Briefing highlights
- What to expect from Bank of Canada
- Markets reel as trade war escalates
- New York poised for troubled open
- Canadian dollar above 76 cents
- Tim Hortons to open in China
- Fox raises sky bid to $32.5-billion
- Gabriel Resources loses another CEO
BoC expected to raise key rate
You’ve got until 10 a.m. ET to not sweat how much you owe.
That’s when the Bank of Canada is widely expected to raise interest rates again. And if for any reason it doesn’t, it will probably point to a rate hike soon, meaning any reprieve would probably be short-lived.
Household debt burdens in Canada are improving, but they’re still elevated, meaning adjustment for many families who borrowed on the cheap. Households now owe $1.68 for every dollar of disposable income.
That’s one of the reasons the central bank will be cautious going forward even if, as expected, it raises its key overnight rate this morning by one-quarter of a percentage point to 1.5 per cent.
Governor Stephen Poloz, senior deputy Carolyn Wilkins and their colleagues will also release a monetary policy report expected to include tweaks to their economic forecasts.
Bank of Canada senior deputy governor Caroline Wilkins and governor Stephen PolozPATRICK DOYLE/The Canadian Press
Mr. Poloz and Ms. Wilkins have many concerns besides household debt, notably the trade war between the U.S. and several countries, including Canada. Add to that the threats by the Trump administration to really turn up the heat by slapping tariffs on auto imports, and the fact that the housing market is adjusting to higher mortgage rates and government and regulatory efforts to cool them down.
Thus, caution is their watchword, and you can expect as much when they release their statement, followed by a news conference.
“The statement issued at the conclusion of the policy meeting is likely to acknowledge that the Canadian economy faces significant headwinds from the rising threat of U.S. trade protectionism,” Royal Bank of Canada economists said in a lookahead.
“However, earlier comments by central bank officials suggest that policy would respond only in the face of material impacts emerging either from actual trade protectionist measures being implemented or evidence that the continued threat of trade protectionism is weighing on business confidence.”
Despite the caution, “the core of the statement has to sound hawkish no matter what comes next,” said CIBC World Markets economist Avery Shenfeld.
“After all, it’s not just speaking to trading floor geeks,” he added.
“It has to justify to Canadians why the pain of higher interest rates is a necessary evil to keep inflation at bay, and why the economy can still thrive with higher yields.”
Some economists expect a total of five quarter-point rate hikes by the end of next year, including one today, which would bring the benchmark to 2.5 per cent.
Take some solace, though, if you’re one of the people buried in debt: Bank of Montreal’s economics group has just revised its forecast, now calling for just four hikes rather than five.
“The adjustment is in recognition of the heightened economic risk posed by potential U.S. trade policy (e.g., tariffs on Canadian vehicles and parts were unthinkable just a couple months ago),” deputy chief economist Michael Gregory and senior economist Jennifer Lee said in the BMO outlook.
“And, the cloud of NAFTA uncertainty over business investment now looks like it could hover well into next year,” they added, referring to stalled efforts to remake the North American free-trade agreement.
Derek Holt, on the other hand, head of capital markets economics at Bank of Nova Scotia, believes the central bank will be more aggressive than investors believe.
“Markets are still buying the line that Canada will proceed with rate hikes in dribs and drabs, which we think continues to reflect a market bias to underestimate rate pressures,” Mr. Holt said, noting that there will have been 100 basis points of hikes since last June if the central bank moves on Wednesday.
Inflation expectations, of course, always play a role. And, the RBC economists noted, the central bank’s recent business outlook survey found businesses say they’re able to pass higher prices on to consumers.
“The risk that these pressures become more significant and more entrenched provides further reason for the central bank to continue to tighten policy,” RBC said.
Read more
- Bank of Canada may raise rates this week. (Oh, but maybe it shouldn’t)
- I can’t wait a year (or more!) for an 80-cent Canadian dollar
- David Parkinson: Canadian economy is booming, but trade, debt clouds loom on horizon
- What if … Trump’s not bluffing, trade is crippled, Canada sinks into recession, markets are roiled, you pay more
- David Parkinson: Trump’s trade tirade clouds Bank of Canada’s rate-hike ambitions
- Barrie McKenna: Canada’s economic outlook would be rosy, if it wasn’t for that U.S. trade war
- Barrie McKenna: Canadian businesses still upbeat despite trade worries, slowing economy: BoC
- Cruel, cruel summer: The Bank of Canada on a ‘tightrope’
- David Parkinson: Canada’s household debt burden falls to two-year low
- David Berman: Higher rates, stricter mortgage rules curbing home prices but debt still a key risk: BoC
Stocks reel, loonie suffers
The market reaction was swift and risk-off across the board
— Sue Trinh, Royal Bank of Canada
Global markets are reeling this morning, and the Canadian dollar is bouncing around the 76-US-cent mark, in the wake of the Trump administration’s latest trade attack on China.
“Stock markets in Europe are firmly in the red as President Trump outlined plans to impose a fresh round of tariffs on China,” said CMC Markets analyst David Madden.
“The U.S. president has lined up tariffs on US$200-billion worth of Chinese goods as a way of showing Beijing he means business,” Mr. Madden added.
“There will be a two-month review process, and a hearing in late August. The threat of another round of tariffs has rattled investors, just as market confidence was picking up.”
Tokyo’s Nikkei lost 1.2 per cent, Hong Kong’s Hang Seng 1.3 per cent, and the Shanghai Composite 1.8 per cent.
In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 1.1 and 1.3 per cent by about 8:40 a.m. ET.
New York futures were down.
The Canadian dollar was above 76 US cents, having bounced around amid currency gyrations related to President Donald Trump’s moves.
“The market reaction was swift and risk-off across the board,” said Sue Trinh, Royal Bank of Canada’s head of Asia foreign exchange strategy in Hong Kong.
Key for the loonie today will be the Bank of Canada decision, monetary policy report and Mr. Poloz’s comments.
“Increased U.S. protectionist actions and rhetoric will figure prominently at the meeting and press conference, with updated forecasts reflecting the (negligible) impact of already instituted steel and aluminum tariffs (and Canadian countermeasures),” Ms. Trinh said.
Read more
- Follow our Inside the Market
- Adrian Morrow: U.S. set to hit China with tariffs on $200-billion of goods in trade-war escalation
- China accuses U.S. of bullying, warns it will hit back at Trump’s proposed tariffs
Tims to open in China
Tim Hortons is expanding into China in a key joint venture for the coffee-and-doughnut chain.
Tims is linking up with Cartesian Capital Group to launch more than 1,500 outlets in the country over a 10-year period.
“China’s population and vibrant economy represent an excellent growth opportunity for Tim Hortons in the coming year,” president Alex Macedo said in announcing the initiative with the private equity firm.
Read more
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