Investment

These provinces have felt the most pain from Bank of Canada rate hikes

Published

1 year ago

November 14, 2023

In Ontario, Quebec and British Columbia, housing investment in 2022 fell by more than at any point since the 1990s. Photo by Tyler Anderson/National Post

Looking back at the year the Bank of Canada started hiking interest rates, things looked pretty good.

Canada’s real gross domestic product grew 3.8 per cent in 2022, with GDP rising in nine provinces. Saskatchewan led the pack with 6 per cent growth, followed by Alberta, at 5 per cent, according to provincial numbers released last week by Statistics Canada.

But while growth looked good on the surface, Marc Desormeaux, principal economist at Desjardins, spots several “troubling details” in the data that showed the early impacts of the most aggressive interest-rate hiking cycle in recent history.

In an effort to curb soaring inflation after the pandemic, the Bank of Canada raised its policy interest rate from 0.25 to 4.25 per cent in 2022. Three more rate hikes in 2023 brought the rate to the current 5 per cent.

“We already knew how much of a drag housing posed at the national level last year as interest rates rose sharply, but the breadth of weakness and depth in some regions was striking,” said Desormeaux in a note.

After hitting record-highs in 2021, housing investment dropped 12.1 per cent in 2022, falling in seven provinces, a count only exceeded during severe recessions in the past, he said.

Residential capital’s share of economic output in 2022 was below the average of the decade before the pandemic everywhere except in the Maritimes.

In Ontario, Quebec and British Columbia, this investment fell by more than at any point since the 1990s.

In Ontario and B.C., the economies where the housing market holds the biggest sway, growth would have been over 5 per cent if it was not for the decline in real estate, said Desormeaux. As it was, 2022 GDP for Ontario came in at 3.9 per cent and 3.8 per cent for B.C.

Home sales in these two provinces fell sharply as interest rates climbed. When the Bank of Canada paused rates at 4.50 per cent in early 2023, the market experienced a robust recovery that surprised economists. However, the decline resumed when the Bank hiked rates again in June and July, bringing the rate to 5 per cent.

Interest rates have been on pause since then, but Desjardins sees less chance of a rebound this time.

Higher borrowing costs have made the housing market even more unaffordable, and the “higher for longer” narrative from central banks will keep fixed mortgage rates elevated until the Bank of Canada cuts rates next year, said Desormeaux.

Another warning sign from 2022 was savings rates. The pile of money Canadians put away during the pandemic initially shielded consumers from the effects of high inflation and interest rates, but there were already signs that year that that defence was weakening.

Canada’s household saving rate dropped from 10.5 per cent in 2021 to 5.4 per cent in 2022, as higher spending exceeded gains in income, said Statistics Canada.

Ontario saw the steepest decline, falling to 3.2 per cent, mainly because of higher interest payments.

“In fact, households in this province had the highest debt service ratio in the country (8.1 per cent compared with 6.8 per cent for Canada), mainly because of increases in mortgage debt,” said Statistics Canada.

Meanwhile, Saskatchewan was the only province that saw its savings rate improve, rising to 8.7 per cent as incomes were boosted by improved crop conditions and higher grain prices.

Even though the provincial GDP data is a year behind, it still provides “critical takeaways” for growth in 2023 and beyond, said Desormeaux.

The drag from the housing market and risks of greater financial stress in heavily indebted regions such as Ontario and British Columbia reinforces Desjardins’ view that oil-producing provinces such as Alberta are best positioned to weather the downturn.

The records just keep coming in Canada’s rental market. The average asking price for a rental unit has hit new highs now for six months in a row, topping at $2,178 in October.

Vancouver is still the most expensive city for renters, with the average one-bedroom listing at $2,872, almost 7 per cent higher than last year. Toronto is a close second with a one-bedroom fetching $2,607.

But national rent inflation is actually being fuelled mainly by price increases in Alberta, Quebec and Nova Scotia. Rent in Calgary has jumped 14 per cent year over year to $1,733.

Ontario showed the slowest annual growth in apartment rents during October, rising 4.6 per cent to $2,492, said the data released by Rentals.ca and Urbanation Monday.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

7 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

1 month ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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