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Economists expect inflation to ease in September, but remain significantly higher than BoC target

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Economists expect inflation will ease for a third straight month in September, but still remain significantly higher than the Bank of Canada’s two per cent target.

The median estimate from economists tracked by Bloomberg is for a 6.8 per cent year-over-year increase to Canada’s consumer price index (CPI) during September. In August, Statistics Canada reported inflation rose seven per cent on a year-over-year basis, which was down from 7.6 per cent in July.

“We expect that a CPI to be a little changed in September, and the yearly rate to come down a couple more notches to 6.8 per cent,” said Sal Guatieri, director and senior economist at BMO Capital Markets, over the phone on Tuesday.

“So it would be moving in the right direction, and quite materially down from the four decade high of 8.1 per cent that we saw in June.”

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‘THERE’S A LOT RIDING’ ON THIS REPORT

Guatieri said if core inflation data rose in September, then it “would be bad news for the Bank of Canada’s inflation outlook and the economy.”

“Essentially, that (CPI report) could make the difference between the Bank of Canada raising rates by 50 basis points on October 26, or a larger move of 75 basis points,” Guatieri said.

“So there’s a lot riding on this inflation report, and of course, the Bank of Canada has to continue to raising rates aggressively. That really puts the pushes the economy a step closer to not just a mild recession, which is what we anticipate, but something more standard as far as economic downturns go.”

EXPECTING A DROP IN SHELTER COSTS

Craig Alexander, chief economist and executive advisor at Deloitte Canada, said he thinks shelter costs fell in September, adding that it could help Canadian inflation ease faster than the U.S.

“The fact that we’re having a housing correction is going to bring down that component (shelter costs),” Alexander said over the phone on Tuesday.

“So while mortgage interest costs are rising, and that will be upward pressure on inflation, the homeowner replacement costs will actually be coming down.”

Alexander added that this is “something different about the way Canada measures inflation than in the United States.”

“It’s one of the reasons why Canadian inflation might come down a bit faster than in the United States, it’s the fact that the correction in Canadian housing will actually show up in inflation data.”

RISING FOOD COSTS

Many consumers will be paying close attention to food inflation data in the CPI report.

In August, Statistics Canada reported food prices rose at its fastest pace since 1981.

But Guatieri said Canadians shouldn’t expect food inflation to ease too much from the 10.9 per cent high that was reported in August.

He said the recent weakness of the loonie against the U.S. dollar, and droughts in the U.S. Midwest will place some upward pressure on food prices.

“I would not expect a whole lot of relief just yet,” Guatieri said.

“I think over time we will see food cost inflation moderate, especially if the economy weakens further as we anticipate over the next three or four quarters, but I would not expect a big move in September.”

POLICY HIKE ALREADY DECIDED

Alexander said regardless of CPI data release on Wednesday, he thinks the next Bank of Canada’s interest rate announcement has “already been largely decided.”

“The real question is beyond October 26, how much more does the Bank of Canada have to do? If inflation surprises on the downside, then the Bank of Canada and financial markets will start to think that maybe the peak in the tightening cycle will be lower,” Alexander said.

“Whereas if inflation surprises on the upside, and it’s proving stickier then the central bank had hoped, then there’s a risk that the Bank of Canada is going to continue tightening in the months ahead. But, the Bank of Canada has been very clear that it isn’t done raising interest rates just yet.”

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FTX founder speaks for 1st time since crypto company's collapse – CBC.ca

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  1. FTX founder speaks for 1st time since crypto company’s collapse  CBC.ca
  2. Here’s what an FTX investor thinks of Sam Bankman-Fried  Fox Business
  3. A journalist who interviewed Sam Bankman-Fried about FTX’s collapse said it ‘felt like a therapy session’ for the crypto mogul  Yahoo Canada Finance
  4. SBF Missed FTX’s Risks  Bloomberg
  5. View Full Coverage on Google News



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Blackstone limits withdrawals from its US$69-billion REIT – The Globe and Mail

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Blackstone Inc limited withdrawals from its $69 billion real estate income trust (REIT) on Thursday after receiving too many redemption requests, an unprecedented blow to a franchise that helped it turn into an asset management behemoth.

The curbs in redemptions came because they hit pre-set limits, rather than Blackstone setting the redemption limits on the day. Nonetheless, they fuelled investor concerns about the future of the REIT, which makes up about 17% of Blackstone’s earnings. Blackstone shares ended trading down 7.1% on the news.

Investors in the REIT, which is not publicly traded, have been growing concerned that Blackstone has been slow to adjust the vehicle’s valuation to that of publicly-traded REITs, which have taken a hit amid rising interest rates, a source close to the fund said. Rising interest rates weigh on real estate values because they make financing them more expensive.

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Blackstone has reported a 9.3% year-to-date return for its REIT, net of fees, while the publicly-traded REIT index is down 3.02% in the same period. This outperformance has some investors questioning how Blackstone comes up with the valuation of its REIT, said Alex Snyder, a portfolio manager at CenterSquare Investment Management LLC in Philadelphia.

“People are taking profits at the value Blackstone says their Blackstone REIT shares are at,” said Snyder.

A Blackstone spokesperson declined to comment on how Blackstone values its REIT but said its portfolio was concentrated in rental housing and logistics and relied on a long-term fixed rate debt structure, making it resilient.

“Our business is built on performance, not fund flows, and performance is rock solid,” the spokesperson said.

Two sources familiar with the matter said turmoil in the Asian market, fuelled by concerns about China’s economic prospects and political stability, contributed to the redemptions. The majority of investors redeeming were from Asia and needed the liquidity, they said.

Blackstone said it would curb withdrawals from its REIT franchise after it received redemption requests in November greater than 2% of its monthly net asset value and 5% of its quarterly net asset value.

Analysts said that Blackstone’s REIT runs the risk of getting caught in a spiral of selling assets to meet redemptions if it cannot regain the trust of many of its investors. On Thursday, the firm said the REIT had agreed to sell its 49.9% interest in two Las Vegas casinos for $1.27 billion.

“The impact on Blackstone depends on whether the REIT is able to stabilize its net asset value over time, or is forced to enter an extended run-off scenario, with significant asset sales and ongoing redemption backlog – too early to tell, in our view,” BMO Capital Markets analysts wrote in a note.

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Big Six bank earnings show mixed bag for Canadian economy – CTV News

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The most recent earnings reports from Canada’s big banks are showing signs that the Canadian economy is slowing down ahead of a potential recession, with some signs of optimism.

The Big Six banks – RBC, TD, CIBC, Scotiabank, BMO and National Bank – all released their Q4 2022 reports this week. Five out of the six saw their profits dip compared to last year and three fell short of their earnings expectations.

Michael Morrow, managing director of mergers and acquisitions and capital markets at financial firm BDO Canada, says high inflation, lower capital markets activity and rising loan-loss provisions are all putting pressure on the big banks.

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High inflation has meant higher operating costs – including higher staffing costs amid a tight labour market – that has cut into their margins, Morrow said. Meanwhile, rising interest rates and economic uncertainties have slowed investment and led to lower capital markets activity.

“Capital markets activity continues to be a drag on all of the banks, particularly those that have a higher concentration of capital markets activity versus regular retail-related activity,” Morrow said.

RBC CEO Dave McKay said on an earnings call on Wednesday the bank is bracing for a “brief and moderate recession.”

In anticipation of an economic downturn, the big banks are also increasing their loan-loss provisions, which refers to money set aside to cover bad loans.

“As the bank’s worry about the economic performance of the Canadian economy, what that might mean is more loan losses going forward. And so their provisions every quarter has been creeping up, including this quarter,” Morrow said.

“It’s definitely a leading indicator in terms of where we think the Canadian economy will be next year and where the where the risks lie.”

Loan-loss provisions especially weighed heavily on CIBC, which set provisions for credit losses for the three-month period of $436 million, up from $78 million in the same quarter last year. CIBC missed its earnings expectations by over 19 per cent.

“As we look ahead to 2023, global economic growth is expected to be slower as central banks continue with their monetary policy tightening to tame inflation,” said CIBC CEO Victor Dodig on an earnings call on Thursday.

“In response to these headwinds … we are going to continue to take actions to reposition our business to adjust to these new realities, but also continue to grow our client franchise and moderate our expense growth.”

But despite these so-called headwinds, Morrow believes there is still good news to be gleaned from these results. Most of the Big Six are increasing their dividend rates for shareholders, which Morrow says “provides us with a view of confidence in the stability of the banks and their earnings profile.”

“If they’re increasing dividend rates, then that’s certainly an indication that they feel that the business and their capital ratios are going to be able to not only withstand this downturn, but continue to thrive through the year, through the back half of next year,” he explained.

On top of that, RBC announced it would be taking over HSBC’s Canadian operations in a $13.5 billion deal, pending regulatory approval. Morrow says he sees the purchase as a “positive vote of confidence for the Canadian economy,” especially given the fact that RBC is paying a premium price for the acquisition. The bank is paying 9.4 times HSBC Canada’s 2024 adjusted earnings.

“Certainly, you know, it gleans to the confidence that RBC has within the within the Canadian lending market. And if there were certain doubts in the Canadian market, you wouldn’t see these participants paying premiums in the marketplace at this point in the cycle,” he said.

With files from The Canadian Press and Reuters

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