Market update

Markets were challenged this week, particularly in the back half due to economic growth concerns after the European Central Bank became the latest to signal restrictive policies to combat inflation; continued inflation concerns in the US.

US inflation accelerated to a fresh 40-year high in May, as the consumer price index increased by 8.6% from a year earlier – shelter, food and gas were the largest contributors.

Canada’s trade surplus narrowed to C$1.5 billion, below analyst forecasts of C$2.9 billion. The economy also added 39,800 jobs in May, surpassing the gain anticipated by economists. The nation’s jobless rate fell to a record low of 5.1% going back to 1976, while wages also accelerated.

For the first time in nine months, the US trade deficit shrank 19% in April as imports fell 3.4%, and this is while exports rose 3.5% to a record. This signals that trade won’t weigh heavily on the economy’s growth.

US weekly jobless claims increased by the highest level since mid-January, suggesting hiring has slowed down.

The World Bank cut its global growth forecast to 2.9% for 2022 on Wednesday and warned of the world economy slipping into a period of stagflation.

Data was released on Wednesday showing German industrial production has recovered, but rose less than expected.

European Central Bank has announced that it intends to raise its key interest rates by 25 basis points at its July meeting, and expects a further hike at the September meeting. They also downgraded growth forecasts for 2022 from 3.7% to 2.8%.

While Shanghai and Beijing reintroduced COVID restrictions, China’s May import and export numbers showed some increasing activity. The Bank of Japan has said that it is necessary to continue monetary easing, likely to be paired with a stimulus budget this summer.

Weekly change: TSX: -1.1% ; DOW: -1.9%; S&P 500: -2.2%; NASDAQ: -5.4%; GOLD: 1.1% WTI: FLAT

Bloomberg Market Updates - https://www.bnnbloomberg.ca/markets

Schwab Market Updates Podcasts - https://www.schwab.com/resource-center/insights/section/schwab-market-update

 

Real Estate Market Update as reported by Jon Makowsky and Ryan Grierson, CIBC Mortgage Advisors

“After a strong start to the year, the current rate tightening cycle has changed market dynamics, with many potential home buyers putting their purchase on hold,” notes TRREB’s chief market analyst Jason Mercer. “This has led to more balance in the market, providing buyers with more negotiating power.”

According to regional real estate boards, both sales and prices were down month over month in May.

A notable exception was the Calgary market. Benchmark prices increased, even while the pace of growth has eased. In Calgary, it is estimated that the month-over-month price increased by 3.7% in contrast to other markets across Canada.

Regardless, year-over-year Canadian Real Estate prices continue to shine with a record breaking average increase of 18.8% across the country according to The Teranet – National Bank’s Composite House Price Index.

Affordability is tightening and the last time Canadians dedicated this much income to mortgage servicing debt was right after the 90’s real estate crash.

Many experts believe that the major pressure on home prices and affordability could be alleviated by increasing inventory (building new homes).

In Calgary, we currently have over 5,200 active listings, which surprisingly means a -23% decrease in listings year-over-year. There are also 4,577 new listings which is approximately equal to a 1 month supply of homes on the market.

Current 5yr fixed rates are hovering in the 4.5% - 4.8% range as we keep a close watch on the Canadian bond market for indication of price movements.

https://www.canadianmortgagetrends.com/2022/06/home-price-declines-more-pervasive-in-may-with-calgary-a-notable-exception/

https://housepriceindex.ca/#maps=c11

 

Low expectations key to a soft landing by Karyne Charbonneau & Avery Shenfeld Link to article

CIBC Economics see two alternative routes to a hard landing. First, tightening too much and too fast turns a desired slowdown into an outright recession. Conversely by acting too slowly and giving time for inflation expectations to build, they could leave a recession as the only tool for bringing inflation back down to earth.

Self-fulfilling prophecies – If firms believe that inflation will remain high, then there is a belief that those higher wages can be passed on through higher prices. More broadly, wages both in the US and Canada have accelerated, but less than prices. A squeeze in purchasing power will slow spending and therefore unwind some inflation pressure as well.

Expectations matter – Low inflation expectations reduce the economic costs when central bankers attempt to bring an inflation outburst to an end. CIBC Economics forecast US inflation at about 4% by the end of 2022, while the unemployment rate stays around its current level. However, based on estimates of the impact of this tradeoff historically, that soft landing option goes out the window if long term expected inflation rises by just 1%.

The medium is the message – Inflation data received through traditional media has half the impact on revisions to future expectations of inflation than if the data comes directly from FOMC communication. Why? Because according to the same survey, people don’t find traditional media credible. In fact social media is seen as the most credible source of information, distantly followed by friends and coworkers, and then governments.

CIBC Economics still sees a mid-2% overnight rate as sufficient to contain growth and curtail domestic inflation pressures in Canada and US. However, the timetable for reaching those yield peaks has been moved up, given the need to get some easing in inflation before expectations are de-anchored, and chances for a soft landing evaporate.

 

Global Insights

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NBC

Shanghai and Beijing went back on fresh COVID-19 alert on Thursday after parts of China's largest economic hub imposed new lockdown restriction and the city announced a round of mass testing for millions of residents. The most populous district in the Chinese capital, meanwhile, announced the shutdown of entertainment venues.

Reuters

Alberta's energy minister is warning that anything resembling the UK's so-called "windfall tax" on the profits of oil and gas companies must not be implemented in Canada. The British government last month announced plans for a 25% windfall tax on the profits of oil and gas companies. The tax is intended to raise funds for direct cash payments for millions of British citizens coping with rapidly rising energy bills.

BNN Bloomberg

The world’s largest fertilizer company will increase production after months of supply disruptions and skyrocketing commodity and food prices. Nutrien Ltd. will ramp up potash production capability by 40% compared to 2020, citing “structural changes in global energy, agriculture and fertilizer markets”.

BNN Bloomberg

 

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