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Top Links: Canada’s private sector ‘essentially tapped out’

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

HSBC chief economist for Canada David Watt predicts anemic growth for the domestic economy because the Canadian consumer's ability to spend is extremely limited,

"With the highest household debt-to-GDP ratio in the G7, Canada's over-leveraged household sector has been identified by the IMF, OECD, credit rating agencies, and the Bank of Canada as a downside risk to financial stability. Canada's private sector, in our view, is essentially tapped out… We look for Canada to remain on a subdued growth, low inflation, low interest trajectory, with GDP growth seen at 1.8% in 2017 and 1.7% in 2018. The challenges of adapting to lower oil prices persist with business investment still a headwind, and uneven gains in exports."

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"@SBarlow_ROB HSBC: "Canada's private sector, in our view, is essentially tapped out." – (research excerpt) Twitter

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Oil prices are a bit lower this morning but remain above the $50 per barrel level. The Financial Times pointed out the difficulties for OPEC going forward as it signals production cuts while producing at record levels,

"'OPEC has effectively abandoned its free market policy set in train nearly two years ago,' the IEA said in its monthly report yesterday. 'Global oil inventories are far too high — in the view of some producers — and they aren't being worked off nearly fast enough.' Crude supply from the 14 members of the producers' group had climbed to 33.6m barrels a day in September, the highest to date, and would hover around that level in the run-up to the next ministerial meeting in November, the world's leading energy body said."

" Oil record output underlines Opec's struggle to raise prices" – Financial Times
"Goldman sees lower chance of oil market rebalancing in 2017" – Reuters

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In related energy news, the IEA also predicted that an oil price rally to $60 per barrel will be short lived as it would spur an increase in U.S. shale production.

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"IEA Head Sees $60 Oil Prompting Surge in North American Output" – Bloomberg

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The proliferation of electric-powered cars has some analysts touting lithium miners as the next great investment opportunity (lithium is used for the production of large batteries for cars) but Bloomberg cites experts warning that a flood of supply will limit returns in the sector,

"'Lithium demonstrates all the characteristics of a commodity bubble,' Paul Gait, an analyst a Bernstein in London, said in a report on Monday. 'The lithium frenzy should all end in tears.'

"By 2040, about a third of all light vehicles sold will be electric, equivalent to 41 million cars and about 90 times the amount last year, according to Bloomberg New Energy Finance … But lithium isn't rare and is one of the world's most underutilized commodities, Gait said."

"Lithium Frenzy Seen Ending in Tears as Bernstein Warns of Supply" – Bloomberg

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Macleans magazine outlined the dilemma facing Canadian governments as they attempt to cool housing markets in Vancouver and Toronto,

"B.C.'s experience highlights the dilemma Canadian policy-makers face as the Trudeau government begins to roll out its own measures to tame the housing market. Those feeling shut out want more affordable prices. But the only way for that to happen is for incomes to grow massively or for house prices to fall. Yet, the majority of Canadians—70 per cent—now own their own homes and have built up enormous wealth, at least on paper. If prices nosedive, it will threaten their prosperity. As if this quandary wasn't enough, politicians now face an even thornier problem: with the rest of the economy running on fumes, Canada finds itself far more dependent on real estate than ever."

"Hands off my housing bubble!" – Macleans

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Tweet of the Day: "@andrew_leach This magnitude of the change in US, and thus North American gas markets in a decade is simply astounding. " (chart) Twitter

Diversion: This New York Times photo essay on big agriculture is just remarkable, "The Dizzying Grandeur of 21st-Century Agriculture" – New York Times

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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