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Retail sales rebound in Canada, recouping all of pandemic losses – BNN

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Canadian retail sales have rebounded sharply after historic declines in March and April, with vendors making up almost all of their pandemic losses, Statistics Canada reported Tuesday.

Receipts rose 19 per cent in May, the agency said in its first full release for the month. June looks to have recorded another strong gain, with a flash estimate predicting another 25 per cent increase. That would bring sales last month to about 100 per cent of February levels, according to Bloomberg calculations.

The report confirms Canadian consumers are emerging from nationwide lockdowns with pent up demand and keen to spend. At issue is whether the sharp rebound will be sustained in coming months. Policy makers have warned a full rebound in consumer confidence could take years.

“At the moment, sales are still being buoyed by the enormous government income-support programs and consumers satisfying pent-up demand, both of which could fade in the second half of the year,” Royce Mendes, an economist at CIBC World Markets, said in a report to investors.

The Canadian dollar was little changed on the news, but was already trading higher on the day — up 0.7 per cent to $1.3437 per U.S. dollar at 12:32 p.m. Toronto time.

The retail numbers are consistent with alternative spending data tracked by Canadian banks, which have been showing consumers are eager to spend.

According to a report Tuesday by Toronto-Dominion Bank, consumer spending growth moved into positive territory in early July on an annual basis for the first time since the pandemic started. Three provinces — British Columbia, Alberta, and Ontario — have been driving the national improvement in consumption, the bank said.

“Re-openings have so far been by and large met with increased spending,” Brian DePratto, a senior economist at Toronto-Dominion, said in the report.

Still, economists caution that the pace of spending growth will slow with millions of Canadians still out of work and restrictions on some businesses likely to remain for some time.

Support Shift

Prime Minister Justin Trudeau is searching for a way to shift citizens from a $2000 a month benefit fund back into the workforce. The $80 billion Canada Emergency Response Benefit runs until Oct. 3.

“CERB payments have recently been extended by Ottawa but they will eventually end. Barring a massive rebound in employment, this will squeeze household income and weigh on retail sales later this year,” Jocelyn Paquet, an economist at National Bank Financial in Montreal, wrote in a report to investors.

Retail sales in May were up in nearly all sub-sectors except food and beverage stores, which had already posted a record increase in March. The gain in sales coincided with the reopening of many brick and mortar retailers across the country after emerging from pandemic shutdowns.

Auto sales led gains, jumping 66 per cent. Excluding this sector, retail sales were up 10.6 per cent on the month. Economists in a Bloomberg survey had expected a 20 per cent gain in May sales, and a 12 per cent increase excluding autos. The statistics agency didn’t provide industry-specific estimates for June.

Even with the increase in May and June, the second quarter will go into the books as among the worst ever for Canadian retailers. Based on the June flash estimate, quarterly sales were down 15 per cent in the three months from the prior period, according to Bloomberg calculations.

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Canada's mortgage 'stress test' level falls for 3rd time since pandemic began – CBC.ca

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The bar at which the finances of Canadian mortgage borrowers gets tested has just been lowered, making it easier for would-be home buyers to reach.

Five-year posted mortgage rates at Canada’s big banks have inched lower in recent weeks, enough to compel the Bank of Canada to formally lower the average rate they base their calculations on to 4.74 per cent.

That’s significant because that’s the level the so-called stress test is based on. Announced in 2017, the test was designed to cool the overheated housing market of the time by making sure borrowers would be able to pay back their loans if rates were to suddenly rise.

Even if a borrower could get a mortgage at, for example, three per cent, that person’s lender was obligated to crunch the numbers as though the rate was higher — at around five per cent, for example — to make sure the loan wouldn’t be too onerous for the borrower to pay back at their income level if rates were to suddenly rise. If the borrower failed the test at the higher rate, the lender wasn’t allowed to lend to them, even if they wanted to.

That testing rate has already been lowered twice in this pandemic, first in mid-March when it dropped 15 points from 5.19 per cent to 5.04, and then again in May when it dropped another 10 points to 4.94 per cent.

This week’s 15-point cut comes on top of that and theoretically means qualified borrowers can now be approved for a slightly bigger mortgage than they could last week, even if their income is still the same.

Rate comparison portal Ratehub.ca calculates that the change could increase the purchasing power for qualified borrowers by about 1.5 per cent.

Numbers show what that means in reality. At the old level, a borrower who earns $100,000 a year and has a 10 per cent down payment would have been stress tested at 4.94 per cent and be approved for a loan on a home valued at up to $523,410.

At the new stress test level, that same borrower would be approved for a loan on a home costing up to $531,230. That’s a difference of $7,820.

“Over the last few years, rule changes have made it harder for Canadians to qualify, so the recent reductions in the benchmark qualifying rate is welcome news for first-time home buyers hoping to enter the housing market.,” said James Laird, co-founder of Ratehub.ca and president of mortgage brokerage CanWise Financial.

Ottawa had planned to change the way the stress test was calculated to begin with, announcing in February a plan to tinker with the formula starting in April. But those plans, like many others, were put on hold when the pandemic hit.

Good news for buyers

Sherry Cooper, chief economist at Dominion Lending Centres, said in an interview that move is good for buyers in that it will make it “a touch less difficult to qualify for a loan. People will be able to borrow a bit more money.”

She said she has observed that qualifying rate was quick to move on the way up, but has been much slower to come down even as interest rates have tumbled because of the pandemic, so it’s good to see the qualifying rate come down to something closer to what’s actually happening in reality.

“With record low interest rates, it’s hard to argue that housing hasn’t become more affordable,” she said.

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A financial iron curtain? China seen bracing for more US action – Aljazeera.com

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A sharp escalation in tensions with the United States has stoked fears in China of a deepening financial war that could result in it being shut out of the global dollar system – a devastating prospect once considered far-fetched but now not impossible.

Chinese officials and economists have in recent months been unusually public in discussing worst-case scenarios under which China is blocked from dollar settlements, or Washington freezes or confiscates a portion of China’s huge US debt holdings.

Those concerns have galvanised some in Beijing to revive calls to bolster the yuan’s global clout as it looks to decrease reliance on the greenback.

Some economists even float the idea of settling exports of China-made COVID-19 vaccines in yuan, and are looking to bypass dollar settlement with a digital version of the currency.

“Yuan internationalisation was a good-to-have. It’s now becoming a must-have,” said Shuang Ding, head of Greater China economic research at London-based lender Standard Chartered and a former economist at the People’s Bank of China (PBOC), the country’s central bank.

The threat of China-US financial “decoupling” is becoming “clear and present”, Ding said.

Although a complete separation of the world’s two largest economies is unlikely, the administration of US President Donald Trump has been pushing for a partial decoupling in key areas related to trade, technology and financial activity.

Washington has unleashed a barrage of actions penalising China, including proposals to bar US listings of Chinese companies that fail to meet US accounting standards and bans on the Chinese-owned TikTok and WeChat apps. Further tension is expected in the run-up to US elections on November 3.

“A broad financial war has already started … the most lethal tactics have yet to be used,” Yu Yongding, an economist at the state-backed Chinese Academy of Social Sciences (CASS) who previously advised the PBOC, told Reuters.

Yu said the ultimate sanction would involve US seizures of China’s US assets – Beijing holds more than $1 trillion in US government debt – which would be difficult to implement and a self-inflicted wound for Washington.

But calling US leaders “extremists”, Yu said a decoupling is not impossible, so China should make preparations.

High stakes

The stakes are high. Any move by Washington to cut China off from the dollar system or retaliation by Beijing to sell a big chunk of US debt could roil financial markets and hurt the global economy, analysts said.

Fang Xinghai, a senior securities regulator, said China is vulnerable to US sanctions and should make “early” and “real” preparations. “Such things have already happened to many Russian businesses and financial institutions,” Fang told a forum in June organised by Chinese media outlet Caixin.

Guan Tao, former director of the international payments department of China’s State Administration of Foreign Exchange and now chief global economist at BOC International (China), also said Beijing should ready itself for decoupling.

“We have to mentally prepare that the United States could expel China from the dollar settlement system,” he told the Reuters news agency.

In a report he co-authored last month, Guan called for increased use of China’s yuan settlement system – the Cross-Border Interbank Payment System – in global trade. Most of China’s cross-border transactions are settled in dollars via the SWIFT system, which some say leaves it vulnerable.

Renewed push

After a five-year lull, Beijing is reviving its push to globalise the yuan.

The PBOC’s Shanghai head office last month urged financial institutions to expand yuan trade and prioritise local currency use in direct investment.

Central bank chief Yi Gang said in remarks published on Sunday that yuan internationalisation is proceeding well, with cross-border settlements growing 36.7 percent in the first half of 2020 from a year earlier.

Still, internationalisation is hampered by China’s own stringent capital controls. It could also face resistance from countries that have criticised China on matters ranging from the coronavirus to its clampdown on Hong Kong.

The yuan’s share of global foreign exchange reserves surpassed 2 percent in the first quarter, Yi said. It also beat the Swiss franc in June to be the fifth most-used currency for international payments, with a share of 1.76 percent, according to SWIFT.

One way to accelerate cross-border settlement would be to price some exports in renminbi, such as a possible coronavirus vaccine, suggested Tommy Xie, head of Greater China research at OCBC Bank in Singapore.

Another is to use a proposed digital yuan in cross-border transactions on the back of currency swaps between central banks, bypassing systems such as SWIFT, said Ding Jianping, finance professor at Shanghai University of Finance and Economics.

China has fast-tracked plans to develop a sovereign digital currency, while the PBOC has been busy signing currency swap deals with foreign counterparts.

Shuang Ding of Standard Chartered said Beijing has no choice but to prepare for Washington’s “nuclear option” of kicking China out of the dollar system.

“Beijing cannot afford to be thrown into disarray when sanctions indeed befall China,” he said.

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Ford issues two recalls of 63367 Edge, Lincoln MKX and Lincoln Corsair models – CP24 Toronto's Breaking News

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OAKVILLE, Ont. – Ford has issued two recalls affecting 63,367 vehicles in Canada, citing safety issues with the brakes and coil spring.

The largest recall covers 62,876 Ford Edge vehicles with 2015 through 2018 model years, and Lincoln MKX vehicles with 2016 to 2018 model years built at the Oakville Assembly Plant between mid-2014 and the end of 2017.

Ford said that front brake hoses could rupture, causing brake fluid to leak, which would make it harder to slow down and increase the risk of a crash.

The brake hoses will be replaced as part of the recall, and vehicles with the safety issue may have their brake fluid warning light illuminated.

Another Ford recall of 491 vehicles in Canada covers the 2020 Lincoln Corsair, which runs the risk of a fractured rear coil spring, a defect Ford said would cause a potential road hazard for traffic following behind, “increasing the likelihood of a crash for other vehicles.”

Ford says it is not aware of any reports of accident or injury related to these recalls.

This report by The Canadian Press was first published Aug. 12, 2020.

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