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Posthaste: Canadians should brace for another interest rate hike, whether it's this week or next month

The Vancouver Sun sent this email to their subscribers on June 5, 2023.

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One economist sees the Bank of Canada raising rates this week and in July View this email in your browser Image Sponsored by: DCM SURPRISINGLY SIMPLE Good morning,  There's a lot of suspense building around the Bank of Canada's meeting this week. Whether it pulls the trigger Wednesday or waits until July, however, there is growing speculation among economists and the market that interest rates are going higher.  The Bank of Canada announced a pause on its rate-hiking cycle early this year after raising rates from near zero to 4.5 per cent so it could assess the impact on the economy.  Rate hikes are designed to act like a brake on the economy with the aim of lowering inflation, but so far our economy has shown surprising resilience. Gross domestic product in the first quarter rose to 3.1 per cent annualized, beating the Bank of Canada's forecast of 2.3 per cent. An early estimate of a 0.2 per cent rise month over month in April suggests growth could also exceed the Bank's expectations for this quarter as well. April's inflation numbers also took economists by surprise, ticking up to 4.4 per cent from a year ago, instead of the forecasted 4.1 per cent, in the first acceleration since June 2022. And Canada's housing market is heating up again, with the average home price jumping 4.3 per cent in April, up nearly 17 per cent since January.   Rising home prices are especially tricky because Bank of Canada research shows that consumers' inflation expectations are heavily influenced by the housing market, said Capital Economics.  The stage appears set for more rate hikes, but how many and when is the question. A number of economists think the Bank will keep its powder dry this week and then possibly hike in July, including the market where expectations of a rate hike June 7 were just 38 per cent last week.  Desjardins chief economist Jimmy Jean says banking turmoil in the United States has tightened credit across North America and this alone could have an impact equivalent to another rate hike, possibly more. If the Bank surprises by hiking this week, it could spark speculation of even more hikes, tightening financial conditions to a level that the Bank may not be comfortable with, he said. Lastly, even though the U.S. debt ceiling standoff has been resolved, the issuance of Treasury bills and notes from a cash-strapped U.S. Treasury could impact Canadian funding markets. "As a result, what we envision for [Wednesday] is a Bank of Canada revving the hike engine without putting it in gear just yet," wrote Jean in a note. There is also more data to come.  "The Bank of Canada is in the uncomfortable position of having to make a rate announcement [Wednesday], and then see the May jobs data on Friday," writes CIBC chief economist Avery Shenfeld.  "By using the June announcement to issue a stern warning that a rate hike could well be in the cards for July they can keep bond yields and mortgage rates elevated, while putting off the decision until they have that data," Shenfeld wrote in a note Friday.  Shenfeld said May's job numbers will likely be higher because Statistics Canada will be phasing in population growth that took place months ago. So the number to watch on Friday is the unemployment rate.  "If it doesn't start ticking higher, the wheels will be in motion for a July rate hike," he said.  Others are more hawkish.   Stephen Brown, Capital Economics' deputy chief North America economist, says the market is underestimating the extent to which the Bank will raise rates and is forecasting a hike this Wednesday and possibly again in July.  "If the Bank hikes by 25 bp [Wednesday], to 4.75 per cent, and offers a hawkish statement we assume the Bank will follow with another 25bp hike in July, although we'll wait for the meeting … before making that call official," he wrote.  One last reason the Bank might stay put Wednesday is there is no press conference. "One would assume that a resumption of tightening would warrant having the BoC’s top dog(s) deliver the news, smoothing over any interpretational issues, should they arise," wrote National Bank economists on Friday.  Still, Canada's central bank has not shied away from surprises in the past.  "Investors beware, this is very much a ‘live’ meeting," they added.  Was this newsletter forwarded to you? Sign up here to get it delivered to your inbox. LEADING INDICATOR TORONTO SALES RISE AS INTEREST RATES HOLD Greater Toronto sales Bank of Canada overnight lending rate, per cent 20000 ................................................................................................................................ 5 O TT T G T T T Tx TeTaThl T T 7 JTEFMTAT T TaTsToNT DT TFTMTATM 2023 SOURCE: TORONTO REGIONAL REAL ESTATE BOARD, BLOOMBERG GIGI SUHANIC FINANCIAL POST Toronto home prices rose for the third month in a row in May, showing clearly that the Bank of Canada's decision to pause interest rate hikes has had an effect on the housing market. The benchmarked price of a home in Canada's largest city rose 3.2 per cent to $1.14 million, the biggest increase since the market peaked in February 2022, Bloomberg reports.  Today's chart shows how home sales in Toronto have climbed since the Bank of Canada announced its conditional pause on rate hikes in January. Prices have climbed as well as more buyers returned to the market than sellers. The benchmark prices for a home in Toronto is up 6.8 per cent since February.   FP MUST READS The unstoppable Michael McCain It's a career that has encompassed a Shakespearian-scale family feud, the building of a national brand and one famous mea culpa Worrying about money? There are ways to take control of your fears Sandra Fry: To improve your situation in a meaningful way, start by identifying the real reason you are worrying How changes to the alternative minimum tax system could affect Canadians Jamie Golombek: High-income earners and people with once-in-a-lifetime gain from property, business sale may be affected Canada needs a greenprint for the next housing boom John Stackhouse and Gervan Fearon: We need a new plan that changes how we design, construct, renovate and heat homes o - N s T QUOTE OF THE DAY "THIS IS A GRAND DAY FOR US, BECAUSE THE QUALITY OF THE AGREEMENT IS UNPRECEDENTED" —  Saudi energy minister Abdulaziz bin Salman at a news conference at an OPEC+ meeting this weekend in which the kingdom announced it would cut an extra 1 million barrels a day starting in July. The move takes Saudi Arabia's output to the lowest level in years and pushed up oil prices by as much as 5 per cent.  No more: Inefficiencies Overspending - S preadSheetS DCM i optichani MARKET SIGNALS P SPTSX A SP 500 Futures A WTI Futures Per Barrel Gold Spot Per Ounce A U.S. Dollar Index Canadian DollarU.S. Dollar Source: Bloomberg. The percentage change is daily 20,024.63 4,290.25 US$73.02 US$1,943.54 104.28 74.36 1.79% 0.05% 1.78% 0.23% 0.26% 0.17% BREAKING TODAY * Canadian Club Toronto hosts Jean Charest and Musabbeh Al Kaabi, co-chairs of the Canada-UAE Business Council, in conversation with Sonia Verma, editor-in-chief at Global News * Today's Data: U.S. Factory Orders, ISM Services PMI PERSONAL FINANCE Creating extra contribution room in your registered retirement savings plan seems like a good idea, but certified financial planner Allan Norman says how to use it depends on the answers to many questions. Are you trying to create the biggest estate? The least amount of tax? Or the most you can spend? Get the answer Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg. Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at [email protected], or hit reply to send us a note. Sign up now for more of FP’s free, in-depth newsletters Download the Financial Post App: LA e e R App Store ANDROID APP ON Google play Connect with us on: © 2023 Postmedia Network Inc. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited. 365 Bloor St East, Toronto, ON, M4W 3L4 You received this email because you are subscribed to Financial Post Newsletter, registered as [email protected] • • • Contact us • Digital Ad Registry © 2023 Postmedia Network Inc. All rights reserved.
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