of the country.”

That’s the good news. For the rest of Canada.

But in a list of threats and vulnerabilities, the key one for B.C. and Ontario is found under “Risk 2,” which the central bank views as a “moderate” one.

“The house price correction assumed in Risk 2 has its largest effects on the British Columbia and Ontario economies, with important direct effects on residential investment, related consumption spending such as on furniture and appliances, and real estate services,” the Bank of Canada said.

“The fall in house prices also leads to negative wealth and collateral effects, which further weigh on consumption spending,” it added.

“These impacts are amplified in the affected provinces by the elevated share of highly indebted households, as discussed in Vulnerability 1, as well as by the resulting decline in consumer confidence ... Smaller lenders concentrated in Ontario and British Columbia would see a greater portion of their assets affected than large Canadian financial institutions would.”

We’ll get a further sense of this on Wednesday, when Statistics Canada releases its quarterly report on household debt and wealth.

This is the report that, last time out, put the key measure of household debt to disposable income at a fresh high.

Wednesday’s report is for the first quarter, or before the new Ontario measures, and there are caveats here.

“Canada’s household debt ratio likely retreated in Q1 from the record high hit in the fourth quarter,” said Benjamin Reitzes, Canadian rates and macro strategist at BMO Nesbitt Burns.

“Before getting too excited, keep in mind that the ratio is not seasonally adjusted and generally declines in the first quarter (it has fallen for seven straight Q1s),” he added.

“However, the housing market in the Golden Horseshoe was nothing short of scorching to start the year, and that could mean a smaller decline in the debt ratio than usual.”

There may be much angst but the overall finances of Canadians are nonetheless in “decent shape,” Mr. Reitzes added.

“Admittedly, households are vulnerable to higher rates, but it doesn’t look like big rate increases are coming any time soon.”

As Mr. Reitzes also noted, we already know from the monthly reports of local real estate boards that the Toronto market is cooling as Vancouver shows renewed signs of life.

We’ll get the national picture Thursday, when the Canadian Real Estate Association releases its May report on sales and prices.

BMO expects the report to show home sales down 5.5 per cent from a year earlier, and average prices up 6.5 per cent.

The MLS home price index, which is seen as a better measure, is expected to show the pace of growth easing from April’s rate of almost 20 per cent.

What’s that look like? Still a nice round 18 per cent, BMO says.

Executive compensation

Median pay changes for CEOs of Canada's biggest companies

GE names new chief

General Electric Co. has a new CEO as Jeff Immelt heads toward retirement.

John Flannery, now chief of GE Healthcare, will take the helm at the beginning of August, while Mr. Immelt remains chairman through to the end of the year.

Mr. Flannery will hold both roles come Jan. 1, GE said.

Shorting eases

The extreme shorting of the Canadian dollar is easing, albeit modestly.

The net short position against the loonie dipped last week to just over $7-billion (U.S.) from almost $7.3-billion a week earlier, according to numbers released Friday by the U.S. Commodity Futures Trading Commission.

In contract terms, the net short position eased to 94,500 from more than 98,000.

What to watch for this week

Chair Janet Yellen and her Federal Reserve colleagues take centre stage Wednesday.

But, as economists at Royal Bank of Canada noted, the Fed’s expected bump to its benchmark rate will be “the least interesting hike so far.”

Everyone expects the U.S. central bank to raise the fed funds rate by one quarter of a percentage point, bringing the target to a range of 1 to 1.25 per cent.

That, said RBC, is a “baked-in-the-cake” move, as far as the market is concerned. It’s what the signals suggest in terms of the next increase, and how fast it comes, that markets are watching for.

“More important will be 1) any material changes to the economic/inflation assessment in the statement (the market has reacted impulsively to these in the past) and 2) Yellen’s press conference, where we should get a bit more detail on balance sheet run-off,” RBC said.

The rest of the calendar:


Boring so far. But you never know what Theresa May might do.


Boring. But you never know what Donald Trump might tweet.


Here’s where it picks up, with the Fed decision and Statistics Canada’s debt-wealth report.

But there are also the latest readings of U.S. inflation and retail sales, both for May. Analysts expect to see annual inflation of about 2 per cent, and retail sales pretty much flat.

On the corporate front, Oracle Corp. reports quarterly results.


While most of us will be watching to see how much more our homes are worth, there’s also Statistics Canada’s monthly report on manufacturing.

Economists expect to see that sales rose in April by about 1 per cent or better from a month earlier.

But the forecast isn't as bright for the lumber and auto industries, said Nick Exarhos of CIBC World Markets.

“Countervailing duties imposed in May were aimed at shrinking Canadian import penetration in the U.S.,” he said of the Trump administration slapping levies on softwood lumber.

“Furthermore, a slowdown in auto sales stateside, and longer than normal summer shutdowns at production facilities, will crimp related domestic exports and output. As a result, further progress could be slower than what we’ve seen recently, with the current year-on-year rate of growth poised to ease ahead.”


Back to boring at this point, which might just be a great way to head into a weekend with summer about to dawn.

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