The Globe and Mail’s Tara Perkins points to another example of how, as CIBC deputy chief economist Benjamin Tal put it, we’re “flying blind” when it comes to detailed information on Canada’s real estate market:
One of the first inklings that Australia was considering a mortgage crackdown came from the central bank’s Financial Stability Review paper last month (you can read it here, and some more recent comments are made toward the end of this speech a few days ago). The paper said that Australia’s central bank, banking regulator and other financial authorities have been discussing “further steps to reinforce sound lending practices, particularly for lending to investors.”
The paper laid out the rationale for these discussions. “The composition of housing and mortgage markets is becoming unbalanced,” it said. “This has been most evident in the current strength of investor activity in the housing market, and in its concentration in Sydney and Melbourne.”
It would be hard for Canadian authorities to make a similar statement – we don’t have solid statistics on investor activity in this country’s residential real estate market.
On the Homefront
TSX 60 futures are moving higher ahead of the open after the composite index suffered a sizable loss last week.
The loonie nearly fell to a multi-year low on Friday following a robust U.S. non-farm payrolls print and, to a lesser extent, a much weaker than anticipated Canadian trade figure, which showed the monthly balance for August tipped back into deficit. “On Friday, the U.S. once again showed that it is the best house on what seems to be a slowly deteriorating neighbourhood,” wrote IG chief market strategist Chris Weston in reaction to Friday’s strong U.S. jobs report, which sent the greenback soaring. At one point, the Canadian dollar traded a tenth of a cent above its March 20 lows of 0.8866 against the greenback; once it breaches that level, the pair will be at lows not seen since mid-July 2009. “It’s tough to see the Canadian dollar trending anywhere but weaker,” writes Bank of Montreal senior economist Benjamin Reitzes. The monetary policy divergence has more or less been made apparent — the Fed is warming to the possibility of a rate hike, while the Bank of Canada is content to watch from the sidelines. As such, short-term rate spreads, the price of oil, and the data flow will likely be the key drivers of this pair until the end of the year. A lower currency reduces Canadians’ real purchasing power, but will also help certain long-struggling export subsectors repair the damage that’s been under way since well before the Great Recession. The Canadian dollar is back above 89 cents against the greenback this morning.
The yield on the five-year Government of Canada bond dipped to 1.59 per cent overnight.
The commodity complex continues to weigh on the TSX. Halfway through the year, it was undeniable that commodities had defied conventional wisdom, which called for them to perform poorly this year. It’s been a different story in the second half of 2014. The U.S. dollar rally was not derailed, but just delayed, and this strength has put pressure on commodities across the board. Specific commodities have seen supply and demand fundamentals and other unique factors contribute to the price action. For instance, in the case of oil, OPEC and the United States are ramping up production faster than demand is increasing, and the speculators and geopolitical uncertainty that caused the commodity to be bid up earlier in the year have faded into the background. The near-term WTI crude contract is trading around $90 per barrel while the price of gold continues to be mired below US$1,200/oz. If both commodities fail to hold those levels, more pain may well be in store for the TSX barring a big rally in the financials.
State-owned Kuwaiti oil company gets piece of Chevron’s Alberta oil play. Oil giant Chevron announced that it was selling 30 per cent of its interest in a Duvernay shale play to a subsidiary of the Kuwait Foreign Petroleum Exploration Company for $1.5 billion. Jay Johnson, senior vice-president of Chevron, said that this transaction is “consistent with our partnership strategy” and will enhance the company’s relationship with “a valued partner.” The deal is expected to close next month.
CIBC slashes online trading fees. In late September, The Globe and Mail’s Tim Kiladze discussed the “all-out online trading price war” that was under way after Qtrade undercut Canada’s biggest banks by charging $8.75 per trade. Well, one of the major players has now shown itself more than willing to compete on price. CIBC (CM) announced that its discount brokerage division (Investor’s Edge) will charge $6.95 per equity trade, and just $4.95 if one averages more than 150 trades per quarter. “Whether investors trade a little or a lot, they will benefit from keeping their trading costs low,” says Marybeth Jordan, managing director and head of CIBC Investor’s Edge.
The Chinese government is employing the ‘anaconda strategy’ in Hong Kong — slowly squeezing the life out of the demonstrations rather than striking with its fangs. That’s the conclusion of Michael DeGolyer, who spoke with CBC’s Patrick Brown to discuss the evolution of the protests in the semi-autonomous city-state. The use of tear gas and presence of riot police that prompted more people to join the protests are no longer a mainstay. Instead, Brown writes “growing numbers of residents have been scuffling with protestors, urging them to go home.” While some of these residents are perhaps in the pay of the Chinese Communist party, others may be justifiably annoyed by the disruption these demonstrations, which have kept them from getting to work or their children from attending school, have caused. While a deterioration of this protest surely isn’t in the best interest of democracy, market participants will welcome the reduction of headline risk emanating from Hong Kong.
German factory orders fell more than twice as much as anticipated in August, declining by 5.7 per cent month-over-month. This, on the heels of the latest confidence print and September’s manufacturing PMI, is yet another sign that Europe’s economic engine is sputtering.
Hewlett-Packard is splitting itself in two, The Wall Street Journal reported this weekend, news that the company confirmed this morning. One company will include its PC and printer businesses, while the other — the one with better growth potential — will operate its corporate hardware and services businesses. According to WSJ, HP will execute the split by distributing shares to its existing shareholders.