Briefing highlights
- Bank of Canada to hold key rate steady
- Central bank expected to boost outlook
- BlackBerry surges after arbitration award
- Global markets mixed so far
- New York poised for weaker open
- Canadian dollar above 75 cents
- ‘It’s tough being bearish on crude’
- Home prices climb in March
Reasons why
Expect Governor Stephen Poloz and his Bank of Canada colleagues to hold their key rate steady this morning, while upgrading their outlook for the economy.
Everyone believes the central bank will keep its benchmark rate at 0.5 per cent when it releases its decision and monetary policy report. At the same time, observers expect a stronger forecast for economic growth this year, about 2.3 or 2.4 per cent versus an earlier projection of 2.1 per cent.
Some economists say Mr. Poloz should herald Canada’s recent better-than-expected economic performance, rather than just cite global uncertainties such as U.S. trade policy, as he has been. Others say his caution is warranted.
“The bank has an interest in letting the Federal Reserve complete another hike or two before it moves on Canadian rates, and thereby prevent the Canadian dollar from appreciating,” said CIBC World Markets chief economist Avery Shenfeld.
“Governor Poloz seems convinced that even if consumers and homebuilding are growth drivers today, their pace is unsustainable.”
So the central bank can be expected to “stall for time” later in the morning, as Mr. Shenfeld put it.
“While we understand the motivation, we’re not fans of cherry-picking the weakest economic indicators to paint a negative picture of what have been a few good quarters,” Mr. Shenfeld said.
“But the governor seems inclined to do so,” he added.
“Look for an emphasis on the softest wage readings ... the scattered disappointments in the latest data (February net trade), and the lightest inflation measure.”
Bank of Montreal’s economics department, which has called on Mr. Poloz to be more upbeat publicly, gives 10 reasons for the central bank to “lighten up.” Cited by chief economist Douglas Porter and senior economist Benjamin Reitzes:
Economic growth: Canada’s economy has expanded at a strong annual pace of 4.3 per cent since mid-2016.
“Growth in that rarified air for a seven-month stretch has happened only a few times since 2000,” said Mr. Porter and Mr. Reitzes.
Jobs: Employment has been strong since the summer of 2016, rising by “a crackling 2.3-per-cent annual rate in the past eight months – again, one of the fastest rates since early last decade.”
Business investment: A sore point, this one, having collapsed from the oil shock. But the central bank’s own business outlook survey recently showed spending plans rising. Caution is still warranted but “the deep drag from this component looks to be over.”
Trade: We had one bad month after a string of wins as Canada plunged back into a trade deficit in February. But the BMO economists and others cited the recent overall improvement.
Toronto housing: Everyone’s hot button. “While no one expects the bank to tighten monetary policy simply to address a blazing hot housing market in a few regions, it would be helpful if officials stopped musing about the possibility of further rate cuts and hint at the eventuality of higher borrowing costs.”
Bonds: Yes, yields have climbed but are still “incredibly low,” with little to suggest a near-term spike.
Stocks: Okay, the benchmark Toronto index has been something of a laggard, but remains near record levels. “The index is less than 2 per cent from its February peak, and the near-20-per-cent total return in the past year is hardly indicative of a bleak outlook.”
Commodities: Prices are stable, though not stellar. “Most critically, oil prices seem to have regained their equilibrium.”
Inflation: While “policy doves” cite the lame nature of so-called core prices, which exclude volatile items, they’re actually just a shade below their longer-term averages. And overall annual inflation is at the Bank of Canada’s target level of 2 per cent. Core inflation is a lagging indicator, and “calm conditions today are no guarantee of calm conditions tomorrow.”
What markets think: “We would not dare wheel out the word credibility, but if the bank persistently talks down the economy in the face of overwhelming evidence to the contrary, there is the real risk that market participants will simply tune them out.”
BlackBerry surges
BlackBerry Ltd. shares are surging in premarket action after the Canadian company won a hefty arbitration award against Qualcomm Inc.
The stock was up by about 15 per cent heading into the Nasdaq open.
BlackBerry said it won a binding interim decision of almost $815-million (U.S.) in overpayment of royalties to Qualcomm. There will be a final award that includes interest and “reasonable attorneys’ fees” after a May 30 hearing.
“BlackBerry and Qualcomm have a longstanding relationship and continue to be valued technology partners,” chief executive officer John Chen said in a statement.
“We are pleased the arbitration panel ruled in our favour and look forward to collaborating with Qualcomm.”
Markets mixed
Global markets are mixed so far, with New York poised for a weaker open.
Tokyo’s Nikkei lost 1 per cent, and the Shanghai composite 0.5 per cent, while Hong Kong’s Hang Seng gained 0.9 per cent.
In Europe, London’s FTSE 100 was down 0.1 per cent by about 8:15 a.m. ET, while the Paris CAC 40 and Germany's DAX were up by between 0.1 and 0.2 per cent.
New York futures were down, and the Canadian dollar was above 75 cents U.S.
How markets ended Tuesday
Home prices up
Four local markets are behind a 0.9-per-cent monthly rise in home prices that marks the fastest pace for March in a decade.
Home prices rose 2.1 per cent in Hamilton, 1.8 per cent in Toronto, 1 per cent in Victoria and 0.9 per cent in Vancouver, according to the latest reading of the Teranet-National Bank home price index.
The numbers are certain to add fuel to the fire in and around Toronto, which has become the focus of bubble angst.
Not only that, they show that Vancouver prices, after slumping earlier, are on their way back.
On an annual basis, the national index rose 13.5 per cent, led by Toronto’s record 24.8-per-cent jump and Victoria’s 18-per-cent gain.
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