BoC can raise rates without raising rates by using hawkish language for July: Economist Benjamin Tal
Happy Bank of Canada decision day to all who observe, or merely celebrate secularly with family and friends. It’s shaping up to be a coin flip, based on market expectations, for whether Tiff Macklem & Co. decide to pull the trigger on an interest rate hike this morning at 10 a.m. EDT – up to literally 50/50 odds, from the ~40 per cent we were seeing earlier this week as to whether we’re going to see another quarter point to 4.75 per cent (though worth noting odds seem tilted more toward a hike next month). Call it one of any number of things, or all of them – economic growth has been running ahead of expectations, the labour market remains robust, and we’re seeing some upward pressure on interest-rate sensitive sectors like housing once again. This sort of puts the Bank of Canada between a rock and a hard place – Macklem’s got one lever to pull, and that’s the benchmark rate, and so far inflation is still running well above target and that handbrake still hasn’t really stalled out the labour market nor overall output. We’ve got a stacked lineup joining Amber through the 10 a.m. hour to break it all down, including BMO’s Earl Davis, HomeEquity Bank’s Steve Ranson and former BNN anchor Frances Horodelski.
OECD SIGNALS MUTED GROWTH AHEAD
The Organisation for Economic Co-operation and Development is pouring some cold water on any hopes of a return to normal economic growth over the next year and a half. The OECD reckons we’re looking at a 2.7 per cent expansion in global output this year, with a modest uptick to 2.9 per cent in 2024. Not bad, all told, after the pandemic-induced contraction, but well below the 3.4 per cent average in the seven years preceding the pandemic. To blame? The continued slow recovery from said pandemic, the shocks from Russia’s invasion of Ukraine, and the monetary policy tightening from central banks attempting to quell persistently high inflation — to flick at our earlier thoughts on the Bank of Canada. Speaking of Canada, the OECD figures are looking at even more tepid growth (generally common for mature economies, to be fair,) of 1.4 per cent both this year and next.
WILDFIRES RAGE ACROSS EASTERN CANADA
Not that I have to tell anyone staring up at the orange sky in Ontario and Quebec, mind you. It’s shaping up to be the worst wildfire season on record in Canada, and we’re barely into June – according to the federal government, some 3.3 million hectares have burned already this year. Much like what we saw in Alberta, with natural gas operation disrupted, now we’re seeing mining operations hit here out east – Hecla Mining’s suspended operations at its Casa Berardi mine in Northern Quebec due to an emergency order from provincial authorities, and Iron Ore Co. of Canada is idling operations near Labrador City, as it can’t ship products out. Bloomberg News reporter Mathieu Dion has it covered for us both on the digital and broadcast side this morning – give it a read or tune in.
DOLLARAMA POSTS BEAT AS CONSUMERS FEEL THE PINCH
Let’s bring things full circle to the higher rate environment and slowing economic growth side of things, shall we? Dollarama topped earnings per share estimates in its latest quarter ($0.63 vs est $0.59) and blew past expectations for sales at stores open at least a year, up 17.1 per cent in the quarter, against an average view of 12.7 per cent. The company points directly to the “persistently inflationary pressure” Canadians are dealing with as a driver of the growth – consumables (ie, food, household products et al) were a key driver of the growth. Further to that it was the *number* of transactions, not the size of them, that drove the bus here (the former up 15.5 per cent, the later a mere 1.4 per cent,) which is as strong an indication as you’ll get that more Canadians are shopping at discount retailers, but not spending more than they need to in the face of concerns over household finances.
OTHER NOTABLE STORIES
- Tim Hortons is launching a credit card that can be used through its mobile app in partnership with CIBC as it wades deeper into rewards.
- Oil prices are rebounding somewhat – up a little more than one per cent – as traders weigh the Saudi supply cut against muted economic growth expectations.
- Notable data: Merchandise Trade Balance, Labour Productivity, U.S. Goods & Services Trade Balance
- Notable earnings: Dollarama, Campbell Soup, Transcontinental, GameStop
- 1000: Bank of Canada Policy Announcement
- Lululemon AGM