Good morning,

The Bank of Canada left rates unchanged with this morning’s rate announcement, as was expected.   They signalled they intend to pause & see how the economy responds to the jumbo hikes from last year so nothing has really tipped the scales in either direction for them to make a move. 

That said, it’s been an eventful month.  Much of the upward rate pressure has been the extremely hawkish talk from the US Fed – the higher they go, the more pressure there is for Canada to raise to support our currency. 

Just over a month ago bond yields started to drop significantly as the stability of the US banking sector came into question.  The 16th largest bank in the US – Silicon Valley Bank – failed as their bond holdings were basically underwater & worth significantly less than what they paid for them.  The mechanics behind that is when rates go up, bond values go down so all the rate hikes lead to a run on deposits, money getting pulled out as there were concerns about the bank having enough assets to pay them out & voila, the bank was shut down. 

They weren’t the only one mind you & there was concern for the regional banking sector overall.  The talk was that further rate increases would make this issue worse & could lead to a full blown crisis but that has since died down.  The Fed raised 0.25% at their last meeting (0.5% was being floated around) & changed their guidance from being committed to “ongoing” rate hikes to “some additional hikes.. maybe.”  Basically, they may raise.  They may not, but overall they are easing off the brakes a bit.  All in all it was a step in the right direction if you’re looking for rates to come down here.

In Canada, employment data continues to be strong & surprised to the upside, although, again, that is one of the most lagging indicators & the last shoe to drop when the economy enters recession.

Inflation continues to ease & the Bank expects CPI to fall quickly to around 3% by mid this year & decline to 2% by the end of next year.  

One of the major challenges in getting inflation down & keeping it down is our recently announced federal budget.  More spending & more debt will not help ease inflation any time soon.  Cutting $500 cheques to help cover soaring prices of groceries does nothing to help bring down prices.  Announcing a new tax free savings account for new home buyers goes directly in opposition to what the Bank of Canada is trying achieve, although I will say, if you qualify for that program, use it & I have some highlights of the program on my website you can check out.  It is a really good program but make no mistake that is stimulus to a housing market the Bank of Canada wants to cool.  All signs of our budget & immigration commitment point to higher inflation for longer.  

In the near term, barring a crisis, there doesn’t seem to be any indication that rates will go up or down.  Bond yields continue to bounce around & at this point it’s not looking like the Bank will start dropping until 2024 but it does look like we’re going to see fixed rates continue to settle lower here. 

That’s it for today.  If you have a mortgage coming up for renewal this year or are looking to buy & want to run your strategy by me, please get in touch as I’d love to hear from you.  Thanks & have a great day.

Good morning,  For the first time in 12 months the Bank of Canada has NOT raised rates.  They signalled a pause after the Jan meeting & held true today but it’s continued to be a really flippy floppy few months.  Leading into Christmas bond yields were dropping & fixed rates were coming down.  That reversed hard into the new year then returned to dropping below pre-Christmas levels.  Enter Feb & another about face with upward pressure on rates & that’s where we still sit today.  Over that time the market went from pricing in no more hikes with rates to start dropping late 2023 to then pricing in a potential hike before the fall with the Bank of Canada not dropping until 2024. Part of the reason for the spike was job gains.  Canada added 150k jobs in Jan which was 10 times the estimate, however that was driven by temporary, non permanent resident, non citizen workers to fill the large gap of job vacancies.  The interpretation there is that is likely a 1 time boom & not something to read in to deeply on.  It’s also important to note that when the economy slows, those temporary workers tend to go back to their home countries so not the best foundation for a robust growing economy. So Tiff has signalled a pause.  What is the risk that could cause them to raise again?  Inflation & the US FED. On the inflation front, the good news there it came in softer than expected at 5.9% vs 6.1% expected & down from 6.3% in Dec.  Food prices are still high at 10.4% year over year but who really eats food anyways..

The US Fed has recently upped their hawkishness & suggested a potential 50bps hike this month which could lead to a higher terminal rate then previously expected, put pressure on the loonie & pressure the Bank of Canada to take further action.  Takeaways from today are that things are taking longer to play out.  Still a lot of volatility with rates & the outlook continues to bounce around.  At this point it’s looking like for the Bank of Canada to cut this year we would need a significant economic downturn but as of now it’s looking like no rate cuts until next year.  If you have a mortgage coming up for renewal this year get in touch with me today.  It never hurts to get some rate holds in & have some irons in the fire as we see how the upcoming months play out.  That’s it for me.  Thanks for watching & have a great day!

Good morning,

More pain this morning as the Bank of Canada surprises markets for the 2^nd meeting in a row & raises 0.5% vs the market’s expectation of 0.25%.  Last meeting consensus was expecting more & we got less.  This week, the opposite.  As of this morning market expectations are still for another 0.25% but as we’ve seen throughout this year, this can all change for better or worse.  The Bank ended their release ambiguously stating they will be considering whether the policy interest rate needs to rise further.  This is a change from their typical, “more action is needed,” line but as we saw today & throughout this year, be cautious with optimism with these guys, although it does appear we are very near the end here.

Inflation continues to come down but CPI inflation is still at 6.9% with core inflation around 5%.  Canada’s 10s/2s yield curve, which gives an indication of future economic activity, is the most inverted since the early 1990s.  In a health economy the curve slopes upwards, which points to economic growth into the future.  When short term yields are higher than long term, the curve slopes downwards, which corresponds to periods of economic recession.  The growth outlook is not good.  Winter is coming.

A lot has been made over the last month of Central Bank action.  The head of Australia’s central bank actually came out with an apology to people who took out mortgages last year under the guidance of rates being low until 2024.  In Canada, for the first time ever our central bank ran a loss.  Keep in mind that loss falls on the backs of tax payers & is looking to be something to the tune of a $10b loss – instead of collecting something around $3b annually from the Bank of Canada, we’ll be forking out approximately $7b overt the next 3 years.  First time ever.  Ever is a long time..

They also admitted they should have raised rates sooner but defended paying out $18.4m in bonuses to staff last year so more signs of how broken our world has become.

Prior to this morning, around 13% of all mortgages in Canada had passed their trigger rate, meaning their payments were not covering all the interest owed for that month.  After today that number will be higher.  ​If you’re in that boat, raise your payments, even if you have already.  You want to delay the trigger situation as much as you can.  Around 75% of mortgages in Canada this year were in variable rates, which, in a lot of situations had to do with broken policy pushing clients to going variable in order to have the lower stress test rate & qualify for their purchase.  Also, in fairness, given the history of this central bank it was hard envision the hawkishness we ended up seeing.

Looking at my own business, what I got wrong was, we knew inflation was going to be an issue & that’s something I was talking about since 2020.  We knew there was a ton of debt in the country & raising rates would be problematic, which it is & will continue to be, but what I underestimated was the level of damage that could occur between when they started raising & finished.  I completely underestimated the level of pain & damage they would be willing to reign down & that is something I take very seriously.  Myself & really everyone completely missed the boat on that.  The conflict in Ukraine certainly didn’t help & looking back that seemed to be the point where the switch really flipped & that was used as the excuse to really move to significant increases, but whether that happened or not, inflation still would have been high & that’s not THE reason for this year. 

Even though variable had been the better bet close to 90% of the time in Canada’s history, the take away for me is to really outline what could happen in that 1 time in 10 where it isn’t.    

This is the last meeting for 2022.  One that will surely be remembered for a long time.  Next year the story will be when will rates start to drop but I would suspect mid to late 2023 before any relief comes on that front.

That’s it for me.  Thanks for watching & please get in touch if you’d like to discuss.