For the many Canadians who watch the economy the way some people watched the battle that led to Sunday’s Grey Cup, this is an exciting week.
In a rush to get business completed before the year ends, Canada’s finance minister, Chrystia Freeland, kicks off an economic blitz.
On Monday, she outlined the federal government’s new relationship with the Bank of Canada. And on Tuesday afternoon, she presents a fractured Parliament with her outlook for the economy and for spending in the coming year.
But that’s not all for 2022
But that’s not all that awaits economy devotees. Also this week, due to an accident of the calendar, Wednesday will offer a new set of hotly awaited — and hotly debated — economic data that will also help set the tone for 2022.
Canadian inflation figures are out and face close scrutiny following last week’s report of staggering price rises in the United States. Also Wednesday, U.S. Federal Reserve chair Jerome Powell is widely expected to reveal what he is going to do about those rising prices in the coming year, something that will affect Canadians, too.
Not to be left out, the other economic issue that rivals inflation — house prices — gets its final reveal before the new year as the Canadian Real Estate Association (CREA) rolls out its latest data on Canada’s pricey market, and the Canada Mortgage and Housing Corporation releases the latest numbers on housing starts.
Two other economic indicators — retail sales and manufacturing orders — are both expected to show the economy remains strong.
While some of us may have had trouble working up much enthusiasm for the weekend wrestling match between the victorious Winnipeg Blue Bombers and the ruffle-furred Hamilton Tiger-Cats, for the economy-minded, the rest of the week will provide not just excitement but fodder for hours of holiday debate.
In some ways, Freeland’s first economic item of business this week, creating a new set of rules for the Bank of Canada, was a matter of housekeeping.
Allowed to run hotter?
Some commentators had feared a delay in announcing the new rules signalled big changes afoot, such as adopting U.S. rules where Congress requires the Federal Reserve to consider equally the inflation rate and unemployment when choosing when to adjust interest rates.
In the event, it seems that a continuing battle with COVID-19 and a parliamentary election were the real reasons for the delay.
“This is not a dual mandate,” Freeland said sternly at a Monday news conference with her chief central banker, Tiff Macklem. “We are very explicitly, with this mandate renewal, choosing not to do that.”
But the implication of the change — which gives the bank leeway to consider unemployment as well as the inflation target when setting rates — is that Macklem and his team will be permitted to let the economy run a little hotter than it otherwise would if they decide jobs are at stake. Otherwise, there would be no reason for the change of wording.
On Wednesday, Macklem gets an entire news conference of his own to try to explain the subtle differences that the rewording imply.
Lots more to come about Wednesday, but first a mention of the second appearance in Freeland’s economy double-header, when at about 4 p.m. on Tuesday, just as Toronto and Montreal markets close, the minister presents her fiscal and economic update — the first look at the books since the April budget and the first since September’s election.
While some government critics have expressed outrage over what they see as reckless overspending to deal with the COVID-19 crisis, a report late last month by University of British Columbia economist Kevin Milligan, writing for the C.D.Howe Institute, suggests Freeland may have more room to manoeuvre.
“The budget forecast nominal GDP growth for 2021 at 9.3 per cent,” Milligan wrote. “Recent estimates have nominal growth more than three per cent greater than that, which would give Ottawa a windfall [of] as much as $10 billion.”
The ideal solution to COVID-19 spending
Milligan suggested that could mean the books will show a declining debt-to-GDP ratio, long seen as the ideal solution to COVID-19 spending, where the economy grows so much that debt shrinks as a proportion. The problem, he warns, is if a lot of that rise in revenue is due to inflationary price rises rather than actual new business activity.
That said, there are many signals the economy is strengthening as businesses report optimism, workers find jobs, wages rise and observers cite early signs that supply chain constraints, and thus inflation, may be easing.
Which leads us to one of the most hotly awaited statistics expected Wednesday: Canadian inflation. After last week’s U.S. inflation rate hit 6.8 per cent — the largest increase in four decades — the outlook for Canadian inflation is expected by institutional economists to come in at a relatively paltry 4.7 to 4.9 per cent.
That is still high enough for consumers and businesses to feel the pinch of shrinking spending power, but with gasoline prices cooling off, Canadian inflation may begin to show signs of peaking. That said, after recent underestimates by economists for both Canadian GDP and Canadian jobs, everyone will be anxious to hear Statistics Canada’s actual numbers.
But perhaps even bigger news on inflation that will affect not just Canadians but the global economy is a statement on Wednesday by Federal Reserve chair Powell on whether the U.S. central bank will take concrete steps to cut stimulus and increase interest rates in 2022.
More than half the economists polled by the financial news company Bloomberg say he will signal that 2022 will be the year that business and personal lending, including mortgages, will begin to cost more. Canadian borrowers whose rates are partly made in the U.S.A. will want to know how fast that could happen.
So far, sales data from Canada’s hottest markets, including Vancouver and Toronto, shows few signs of cooling. The CREA data out on Wednesday looks at the whole country. If, as some say, borrowers confront successive hikes in the face of persistent inflation, prices could weaken in the new year.
For economics fans, this will be an exciting week, but unlike Sunday’s football final, when it is all over, it will be harder to be quite sure who won.
Follow Don on Twitter @don_pittis
Canadian dollar rises as selloff in U.S. bonds ebbs
The Canadian dollar strengthened against the greenback on Thursday as U.S. bond yields stabilized and Ontario, Canada’s most populous province, said it would soon ease restrictions to curb the spread of the Omicron coronavirus variant.
The loonie was trading 0.3% higher at 1.2472 to the greenback, or 80.18 U.S. cents, after trading in a range of 1.2454 to 1.2516.
Among G10 currencies, only the Australian dollar notched a bigger gain. Both Canada and Australia are major producers of commodities.
“Interest rate differentials are tilting against the (U.S.)dollar, lifting the appeal of currencies leveraged to rest-of-world growth,” said Karl Schamotta, chief market strategist at Corpay.
U.S. Treasury yields have pulled back from 2-year highs as data showed that the number of Americans filing new claims for unemployment benefits unexpectedly rose last week.
Ontario has blunted transmission of the Omicron variant and it will gradually ease restrictions on businesses from end-January, Premier Doug Ford said.
Despite the prospect of slower economic growth due to restrictions, investors have raised bets that the Bank of Canada will hike interest rates on Jan. 26. It would be the first hike since October 2018.
Data from payroll services provider ADP showed that Canada added 19,200 jobs in December, the fifth straight month of gains
Canadian retail sales data, due on Friday, could offer more clues on the strength of the domestic economy.
The price of oil, one of Canada’s major exports, settled 0.1% lower at $86.90 a barrel as U.S. crude inventories rose for the first time in eight weeks and investors took profits after a recent rally.
Canadian government bond yields were mixed across a flatter curve. The 10-year eased 2.4 basis points to 1.857%, after touching on Wednesday its highest intraday level since March 2019 at 1.905%.
(Reporting by Fergal Smith; Editing by Jonathan Oatis and Sandra Maler)
Toronto market hits 2-week low as rate hike angst weighs
Canada’s main stock index on Thursday fell to its lowest level in more than two weeks as worries about the inflation outlook and prospects for higher interest rates weighed on investor sentiment.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 146.98 points, or 0.7%, at 21,058.18, its lowest closing level since Jan. 5.
“The non-stop inflation headlines, talk about interest rates have scared the market,” said Barry Schwartz, a portfolio manager at Baskin Financial Services.
Data on Wednesday showed that Canadian inflation climbed in December to a 30-year high.
Investors have raised bets on the Bank of Canada hiking interest rates at a policy announcement next week and are also concerned the Federal Reserve could become aggressive in controlling inflation.
The TSX gained 22% in 2021, its best yearly performance since 2009, supported by massive stimulus, vaccine rollouts and hopes of global economic recovery.
“The markets are deciding that the last few years people have made way too much money and it is time to give some of that back,” Schwartz said.
Broad-based gains included a 2.2% decline for consumer discretionary shares, while the basic materials group, which includes precious and base metals miners and fertilizer companies, ended 1.8% lower.
Energy was down 0.7% as an uptick in U.S. crude inventories arrested the recent move higher in oil prices. U.S. crude oil futures settled 0.1% lower at $86.90 a barrel.
Heavily weighted financials fell 0.4%.
Among 11 major sectors, utilities was the only one to end higher, gaining 0.2%.
(Reporting by Fergal Smith; Additional reporting by Amal S in Bengaluru; editing by Jonathan Oatis)
Any sanctions on Russia would not widely impact global, U.S. economy -White House – National Post
WASHINGTON — Any sanctions imposed on Russia over its aggression toward Ukraine would not particularly expose the U.S. economy, although the Biden administration is focused on any possible impact on oil, White House National Economic Council Director Brian Deese said on Thursday.
“The actions that we have ready and that we are working closely with our allies to deploy would impose very significant costs across time on the Russian economy, and it would do so in a way that mitigates the impact on the global economy and the American economy,” he told CNN. (Reporting by Susan Heavey Editing by Raissa Kasolowsky)
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