One more sleep before the highly-anticipated Bank of Canada rate decision.
Whether Governor Tiff Macklem and his deputies pull the trigger Wednesday or not, it seems pretty certain rates will rise within the next few months.
So the real question now is how much the Bank might hike in this cycle and what it means to mortgage holders.
James Laird, co-founder of Ratehub.ca and president of CanWise Financial mortgage brokerage, says lenders in Canada have already started to move their variable and fixed rates higher in anticipation of a Bank of Canada hike.
“However there are still some lenders who have not yet increased rates. Therefore, if you require a mortgage in the next 120 days, it’s best to apply quickly to hold today’s rate,” he said.
Sung Lee, an RATESDOTCA expert and mortgage agent, is also seeing rates rise. Fixed-rate insured mortgages are now ranging from 2.44% to 2.79%, while a few months ago clients were able to get sub-2%, he said.
“It’s possible that we might even see a reduction in variable-rate discounts on top of prime rate increases. Rising rates will have a big impact on borrowers as the cost to access credit continues to get more expensive,” said Lee.
If the Bank raises its overnight rate by 25 basis points tomorrow, a homeowner with a five-year variable rate mortgage of $649,530 at 0.85% amortized over 25 years would see monthly payments rise from $2,404 to $2,477, according to Ratehub.ca’s mortgage calculator.
That’s $73 more per month or $876 per year on their mortgage payments.
If the Bank raises the rate by 50 basis points, monthly payments would rise to $2,551. That’s $147 more per month or $1,764 a year.
If those mortgage amounts sound high, remember that in December 2021, the average house price in Canada was $713,542.
The mortgage market will no longer be able to hide from higher rates this year, says BMO senior economist Robert Kavcic.
“Canadian mortgage rates are like a coiled spring set to unwind, but by how much?” he wrote in a note this week.
“On the five-year fixed side of the market, underlying GoC yields could easily point to further upside of roughly 50 bps or more. On the variable side, 100 bps or more of BoC tightening is in the cards over the course of this year.”
That could mean a rise in the mortgage rate the market is priced off from 1.8% at the end of 2021 to 2.7% by the end of 2022.
As of Monday, the market had priced in up to seven rate hikes by the end of the year, which would bring the Bank’s rate to 2%, according to Bloomberg data.
But some economists think this timeline is too steep.
Stephen Brown of Capital Economics finds the market pricing puzzling, because it assumes the Bank of Canada will hike faster and further than the U.S. Federal Reserve, even though inflation is higher in the States.
Moreover, the makeup of Canada’s economy with its “over-dependence” on interest-rate-sensitive housing is very different from its southern neighbour.
Capital believes that the risks will force the bank to pause its tightening cycle at 1.5%, about 50 basis pointer lower than what the market expects.
Analysts at Pacific Investment Management Co. see the central bank moving just four times this year, in line with expectations for the Fed, reports Bloomberg.
Canada’s high household debt and slack remaining in the labour market despite the jobs recovery will prevent the Bank from pushing rates too far, too fast, Vinayak Seshasayee, a portfolio manager overseeing Pimco’s Canadian fixed-income assets told Bloomberg.
Bankers buck gloomy trend by forecasting growth amid concerns about economic slowdown – The Globe and Mail
Top executives at two major Canadian banks predict they can keep adding new loans and increasing profits in the coming quarters, offering an optimistic outlook for the financial sector that is at odds with economists’ increasingly gloomy forecasts of a downturn ahead.
Bank of Nova Scotia BNS-T and Bank of Montreal BMO-T both reported higher second-quarter profits on Wednesday, underpinned by robust demand for personal and commercial loans as well as lower loan loss reserves than analysts anticipated. Profits increased 12 per cent compared with those in the same quarter a year earlier at Scotiabank, and 4 per cent after adjustments at BMO, as rising interest rates helped increase margins on loans.
That marked a strong start to the major banks’ earnings season, but analysts cautioned those results, which cover the three months ended April 30, already look distant in the rear-view mirror. They pressed senior executives about how the banks are bracing for a deteriorating economic environment marked by war in Ukraine, high inflation, rapid central bank rate hikes and the increasing prospect of a recession that could curb customers’ appetite to borrow.
Bank chief executives and finance chiefs stressed they still expect economies to grow as COVID-19-related headwinds ease. They noted that most households are in good financial health, as many stashed away extra savings during the pandemic, while unemployment remains low in a tight labour market. Businesses are borrowing to bulk up inventories as demand for products outstrips supply, and some sectors, such as commodities, are booming.
“The macroeconomic backdrop for our key geographies remains positive,” said Scotiabank chief executive Brian Porter, on a conference call with analysts on Wednesday. “Despite the macroeconomic and geopolitical uncertainties in recent months, we are encouraged by the resilience of our businesses.”
The mood among economists is much more downbeat as the threat of a global recession mounts, even though few are predicting that is highly likely. The tone has also been sombre as business leaders and policy makers rub elbows at the World Economic Forum’s gathering in Davos. And the former governor of Canada’s central bank, Stephen Poloz, recently predicted the country is heading for a period of stagflation – a mix of slow growth and high inflation.
Yet increases in banks’ loan balances have been broad-based, and BMO chief financial officer Tayfun Tuzun said in an interview that he still expects “high-single-digit loan growth” year over year – the same guidance he gave three months ago.
“All in all our clients are telling us that they’re still interested in investing in their businesses,” said Mr. Tuzun. He added that there are “a lot of good indicators for what’s to come” for the bank.
A particular bright spot is commercial lending in Canada, where loan balances rose 13 per cent at BMO and 19 per cent at Scotiabank in the second quarter. Scotiabank’s chief financial officer, Raj Viswanthan, said corporate clients and consumers have “very strong” balance sheets at the moment, “so we see a lot of pent up demand.”
The disruptions caused by COVID-19 and war in Ukraine have also increased demand in key areas, Mr. Viswanathan said. “It’s supply chain issues, it’s the rise of e-commerce, it’s the demand for food.”
Bankers aren’t blind to the gathering economic storm clouds. BMO chief risk officer Pat Cronin said his bank is giving greater weight to a hypothetical scenario that predicts the impact of a severe downturn, and has lowered expectations for parts of its forecast it considers the base case.
When U.S. banking giant JPMorgan Chase & Co. hosted an investor day this week, chief executive Jamie Dimon summed up the outlook as, “strong economy, big storm clouds,” saying those clouds “may dissipate. If it was a hurricane, I would tell you that.” But he acknowledged “they may not dissipate, so we’re not wishful thinkers.”
The Bank of Canada published a paper this month that suggests the country’s banks are strong enough and well capitalized to withstand even a severe, prolonged downturn in which unemployment peaks at 13.5 per cent and house prices fall 29 per cent.
Gabriel Dechaine, an analyst at National Bank Financial Inc., wrote to clients that, “in a normal environment, such optimism would be met with positive expectations for stock price appreciation,” but he remains “more cautious … as long as the disruptive forces of inflation that heighten recession expectations persist.”
In the fiscal second quarter, Scotiabank earned $2.75-billion, or $2.16 per share, compared with $2.46-billion, or $1.88 per share, in the same quarter last year. Adjusted to exclude certain items, Scotiabank said it earned $2.18 per share, well above the consensus estimate of $1.98 per share among analysts, according to Refinitiv.
In the same quarter, BMO earned $4.76-billion, or $7.13 per share, compared with $1.3-billion, or $1.91 per share, a year earlier. After adjusting to exclude one-time items that include a $2.6-billion gain on a financial instrument tied to BMO’s US$16.3-billion acquisition of California-based Bank of the West, profit was $2.187-billion, or $3.23 per share. On average, analysts expected $3.24 per share on an adjusted basis.
Both banks raised their quarterly dividends, by 3 cents per share to $1.03 at Scotiabank, and by 6 cents per share to $1.39 at BMO.
Two key factors that have supported banks’ rising profits through much of the pandemic – rapidly rising mortgage balances and unusually low losses from defaulting loans – appear to have reached peaks, and are set to return to more normal levels.
Mortgage balances rose 16 per cent year over year at Scotiabank and 8 per cent at BMO, benefitting from the tail end of a red-hot streak for housing markets. But that yearly growth rate is “slowly slowing,” said Dan Rees, Scotiabank’s head of Canadian banking, and is likely to revert to a pace in the range of 6 to 9 per cent in the coming quarters even as some economists are predicting housing prices will fall.
Provisions for credit losses – the funds banks set aside to cover losses in case loans default – “reached the floor this quarter,” said Phil Thomas, Scotiabank’s chief risk officer. He and his BMO counterpart, Mr. Cronin, expect loan loss reserves will gradually drift higher. But with write-offs and delinquencies still very low, neither risk officer is predicting a spike in loan losses, even though it will rapidly get more expensive for consumers to service their debts.
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World's fastest passenger jet goes supersonic in tests – CNN
YYJ delays: RCMP called to Victoria International Airport | CTV News – CTV News VI
Travellers who have a flight planned at Victoria International Airport (YYJ) on Tuesday are being warned of travel disruptions due to police activity.
Sidney/North Saanich RCMP say the airport was closed after a suspicious package was discovered around 1:30 p.m.
Cpl. Andres Sanchez of the Sidney/North Saanich RCMP says that the airport was closed to all incoming and outgoing flights “out of an abundance of caution.”
He said the airport will remain closed until police “can be sure it is safe for the public to travel.”
“The package was located at the departures/check-in [area], so it was brought in by a passenger,” said Sanchez Tuesday afternoon.
The package was flagged by Canadian Air Transport Security Authority (CATSA) staff who spotted what appeared to be an “incendiary device” within a bag, he said.
“CATSA employees performed the checks that you normally do at a departure situation at the airport,” he said.
“They scanned the bag and found there were items inside that could be of a dangerous nature and at that point police were called to the scene to investigate further,” he said.
Mounties say a specialized RCMP team has been called in from the mainland to remove the bag from the premises and to “ensure the package is dealt with in a safe manner.”
PASSENGER UNDER INVESTIGATION
Sanchez says the individual who brought the bag is under investigation, but it’s unclear if any criminal charges will be recommended yet.
“Again, because we don’t know what’s in that bag we can’t speak further on that,” he said.
In the meantime, people are asked to avoid the airport for the next few hours, according to RCMP spokesperson Sgt. Chris Manseau.
Around 4:20 p.m., the airport said all scheduled commercial flights for the next two hours were cancelled.
The airport is working with airlines to keep them updated on the status of flights.
Police say they hope the airport will be able to reopen Tuesday night, but it’s uncertain how long the investigation at the property will take.
Travellers should check the YYJ website for the latest updates on their flights, according to the airport.
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