30 Mar

Market Commentary


Posted by: Cory Kline

Student debt, lackluster job prospects and skyrocketing prices do not appear to have diminished the dream of home ownership for that group of potential first-time buyers known as millennials.

A new survey conducted by Angus Reid for one of the big banks suggests 86% of 18 to 34 year-olds believe home ownership is important. Fifty-nine percent say it offers a sense of personal freedom. Currently 36% of millennials are home owners, 42% are renters and 21% live with their parents.

Eighty-five percent of Canadians, as a whole, believe home ownership is important. The majority cite the classic reasons: building equity and saving for retirement.

Tellingly though, the survey also suggests that nearly one in five Canadians (15%) do not think home ownership is important. Nearly half of the respondents (46%) say buying a home is too great a financial burden.

Lacking from the survey is any historical comparison so it is impossible to know whether any of these numbers are up or down from previous years.

Thank you First National for your insight.

23 Mar

2016 Federal Budget: Trudeau and Morneau Make Their Mark


Posted by: Cory Kline

As anticipated, the federal government announced that budget deficits of about $30bn (1.5% of GDP) are in store. This is about $11bn higher than revealed in the February Update.


•       The larger deficits relative to the Update largely reflect the implementation of commitments outlined in last year’s election campaign. Chief among these promises are additional infrastructure spending, changes to employment insurance and support for indigenous peoples. However, speculation that capital gains taxes would be raised did not materialize.


•       Deficits of more than 1% of GDP persist for the next several years, but the federal debt burden remains relatively low and stable. Revenue projections include a sizeable margin of prudence, ap­propriate in light of the longer-term headwinds to Canadian growth.


•       Recent weeks have seen calls to run even larger deficits to support economic growth. We feel that the moderate deficits announced today strike a good balance between injecting short-term stimu­lus, generating long-term benefits through infrastructure enhancement, and maintaining a credible longer-term fiscal path.


•       Given that today’s announcements were fairly well telegraphed in advance, we expect little market reaction. In terms of economic impact, we calculate that the blend of transfer payments, tax changes, and additional infrastructure spending will deliver a boost to the economy of about 0.1 percentage points this year, rising to 0.3 in 2017. This does not represent a massive game changer, but does provide a nice boost to an economy that appears to be increasingly benefitting from rising exports. All told, today’s budget is consistent with a growth outlook that will see the Bank of Canada on hold well into 2017.

Thank you TD Bank for your insight.

21 Mar

Residential Market Update


Posted by: Cory Kline

The February home resale numbers from the Canadian Real Estate Association were good enough for the organization to up its forecast for the year. CREA has gone from projecting a slight, 1.1% decrease in sales to a slight, 1.0% increase.

But the figures are still a tale of two markets: the red hot big cities of Toronto and Vancouver and the rapidly cooling, oil dependent zones in Alberta, Saskatchewan and Newfoundland & Labrador. On average, sales climbed about 1.0% m/m and jumped nearly 19.0% y/y last month.

It’s nice that CREA is optimistic, but dealing with “averages” in this environment does not offer truly firm guidance.

The Association’s February report does not fully address the new down payment rules that took effect in the middle of the month. It does make the point that there will likely be a limited affect because of the number of million-dollar-plus homes (which fall outside the rules) being sold in Toronto and Vancouver.

The March numbers may offer better insights into where things are going. And it remains to be seen what this week’s federal budget will bring.

Thank you First National for your insight.

9 Mar

Bank of Canada Maintains Rate At 1/2% Target


Posted by: Cory Kline

To no one’s surprise, the Bank of Canada announced today that it would leave its overnight rate target at 1/2%, just as it did on January 20 when it last met. The Bank noted that financial market volatility has slowed since the last meeting and oil prices and the Canadian dollar have strengthened. Consumer spending continues to underpin the economy as employment growth has held up despite continued weakness in the energy sector. Business investment is weak, owing largely to the demise of oil industry capital expenditure, but non-oil exports have rebounded owing to the weaker Canadian dollar. The Bank’s inflation assessment remains benign.

The Bank continues to anticipate significant fiscal stimulus in the federal budget slated for March 22 and will incorporate their assessment of the economic effects of such stimulus in their April projection. End of story.

What is more interesting is that today marks the seventh anniversary of the post-financial-crisis bull market in stocks. In March 2009, few people would have imagined that stock markets were on the precipice of a major and sustained recovery as the global economy was suffering the near-collapse of the banking system and the economy was in recession. But stocks have climbed that wall of worry more or less ever since thanks to enormously accommodative monetary policy. As Bank of America Merrill Lynch analysts point out in a note today, seven years of positive stock market returns came from 619 global interest rate cuts, $10.4 trillion worth of asset purchases by central banks, and $9 trillion worth of global government debt yielding zero percent or less.

Canada’s stock market was a top performer during the heydays of robust oil prices until 2014–but has underperformed since then. Nonetheless, the TSX is up more than 60% since the bull market began. This has been paled by the performance of the U.S. stock market which has surged 162% over the same period, which could well help to explain the remarkable success of Donald Trump and even Bernie Sanders. 

The fact is, in the U.S. especially, the rich are getting richer and the middle class is falling further and further behind. Trump and, to a lesser degree Sanders, are appealing to the disaffected. Trump’s base are the lower-skilled, less-educated Americans who have not enjoyed the fruits of the economic recovery and stock market surge. They have seen their wages decline and their job prospects dim with Washington seemingly deaf and mute to their pain. These people are angry and fearful. Trump is promising a shake-up and playing into their xenophobia and prejudices, while Sanders is scapegoating Big Business and Wall Street. Both are blaming America’s free trade deals for killing American jobs and they have successfully touched a nerve. America has a long history of xenophobic fears of job loss–be it fear of the Japanese in the late 80s or the giant sucking sound of Mexico during the Ross Perot campaign in the 90s. This time, however, Trump has hijacked the Republican Party, garnering record turnouts attracting some alienated Democrats and Independents. Whether he runs against Hilary or Sanders, he will clearly be a formidable opponent. While he is not talking about building a wall between Canada and the U.S., he will likely continue to threaten free trade. Trudeau and Trump would not be comfortable bedfellows so Trudeau should enjoy his time this week with Obama as things could change drastically in the new year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres