Briefing highlights
- BoC to release financial system review
- What to expect on debt, house prices
- What to watch for from bank earnings
- Markets at a glance
- Bitcoin heads toward $10,000
- Torstar, Postmedia swap community papers
- OPEC meets this week: ‘Go big or go home’
- What to expect from GDP, jobs reports
- What else to watch for this week
We're going to hear that popular refrain again this week - we're borrowing too much to buy ever-more expensive homes - and how higher interest rates might be affecting that.
Last week, Canadians were warned yet again by the Organization for Economic Co-operation and Development that our debt burdens rival the highest in the world.
The Bank of Canada will shed more light on that Tuesday when it releases its semi-annual review of the financial system. On top of that will be the latest quarterly financial results from some of the country's major banks, which should give us the latest on the mortgage market.
To recap: The Bank of Canada raised its benchmark overnight rate twice this year, to a still-low 1 per cent, promising to watch for the impact on consumers. Separately, Vancouver's housing market slumped in the wake of a provincial tax on foreign buyers, and is now rebounding. The Toronto area's housing market suffered a similar slump after a similar tax, but it, too, is expected to perk up again.
Also playing into all this are new mortgage rules from the commercial bank regulator, the Office for the Superintendent of Financial Institutions, that will make it harder to qualify for a mortgage.
Which is why markets will be watching closely when Governor Stephen Poloz and his central bank colleagues release the financial system review, followed by a news conference, Tuesday morning.
"Look for household indebtedness and housing to again be listed as key vulnerabilities," said Benjamin Reitzes, the Canadian rates and macro strategist at Bank of Montreal's economics group.
This is a popular refrain from the central bank and others.
"There's much more uncertainty around the outlook for both of these after the BoC's 50 basis points in hikes and the coming OSFI mortgage rule changes," Mr. Reitzes added in a lookahead to the review.
"That's especially the case with the Greater Golden Horseshoe still working through the impact of the Ontario government's Fair Housing Plan. We'll be looking for the Bank of Canada to provide a bit more clarity on how many households could be impacted by the new OSFI measures (e.g., how many households were stretching to the limit to purchase a home)."
Royal Bank of Canada economists noted in their lookahead that home resales in the Toronto area tumbled 27 per cent from a year earlier in the May-to-October period, with prices slipping 6.5 per cent.
"Contrasted with this is a resurgence in Vancouver prices/activity after late 2016 declines and some modest pick-up in other major urban centres," RBC said.
"Recent BoC statements on the housing market have emphasized that they expect supply and demand dynamics to dominate over the medium-term."
Mortgage borrowing growth has eased somewhat, but other consumer credit has picked up. And the ratio of debt to disposable income among Canadian families has been running at or near record levels.
We'll hear more about mortgages, too, when Canada's big banks begin reporting quarterly results Tuesday. As The Globe and Mail's James Bradshaw reports, there are risks heading into next year given that mortgage growth is expected to slow, among other things.
Still, the banks will no doubt cap a strong year when they release those fourth-quarter earnings.
Based on what's publicly known, the mortgage books of the six major banks increased by 1 per cent, or an annual pace of 7 per cent, during the first two months of the fourth quarter, those being August and September, driven by the rise in uninsured mortgages, said National Bank of Canada analyst Gabriel Dechaine.
"More important than the upcoming quarterly growth rate, though, is what banks have to say about their 2018 mortgage growth expectations ahead of revised … regulation," Mr. Dechaine said in a report on what he expects the results to tell us.
"We forecast 2018 asset growth of 4 to 7 per cent in Canadian [personal and commercial] banking segments, which implicitly includes a similar growth rate for domestic mortgages," he added.
"We believe many investors view revised … rules as a trigger to cause mortgage growth to tumble, which would have important implications for the Canadian economy as a whole. We believe this issue (along with pricing data in Toronto, in particular) could act as an overhang on the sector to start the new year."
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- James Bradshaw: After big year, Canada’s major banks likely to post flat finish
- OECD warns of rising private debt as Canada among top countries in red
- Brent Jang, Janet McFarland: 2018 could be real estate’s year of turbulence
- Mortgage sticker shock: Get ready to pay more on renewal, possibly through the nose
- Housing affordability: It’ll be far nastier in Toronto and Vancouver as rates rise this time
- Janet McFarland, Brent Jang: Toronto, Vancouver see home-sales rush ahead of new stress-test rules
- 2018 consumer math: 2% inflation + 1.4% pay raise = you’re screwed
Markets at a glance
"Cryptocurrencies once again are grabbing the headlines, with bitcoin easily surpassing the $9,700 mark as it heads towards $10,000," noted IG market analyst Joshua Mahony.
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What to watch for this week
It's a busy one that will tell us a lot about Canada's economy.
Along with the central bank review and the quarterly earnings from some of the commercial banks, we'll get the latest measure from Statistics Canada on economic growth, plus a monthly look at the jobs market.
There's also a new OECD outlook on global economies, and a key OPEC meeting.
We also move into December, and the countdown to 2018. Where did the year go?
Today: A tad boring
Not a lot, though there are a couple of corporate earnings reports.
Tuesday: Banks and stress tests
Along with the Bank of Canada's financial system review, Bank of Nova Scotia kicks off the earnings reports of the major banks. We'll also see the latest quarterly results from Alimentation Couche-Tard Inc.
The Bank of England also releases its semi-annual look at the financial system and how commercial banks fared on their stress tests.
"On this occasion those stress tests will cover two scenarios, the usual 'annual cyclical scenario' and, for the first time, a 'biennial exploratory scenario,' which will consider how the U.K. banking system would perform in conditions of weak global growth, persistently low interest rates, stagnant world trade amongst other headwinds," RBC economists said.
Wednesday: What Yellen thinks before she leaves
Janet Yellen, in her dying days as chair of the Federal Reserve, gives her economic outlook to a Congressional committee in Washington. Later in the day, the U.S. central bank releases its Beige Book of regional conditions.
Federal Reserve chair Janet Yellen participates in a moderated discussion at New York University’s Stern School of Business, Tuesday, Nov. 21, 2017, in New York
CRAIG RUTTLE/THE ASSOCIATED PRESS
"The Fed's regional economic report should confirm a post-hurricane bounce in the South and ongoing improvement in other areas," said BMO senior economist Sal Guatieri.
"More districts likely reported a 'moderate' rather than 'modest' expansion. We'll also see if more businesses are hiking pay to fill positions and retain workers."
On the earnings front, RBC continues the earnings parade. And Tiffany & Co. reports results.
Thursday: 'Go big or go home' for OPEC
A big day, this.
OPEC holds its meeting in Vienna, and markets are watching for what comes next on its production-cap agreement.
"The stakes are high for OPEC and their non-OPEC producer partners when they assemble [this] week in Vienna," said RBC's global head of commodity strategy, Helima Croft, and colleagues, commodity strategists Christopher Louney and Michael Tran.
"With many market participants anticipating a full-year 2018 extension of the 1.8-million barrel-a-day output cut, anything less could easily produce a sell-off sequel to the May meeting meltdown," they added in a report.
Remember that this meeting follows the recent purge in Saudi Arabia, a country that "seemingly knows the risks entailed in another underwhelming OPEC outcome," the RBC strategists said.
Saudi Crown Prince Mohammed bin Salman attends the Future Investment Initiative conference in Riyadh, Saudi Arabia, on Oct. 24, 2017.
Hamad I Mohammed/REUTERS
You have oil minister Khalid al-Falih and Crown Prince Mohammad bin Salman, whose "grand plan to radically remake the Saudi state stands a greater chance of success in a $60-plus Brent crude price environment," they added.
"Disappointing MBS has shown to be anything but career enhancing, thus we think al-Falih will be further incentivized to stick to the landing [this week]."
("Incentivized" is an interesting choice of words given the recent developments in Saudi Arabia.)
Also a big player here is Russia's Vladimir Putin, whose oil companies don't want an extension of the production cap.
The RBC strategists, though, said they think Putin's view will rule because his agenda will benefit from a "firmer" floor on oil prices.
"While at a minimum we think OPEC will opt to roll the deal until the next June meeting and dispense with the current expiration date, in our view it is more likely than not that OPEC and its producer partners choose to extend the cut through 2018," said Ms. Croft, Mr. Louney and Mr. Tran.
"The stakes for this meeting are high, indeed, and it is a 'go big or go home' event, in our view."
We also have the euro zone's statistics agency with a look at inflation and jobless levels. RBC expects to see that annual inflation inched up to 1.5 per cent in November, and that unemployment eased a bit to 8.8 per cent, which, while down from 8.9 per cent, would still be an elevated reading.
"Eighteen of the 19 euro area countries have seen a fall in their unemmployment rates," RBC economists said.
"The one exception is France, where, despite the strengthening of growth seen over recent quarters, unemployment has remained unchanged at 9.7 per cent, and the continuation of the improvement in the wider euro area labour market seen this year into 2018 will depend to a large degree on unemployment beginning to fall in France."
Statistics Canada releases its third-quarter measure of the country's current account deficit, which BMO expects will come in at an annual pace of $78-billion, and Canadian Imperial Bank of Commerce and Toronto-Dominion Bank round out the day with their quarterly results.
Friday: GDP and jobs
TGIF. But first, Statistics Canada releases what will be a widely watched report on third-quarter economic growth, which economists believe was somewhere around an annual rate of 1.6 per cent.
That would mark a substantially slower pace than we've seen of late, but one that's expected.
"The Canadian economy cooled sharply in Q3 after a torrid four-quarter run where growth averaged 3.7 per cent, the strongest since 2006," said BMO's Mr. Reitzes.
"Consumer spending decelerated, as retail sales volumes fell 1.4 per cent annualized, though spending on services should keep consumption positive," he added.
"Business investment is expected to advance modestly, while housing should benefit from rising housing starts with lower home sales limiting the increase. We also look for government to contribute to growth, consistent with the pipeline of stimulus that should be under way. Net exports are expected to be a big negative."
At the same time, the federal statistics agency reports on how Canada's jobs market fared in November.
As always, projections vary, but economists expect job creation of up to 15,000 in November, with unemployment holding at 6.3 per cent or possibly dipping to 6.2 per cent.
"October saw a nice pop in employment, and there's no reason to assume the good times will end in November," said CIBC economist Nick Exarhos.
"The full-time/part-time split has been heavily skewed towards the former over the past two releases, something that has the potential to reverse in what are typically very volatile details in the [labour force survey]," he added.
"That could take some shine off the headline gain, although a drop in the unemployment rate to 6.2 per cent will be a sign that we continue to make progress toward a tighter labour market."
There are also manufacturing purchasing managers index readings from around the world, which will tell us more about the global economy.
And National Bank of Canada and BRP Inc. report results.
Okay, now TGIF.
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