Where Are Canadian Interest Rates Going?

Let’s catch up on several recent economic happenings that we can use to anticipate interest rate movements in Canada. 

Last Friday, Statistics Canada released the most recent GDP data.  This is like an National economic report card for Canada.  

The data inside this report helps our Central Bankers (Bank of Canada) anticipate Canada’s economic future and influences Monetary policy decisions today. 

The Bank of Canada (BoC) is making their Key Interest Rate announcement tomorrow.  I do not expect rates to rise.  

Major leading economic indicators worthy to note are below.  

The next BoC next meeting is January 9th, 2019.

Gross Domestic Product (GDP) Highlights To Influence Canada’s Central Interest Rate:

• Oil challenges.  Oil prices started sliding, then fell off a cliff recently.  I wrote you about the West Texas Intermediate and the Western Canadian Select differential here.Things are bad enough our NDP Government has stepped in reducing production by 8.7% across industry producers.

  This will help companies profitability.  The big question is when new employment will come back?  Let’s not forget about wage growth.

  Organization of Petroleum Exporting Countries (OPEC) is meeting to discuss global oil supply changes at their meeting December 6th.

   

• Consumer Spending: do your part.  I jokingly encourage people to go out and spend money to turn-our-economy.  We need it.Consumer spending slowed to a 11 quarter low of 1.2% (annualized).  I wrote you on the importance of this metric here.

  Really, this isn’t shocking as consumers have faced increasing rates and 3% annualized wage growth (slightly higher than inflation).

  Motor vehicle sales fell 1.4% and household spending on services slowing by 0.3%.

   

• Business Investment.  The Bank of Canada has been saying (wishing? wanting?) that business investment in Canada will pick up the slack of slower consumer spending.The latest GDP numbers are not reflective of that.  Machinery and Equipment investment is down 9% (quarter/quarter, annualized) and non-residential investment is down 5.4% (quarter/quarter, annualized).

  This is with the backdrop of Canada’s Federal Government expanding our fiscal policy with spending up 1.8% (quarter/quarter, annualized).  IE: more Federal debt.

  Current GDP numbers are not factoring the further economic headwinds brought by the closure of the GM factory in Oshawa, ON.

   

• Housing investment.  Housing investment fell 4.7% (annualized) in the third quarter of 2018.  This is the largest decrease since the second quarter of 2009. 

Here Is The Good News!!

The Bank of Canada has repeatedly said their rate decisions will be based on incoming data.  

I anticipate the tone of their meeting tomorrow will be much different than their October 24th rate announcement/press conference.

I think variable rate Mortgage holders can breathe a sigh of relief.  I’m reading various reports in the market anticipating the Bank of Canada to raise rates twice in 2019 (dependent on income data). 

You might also notice prices at the pumps are down, leaving more dollars in your pocket (similar to a tax cut).  This is a razor thin silver lining to down pressure in the oil market.  

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I have a Calgary Real Estate Market Update coming with positive information.  Are we seeing the bottom of the beleaguered condo market?  Stay tuned. 

Cheers,

Chad Moore