Global Growth Outlook Continues To Drive Markets

In contrast to comments he made in British Columbia the week before, Mark Carney’s Opening Statement on monetary policy mentioned that the BoC is still ready to increase the key interest rate, but that it would happen later rather than sooner. The global growth outlook continues to drive stock markets. The disappointing earnings figures released by U.S. businesses over the last 3 weeks have weighed heavily on the S&P 500 and the Dow Jones, and this has trimmed the wings of our loonie.

Canada
This will be another important week in Canadian news. The strength of the loonie is due in part to Mr. Carney’s openness to raising the key interest rate, but also to continuous capital inflows from various central banks and foreign investors looking for a safe haven to invest their funds. The USD/CAD pair, having climbed close to 190 basis points since early October, appears poised to test new highs. The catalyst needed to propel the USD/CAD could come from one of two economic indicators expected this week: GDP for August (YoY), to be released on Wednesday, and the Employment Change, expected on Friday. Economists are forecasting figures of 1.7% and 7,500 respectively.

United States
The week will also be busy south of the border, beginning with the CB Consumer Confidence index on Tuesday. On Thursday, ADP Nonfarm Employment Change data and the ISM Manufacturing Index will be released. Analysts are forecasting that the private sector created 137,500 jobs in October. The week will also end with Nonfarm Payrolls data for October. Economists believe 120,000 jobs were created in October, 6,000 less than the last reading. With just a few days remaining before the presidential election, these indicators will be closely watched by U.S. voters.

International
The week in international news begins today with Germany’s Consumer Price Index, followed on Tuesday by results from the Consumer Confidence survey for the Eurozone. On Wednesday we will know the figures for German Retail Sales, the Eurozone’s Unemployment Rate for September, followed by Purchasing Managers’ Index figures for France, Germany and the Eurozone on Friday. Have a good week!

The Loonie

“History is a gallery of pictures in which there are few originals and many copies.”- Alexis de Tocqueville

In June of this year, the Federal Minister of Finance Jim Flaherty announced a tightening of the mortgage regulations in order to avoid the recent cataclysm of the American mortgage sector. One of those measures consisted of decreasing the maximum allowable amortization period for government insured mortgages from 30 to 25 years in order to dissuade excessive credit-seekers that do not have the means to acquire real estate. The debt level of Canadians, measured by the debt per capita over disposable income, recently reached a level of 152%. The hike in home prices, which more than doubled over the last 10 years, highly contributed to this. In only a few months, the implementation of those measures was beneficial and we are witnessing a cooling down of the housing sector. In spite of the fact that prices have not declined, re-selling of homes are in deceleration mode. The following graph illustrates the consequences of the mortgage tightening regulations on the Canadian real estate market. We observe that the sales to new listings ratio (the red line) is declining since July and that the inventory of houses on the market (the blue bars) are on the rise; proof that the implemented measures are efficient.

To Read the Entire Report Please Click on the pdf File Below.