Earlier this month the Bank of Canada Governor, Stephen Poloz, spoke at the Greater Vancouver Economic Development Board of Trade.
He highlighted four key areas the Bank of Canada is focused on in 2020:
- Global trade and policy development.
- Labour and housing markets.
- Assessing the economy’s capacity.
- What are financial markets telling us?
I think paying attention to high level areas of interest of Canada’s central bankers is helpful in understanding future interest rate policy decisions.
Let’s take a quick look at each area of focus …
Global Trade and Policy Development:
- Protectionist ideology are straining and holding back Global economic growth for ~3 years now.
- Ongoing trade disputes between US-China continue to provide market uncertainty.
- It is possible the US engage European Union in further tariff’s leading to additional market uncertainty.
- The Bank of Canada is monitoring how trade uncertainty spreads beyond the goods sector.
- There are mixed signals as to the extent weakness in manufacturing is spreading to services, employment, consumer spending and housing. Monitoring this is ongoing.
- Canada’s economy remains resilient and finds ways to cope and innovate.
Labour and Housing Markets:
- Strong year-over-year jobs growth (although slowing recently) and wage growth continue to happen.
- As we Albertan’s understand, job and wage growth vary greatly across Canada.
- Ontario, Quebec and British Columbia have received the lion’s share of the new immigrant population. This is carrying over into a rebound in their housing markets with demand out stripping supply.
- Policy makers are concerned housing markets in these regions could be classified as “frothy” again.
- Stronger national housing results in rising personal debt levels of Canadian’s. Seemingly, our policy makers are more comfortable should debt levels rise because the Mortgage qualifying stress test reduces downside exposure to a correction.
Assessing The Economy’s Capacity:
- Business investment has been below expectations for three years BUT a November report showed unexpectedly strong growth!
- As our economy becomes more digital, Statistics Canada is adjusting how to measure this information.
- Data is showing the federal governments infrastructure program is visible.
What Are Financial Markets Telling Us?
- About one year ago the yield curve inverted (short term interest rates were higher than long term interest rates). This is a classic indicator of a looming recession.
- At that time the Bank of Canada was predicting 2% growth. The year finished with about 1.5% growth.
- Yield curve inversion in today’s modern economy might correlate more to a looming slow down, not necessarily a recession.
- Stock markets are posting record highs lately suggesting positive view for corporate earning, despite uncertainty in global trade.
There you have it! Four areas of interest the Bank of Canada is watching closely.
I’m continuing to monitor information from our Central bankers and report back to you.
Talk soon,
Chad Moore
P.S
Dry January update. The first half of the month was uncomfortable. I was bombarded with opportunity to drink. I was shocked at how often I was saying “no thank you”.
The second half of the month is seemingly easier to remain dry. More people know I’m dry right now, so that helps too.
The honest truth is, I had 500 ML of beer last weekend. I didn’t make it. The other truth is, I woke up on Sunday with a hangover. I think my system is fairly clean so a bit of alcohol pollution was felt.
With my birthday on February 2nd, I might not continue with a dry streak :-).