CANADA ECONOMICS

CANADIAN INFRASTRUCTURE BANK

The Globe and Mail. 14 Jun 2017. CPPIB weighs in on infrastructure bank
BILL CURRY

Pension fund urges Senate not to change the bank’s governance rules to reflect its own, saying the two entities are very different
Minister of Infrastructure and Communities Amarjeet Sohi responds to a question in the House of Commons on June 5.
The Canada Pension Plan Investment Board is weighing in on the Canada Infrastructure Bank debate for the first time, urging Senators not to follow the advice of some experts who say the bank’s governance should be modelled after the CPPIB.
As the manager of more than $317-billion in assets, the CPPIB is Canada’s largest pension fund. It is also among the many large institutional investors that the Liberal government hopes to attract as partners in Canadian infrastructure projects through the bank.
In a letter sent this week to the Senate, the bank’s senior managing director, Michel Leduc, said the differences between the CPPIB and the infrastructure bank mean that they require different forms of governance.
“Crown corporations are not homogeneous; the optimal balance between public accountability and commercial autonomy must differ as a matter of public policy from one to another,” Mr. Leduc wrote.
The Canada Infrastructure Bank Act is included as part of C-44, the Liberals’ omnibus budget bill, and the Senate began its public debate of legislation Tuesday evening.
Senators are facing heavy pressure from the government to pass the legislation before the summer recess. Finance Minister Bill Morneau and Infrastructure Minister Amarjeet Sohi have bolstered their public advocacy of the bill in recent days, while former pension executive Jim Leech, the government’s senior adviser on the issue, wrote an essay this week in support of the legislation’s current governance rules, which are a point of contention.
Following a recent prestudy of the bill’s infrastructure sections, the Senate banking committee concluded it was “not convinced” the proposed governance provisions of the bank strike the right balance between the need for government oversight and bank independence.
The conclusion was in relation to concerns that the infrastructure bank will be vulnerable to political interference. Some experts have challenged the fact that the bill would have bank executives serving at the pleasure of government – meaning they could be fired by cabinet at any time. Some have argued the legislation should state that executives can only be fired with cause, as is the case with the CPPIB.
The CPPIB’s governance structure was specifically suggested as a model for the bank by Mr. Morneau’s advisory council on economic growth. Andrew Claerhout, an infrastructure specialist with the Ontario Teachers’ Pension Plan Board, also told senators during a committee appearance that he would prefer to see a governance structure for the bank that is similar to the CPPIB.
However, the letter from the CPPIB pushes back against that view.
“In the case of CPPIB, duties relate to making investments funded exclusively from contributions made by employees and employers; our narrow commercial purpose is to seek a maximum rate of return; and direct and equal accountability to 10 shareholders (nine provinces and federally). These distinguishing characteristics compel striking a different balance,” Mr. Leduc wrote.
As expected, Independent Senator André Pratte gave formal notice on Tuesday of a motion to divide the more-than-300-page omnibus budget bill in a way that would remove a new proposed law called the Canada Infrastructure Bank for further study in the fall. The senator’s motion has not yet been put to a vote.
Mr. Pratte has said his amendment is aimed at delivering a message to the government that it should not include such substantial measures in an omnibus bill, because it makes it significantly more difficult for Parliamentarians to give the initiative a thorough review.
That argument appears to have substantial support among senators, and Mr. Pratte said he may have enough votes for his motion to succeed. The government side is expected to challenge the motion on procedural grounds.
Interviews with senators this week suggested a high degree of uncertainty as to what will happen in the coming days regarding the budget bill.
Independent Senator Yuen Pau Woo, who is sponsoring the budget bill in the Senate, said in his opening speech that Senate concerns over governance are “legitimate.” However, he noted that the legislation includes a fiveyear review, which could allow Parliament to make revisions if necessary.
Mr. Woo said he agreed with the view that it is important for the bank to have appropriate oversight, but that the government should “jolly well” have an oversight role given that it will be the bank’s only shareholder.
“Are we really in a position to micromanage that balance in this chamber?” he asked.
On the issue of opposing omnibus legislation in order to allow for more detailed study, Mr. Woo said “there is very little grounds for splitting the bill” because the Senate held several committee hearings specifically on the bank.

The Globe and Mail. 14 Jun 2017. Infrastructure bank is a chance for the Senate to do what it does best
CAMPBELL CLARK

The Senate should speak up. [André] Pratte notes that separating will only delay the infrastructure bank by a few months. But it would mean separate scrutiny. And it would send a warning about omnibus bills.

Move to split budget bill epitomizes what makes the Red Chamber relevant
Now is a good time for the Senate to rebel. There’s usually little justification for the unelected chamber to oppose the will of an elected government backed by a majority in the elected House of Commons.
But Senator André Pratte has found a prime example of a legitimate Senate role: He wants to split the government’s budget bill to force the proposal for a $35-billion infrastructure bank to go through more scrutiny in Parliament.
It’s the kind of spoke in the wheels that governments really find annoying. The infrastructure bank is supposed to be a centrepiece of the Liberals’ efforts to expand public-works projects, in this case by mustering private financing. Finance Minister Bill Morneau has been working on it for 18 months. By setting it up through the budget bill, the government figured it would pass quickly, before Parliament rises for the summer next week.
But Mr. Pratte is trying to slow it down just a little. On Tuesday, he put forward a Senate motion to split the legislation into two parts, so the bill to create the bank would be examined separately.
He is making himself a nuisance, to his credit. The Senate is in a rare moment of flux, and a majority might just join him.
Usually, the Senate’s contributions to democracy are questionable enough. Unelected senators don’t have a lot of legitimacy when they oppose a bill passed by MPs in the Commons, or even amend it significantly. It was made that way by Constitutional design and it’s increasingly anachronistic.
But Mr. Pratte’s motion is the sort of thing the Senate should do: slow down a government using omnibus legislation and its Commons majority to hustle important matters through Parliament. This is the epitome of Senate’s small-but-specific legitimate role as the chamber of “sober second thought.” No matter how much it annoys the government.
The budget legislation, Bill C-44, is a mammoth catch-all piece of legislation with a laundry list of measures from the March budget, including tax changes, immigration rules, employment-insurance measures, amendments to the Judges Act and four transportation laws, and so on, in a bill counting more than 80,000 words.
Inside it is another bill, the Canada Infrastructure Bank Act, to create the $35-billion bank. Its provisions don’t affect the rest of the budget bill. And it creates something new.
“It’s a new type of financial institution that will have a major impact on how infrastructure is financed, chosen and built in this country,” Mr. Pratte said.
He’s in favour of the bank, by the way. He just thinks Parliament should consider it separately.
The Liberals used to think that way, too. Their 2015 platform promised to end the use of omnibus bills which, they said, Stephen Harper employed “to prevent Parliament from properly reviewing and debating his proposals.”
Now, Mr. Morneau takes the position that if it’s in his budget, it belongs in his budget bill. But that’s just as much a crock now as it was under the Conservatives.
So the Senate should speak up. Mr. Pratte notes that separating will only delay the infrastructure bank by a few months. But it would mean separate scrutiny. And it would send a warning about omnibus bills.
It’s not clear if Mr. Pratte’s effort will succeed. The government might ask the Senate Speaker to declare Mr. Pratte’s motion out of order because it would split a money bill in two, and every bill that appropriates money requires a “Royal recommendation” from a cabinet minister. But splitting the bill doesn’t affect the appropriation, so that probably would not succeed.
Then it’s a question of whether senators vote for it.
It’s a strange time in the Red Chamber. Since Prime Minister Justin Trudeau began appointing independents, party lines have broken down, and senators have chosen to amend more bills – at times, even when it seemed to counter the democratic will of the Commons. Maybe senators will be willing to knock the government back a bit this time.
But it’s June, and they might just want to go home, rather than sitting a few more days to debate budget bills. But this is a good time for senators to wrangle over a point of principle, because it’s a rare occasion when they have one that’s right in their wheelhouse.

CANADA - US

The Globe and Mail. 14 Jun 2017. PM says U.S. was consulted before approval of Chinese deal
ROBERT FIFE
STEVEN CHASE

Ottawa - Prime Minister Justin Trudeau said Tuesday that Ottawa consulted the United States and other allies before approving the sale of a Canadian satellite technology firm to a Chinese communications giant, but he would not say whether the U.S. raised any objections.
“Every transaction of this type that falls under the Investment Canada Act is carefully assessed by all national security agencies,” Mr. Trudeau told the House of Commons. “On top of that, we do consult with our allies, and in this case directly consulted with the United States on this situation.”
The government conducted a routine security analysis but did not proceed with a full-fledged national security review.
Ottawa has made closer ties with China, including a potential free-trade deal, a cornerstone of its foreign policy – and China has publicly deplored Canada’s national security reviews as protectionism.
Mr. Trudeau told MPs the government had concluded the takeover of Norsat International did not affect national security – despite warnings from a U.S. congressional watchdog that the sale jeopardizes U.S. security interests because the Vancouver firm sells its technology to the American military.
The White House, the U.S. Department of Defence and the U.S. Treasury Department did not respond to requests from The Globe and Mail about whether they were consulted and had raised any concerns with Ottawa.
The U.S. embassy provided a curt statement. “Having checked with Washington, we are not in a position to provide any further information at this time,” a spokesperson said. »
Opposition party leaders have challenged the sale of Norsat International to Hytera Communications and have demanded a formal and comprehensive national security review.
The issue dominated Tuesday’s Question Period after The Globe and Mail reported that the U.S.China Economic and Security Review Commission warned the takeover “raises significant national security concerns” for the U.S. military.
Innovation Minister Navdeep Bains, who approved the takeover, refused to say if Canada’s allies had given the thumbs-up to the transaction.
“These are national security conversations, so I am not going to divulge the specifics of the engagement with our allies,” Mr. Bains told reporters.
The U.S.-China Economic and Security Review Commission, which reports to Congress, told The Globe on Monday that “the U.S. military and other domestic clients of Norsat should immediately review their purchases as well as the exposure they have to existing products from the company they use to determine what security risks might arise.”
Commissioner Michael Wessel said Ottawa appears to be willing to sacrifice the national-security interests of its most important ally in exchange for a bilateral free-trade deal with China.
The Prime Minister said Canadian security agencies “concluded there were no national security concerns” and added, “We always follow the advice of our security experts.”
He maintained that every foreign purchase of a Canadian company is subject to a national security review.
“What the Prime Minister said is demonstrably false,” NDP Leader Tom Muclair replied. “There has not been a national security review. That has to be ordered by the minister [Mr. Bains], who never ordered it because we know that because the company [Norsat] put it out in an official statement. … That is why the Americans are concerned.”
In fact, Mr. Trudeau’s assertion was contradicted by the testimony of two top security officials Monday. Jeff Yaworski, the acting director the Canadian Security Intelligence Service, and Malcolm Brown, the deputy minister of Public Safety, told a Commons committee that the Investment Canada Act calls for preliminary security screenings, not national security reviews, of all foreign takeovers. The decision to conduct a national security review – which examines the impact on Canada’s economic and defence interests – is made by the federal cabinet, they testified.
Two former CSIS directors, Richard Fadden and Ward Elcock, have told The Globe that they would have recommended an indepth national security review of the Norsat transaction.
“It’s hard to imagine why one would not do a review,” Mr. Elcock said, who added the government appears to be “much more open-minded about Chinese acquisitions of sensitive technology.”
Since the Liberals came to power, they have been much more open than the previous Conservative government to investment from China in a number of key sectors.
In February, Ottawa approved the sale of one of British Columbia’s biggest retirement-home chains to a Beijing-based insurance titan with a murky ownership structure, giving China a foothold in Canada’s health-care sector.
In March, the government approved a Chinese takeover of a Montreal high-tech firm, ITF Technologies – the very same transaction that had been blocked by the Conservative government after it became convinced the deal would undermine a technological edge that Western militaries have over China.
At the time, CSIS had recommended against the takeover, saying the ITF technology transfer would give China access to “advanced military laser technology” and would diminish “Canadian and allied military advantages.”
Hytera, which is 52 per cent owned by Chinese billionaire Chen Qingzhou, drew international headlines in March when telecom equipment giant Motorola filed a high-profile lawsuit against it, accusing the Chinese company of large-scale theft of its proprietary technology.
When Hytera made a bid this year for Sepura, a mobile digital radio equipment maker in Britain, the British government conducted a national security review and imposed strict stipulations.
Mr. Bains’s own department said last week it had advised Norsat that, after a security screening, “no order for review would be made.” A department spokesman explained that “this was because, following the extended screening process, there are no outstanding national security concerns.” Norsat published the same information on June 2 in a news release.

NAFTA

The Globe and Mail. Jun. 13, 2017. Special. Canada can become a global beacon for fair trade between nations
JEAN-SÉBASTIEN JACQUES, chief executive officer of Rio Tinto Group

The months ahead present a golden opportunity for Canada to shape the future of its trade-based economy, both with its long-term partner the United States, and as a global leader among countries that recognize fair trade between nations is a source of strength and security.

Trilateral efforts to modernize the North American free-trade agreement and the United States’ Section 232 investigations into the impact of steel and aluminum imports on its national security, for example, provide a platform to tell the story of the economic integration that has fuelled growth on both sides of the border.


The trading relationship between the two neighbours has such rich history, depth and scale: more than $1.8-billion in trade crosses the border every day. Both countries benefit from this relationship. Setting aside trade in energy, the United States has a large trade surplus with Canada in added-value manufactured goods such as automobiles, auto parts and industrial equipment. For Canada, the United States is the logical market for its abundant natural resources and the products derived from them, such as the world’s lowest carbon-footprint aluminum.

I am committed to seeing Rio Tinto work closely with leaders in Canada and the United States to ensure the value of this relationship is recognized and to demonstrate the benefit it delivers – not just to our customers but to consumers over all, through increased choice, lower prices, quicker delivery and responsibly-produced products.

Rio Tinto will testify in Washington in the coming aluminum-imports hearing about the vital role Canadian metals and minerals have long played as a source of strength for U.S. national security. Canada’s critical supply role is even recognized in U.S. law, which considers Canada as part of the national technology and industrial base of the United States. We are proud that Canadian aluminum plants have supported North America’s defence requirements since the Second World War and can be counted on to meet its future needs.

Prime Minister Justin Trudeau and his government are playing a global leadership role on open trade, engaging in an energetic pursuit of multilateral relationships and placing Canada at the front of the G7 countries to back the pledge to “fight protectionism” at their recent meeting in Italy. This is to be applauded by all who understand the massive benefits that come from the free flow of trade between countries. It is timely that Montreal is hosting the International Economic Forum of the Americas this week, where much of the discussion centres on the global trade outlook.

The countries of the world are at varying stages of industrial development and therefore not all see the quality-of-life benefits that development brings in the same way. But they have something in common. Without trade, not one of them could have reached present rates of wealth generation or provided its citizens with rising living standards.

Even so, we all must confront a new reality. People in many parts of the world do not perceive these benefits or understand the role free trade plays in their lives. We must step up to the plate as leaders in government and business, to explain why fair trade and open markets are important, and that they do benefit the communities we are all privileged to be a part of.

Without trade, we are equally isolated, equally denied access to one another’s goods and expertise and are equally worse off. Open borders and free trade are absolutely critical for a company such as ours, just as they are for a country such as Canada.

The benefits of fair trade and inclusive growth are important messages which must be shared not just in the corridors of power and boardrooms, but even more so in communities around the world.

Canada is clearly showing great leadership in the delivery of its trade agreements with Europe. Next up is to secure its long-term trading relationship with the United States and, with an eye to the future, I would also urge a look East. China’s One Belt One Road brings with it the potential of significant opportunities: Opportunities to cement Canada’s position as an inclusive and progressive trading nation.

HOUSING BUBBLE

The Globe and Mail. 14 Jun 2017. Debt-laden homeowners face threat of rising interest rates
ROB CARRICK
MARK RENDELL

Ottawa - An economic growth spurt is bringing the prospect of higher mortgage rates at a time when many Canadians in the country’s largest cities are stretching to afford homes.
Some analysts expect the Bank of Canada will raise the rate it charges financial institutions to borrow money overnight this fall after the central bank’s No. 2 executive gave an upbeat assessment of the economy, saying growth has returned to most industries and regions. An increase in the overnight rate would immediately raise the cost of variable-rate mortgages and home-equity lines of credit.
Fixed-rate mortgages could rise even sooner. They are influenced by rates in the government bond market, which have soared in recent days. One of the most popular kinds of mortgages, a five-year fixed-rate loan, takes its cue from the yield on the fiveyear Government of Canada bond, which jumped to 1.15 per cent late on Tuesday from 0.92 per cent a week ago. That is a large enough increase to start putting pressure on lenders to raise mortgage rates.
The increasing likelihood of higher borrowing costs comes at a precarious time. Canadians have record debt levels, largely due to borrowing to pay escalating home prices in major cities, particularly Vancouver and Toronto. Many homeowners are already scrambling to make payments.
Canada Mortgage and Housing Corp. reported on Tuesday that the average scheduled monthly mortgage payment for new loans was $1,328 in the final three months of last year, an increase of 4.6 per cent from $1,269 in the same period in 2015. Households have been loading up on debt even as income growth stagnates. »
The Bank of Canada has started to prepare the country for higher borrowing costs in the months ahead. After bullish comments on Monday from senior deputy Governor Carolyn Wilkins, economists and investors began moving up their estimates of when the central bank will increase rates for the first time since 2010.
“We believe it will be earlier than what the market is expecting,” said Benjamin Tal, deputy chief economist with CIBC World Markets Inc. “It’s more likely that you’ll see the Bank of Canada moving as early as October.”
Rates for longer-term fixed mortgages have already begun ticking upwards, said Robert McLister, founder of RateSpy.com, a mortgage-rate comparison website. However, the increases have been small so far, between 10 and 15 basis points. (A basis point is 1/100th of a percentage point.) It would take a larger increase than that to have a major impact on the real estate market.
“You need to see 150 to 200 basis points movement before you get a significant shakeup in the housing market, with people foreclosing,” Mr. McLister said.
Despite the recent surge in fiveyear bond yields, Mr. Tal said he expects mortgage rates will rise only gradually over the mid- to long term. They would be going up from extraordinarily low levels: Toronto-Dominion Bank, one of Canada’s largest mortgage providers, is currently advertising a four-year fixed mortgage at less than 2.5 per cent.
Still, with debt levels already high, the Bank of Canada will have to tread carefully, Mr. Tal said.
“The history of recessions in the postwar era is the history of overshooting,” he said. “Namely, central banks sit on very low interest rates for a long period of time, they wait and wait, and then they start raising very quickly because inflation is sneaking up on them. And when you raise quickly, you shock the market. …
“The issue with the housing market in Canada is not really higher rates, it’s rapidly rising rates,” he said, adding that he expects the Bank of Canada to take a gradual approach to rate increases. “You start early, you move by 25 basis points. I think that would be desirable.”
Mortgage default rates are currently very low, but that could change if interest rates shoot higher. More subtle risks to the economy include a pullback in the consumer spending that has sustained growth in recent years. People may also have less money to save, which suggests a shortfall in retirement savings in the decades to come.
Even a modest increase in rates can have a big impact on finances in households that have large mortgages. At the national average house price of $559,317 in April, an increase in mortgage rates of 0.5 of a percentage point from today’s levels would boost monthly mortgage costs by $130 a month. This assumes a 10-percent down payment, a 25-year amortization and a starting mortgage rate of 2.5 per cent.
A decline in house prices caused by rising rates could cause further damage to household balance sheets. Rising prices have given home owners equity that they can tap into to refinance other debts and pay for big expenses such as home renovations. Falling home values would cut this off.

The Globe and Mail. Jun. 14, 2017. House prices post record rise in May as Toronto chill yet ‘to be seen’
JANET MCFARLAND - REAL ESTATE REPORTER

House prices rose by a record 2.2 per cent across Canada last month compared to April, led by a 3.6-per-cent price increase in Toronto even as total sales fell during the month, Teranet reported Wednesday.

The Teranet-National Bank National Composite House Price Index recorded the largest May gain in its 19-year history, reaching another record high for the 16th consecutive month. Prices were up in May over April in all 11 major markets included in the index, led by a record 3.6-per-cent increase in Toronto, a 3.1-per-cent gain in Hamilton and a 2.5-per-cent increase in Victoria.



National prices were up 13.9 per cent over May last year, coming close to the record annual price gain of 14.1 per cent recorded in September, 2006. Prices were up a record 28.7 per cent in Toronto compared to May, 2016.

The strong price increases paint a different picture of the Greater Toronto Area market than data released last week by the Toronto Real Estate Board, which said average prices fell 6 per cent in May compared with April in the GTA as new listings surged and the number of homes fell sharply.

National Bank economist Marc Pinsonneault said TREB’s sales price averages cannot be compared to the index data. Price averages are skewed by changes in the composition of sales in any month, and Mr. Pinsonneault said there were probably proportionately fewer high-end homes sold in May than in April.

The Teranet-National Bank index measures changes in public land registry prices of single-family homes that have been sold at least twice on record. It is not subject to bias based on different types of housing sold in a period, Mr. Pinsonneault said.

TREB also reported on the value of its MLS Home Price Index in May, showing benchmark prices in the GTA increased 1.2 per cent in May compared to April.

Mr. Pinsonneault said the Teranet data suggests new housing measures introduced by the Ontario government in April may have dampened sales and boosted new listings, but the impact on home prices “remains to be seen.”

Although Vancouver home prices rose 1.5 per cent in May over April, he said detached and attached home prices have fallen since the B.C. government introduced a foreign buyer’s tax last August, but condominium prices were up 18 per cent in May compared to the same month last year. He said condo affordability in Vancouver “could soon become as bad as it was at the beginning of 2008.”

“The dichotomy of the Canadian residential market is more obvious than ever,” he said in a research report.

The strength of the Canadian market is clearly driven by Victoria, the GTA, Hamilton, and other regions in Ontario in the “Golden Horseshoe” area surrounding the GTA, he said, which all have double-digit year-over-year price gains.

Montreal and Quebec City also posted significant price gains in May, according to the index, with Montreal prices rising 1.07 per cent over April while Quebec City saw prices climb 1.9 per cent in May.

For the first time this month, Teranet also surveyed 15 additional markets not included in the national composite index total, including 12 located in Ontario. The data showed Sudbury was the only Ontario market not recording a gain in May, with prices falling 1.9 per cent over April.




The Globe and Mail. Jun. 14, 2017. Developers call for changes to Ontario rent-control measures
JANET MCFARLAND

Property developers in Ontario are calling for changes to rent-control measures announced by the province in April, saying they are too harsh and are already causing builders to cancel apartment construction projects.

Jim Murphy, chief executive officer of the Federation of Rental-housing Providers of Ontario, said representatives of his industry have met with Ontario government officials to urge them to remove rent controls on buildings constructed in the future while maintaining the limits on existing properties that have already been built.

The province announced new measures on April 20 that would expand rent controls to all rental properties in Ontario and cap the rate of annual rent increases at the rate of inflation or a maximum of 2.5 per cent annually. Rent-control rules previously only applied to buildings constructed before 1991 and there were no limits on rent increases in newer buildings.

Read more: Ontario takes aim at hot housing: 16 changes explained

Mr. Murphy said his industry was “exceedingly disappointed” by the announcement of the new measures in April, saying they were too harsh at a time when the province needs more purpose-built rental housing.

He said his industry has asked the province to exempt new construction from the rent-control rules to provide an incentive to keep building, and to raise the maximum rent-increase cap to 10 per cent from 2.5 per cent.

“We suggested 10 per cent, but we could have discussions – it could be less than that,” Mr. Murphy told reporters at an Ontario Housing Summit conference in Toronto. “In other words, you’d never have a doubling of rent, you’d never have a 40-per-cent or 50-per-cent increase.”

Ontario Finance Minister Charles Sousa defended the province’s 16-point housing plan during remarks at the summit on Tuesday, but said he is willing to talk to builders about their concerns with the rent-control rules.

“We’re having those discussions – we haven’t committed to that. … I’m always open-minded, but at this point our consideration is to temper demand and increase supply to protect consumers.”

Mr. Sousa said the apartment industry built very little purpose-built rental accommodation in past decades when there wasn’t rent control on those buildings, so it is unclear if rent control can be blamed for deterring construction.

But David Horwood, vice-president of Hamilton-based Effort Trust Company, which manages more than 10,000 rental units in Southern Ontario, told the housing summit his firm has cancelled at least one planned project and is reviewing others because of the rent-control changes.

He said there was little new apartment construction in prior years because there was weak demand growth for rental properties and financing was expensive. But he said the economics changed over the past few years and many companies such as his had decided to start building.

Mr. Horwood said the industry was surprised by the April changes, which seemed to emerge out of nowhere with little consultation.

“All of a sudden, the rug came out from under us,” he said.

Also at Tuesday’s summit, experts said they are not confident other measures announced in the Ontario plan in April will have a major impact on home affordability, notably a new 15-per-cent tax on foreign buyers.

Although home prices dropped in May compared with April in the Toronto region, Cherise Burda, executive director of the Ryerson City Building Institute, said most of the policy initiatives have not taken effect yet and the decline is due to the psychological impact on buyers who have stepped back to assess the measures.

“Certainly nothing has changed on the ground since this was introduced – what has changed is the psychology,” Ms. Burda said.

Jason Mercer, director of market analysis at the Toronto Real Estate Board, said there was no evidence showing foreign buyers constituted a major part of Toronto’s market, so the tax is not necessarily a long-term solution for the supply problems in the market.

The province’s measures may not even be fully responsible for the recent cooling in the market, he added, because there were already signs of softening in April before they were introduced, he said.

Ipsos Reid polling data unveiled at Tuesday’s event shows the province’s measures are broadly popular, however, with 89 per cent of 2,000 people surveyed saying they support the new rules over all and 81 per cent supporting the foreign-buyers tax.

The Globe and Mail. Jun. 14, 2017. What has to go right for the economy before BoC hikes rates
DAVID PARKINSON

After nearly seven years without a Bank of Canada interest-rate increase, seeing a rate hike on the horizon has all too often been like seeing a rainbow. “This time is different” is something we’ve heard too many times to not be cynical.

But this time is different. The conversation has shifted discernibly in the past couple of weeks – from what might convince the Bank of Canada to start raising rates, to what’s going to stop them.

Critically, the central bank is convinced that the oil shock – that massive road block that forced a two-year economic adjustment, setting back Canada’s long recovery from the 2008-09 Great Recession – has been removed.

What has emerged is an economy firing on most, if not all, of its cylinders. Growth has averaged a blistering 3.5 per cent, annualized, over the past three quarters. Employment has risen by 187,000 over the past six months. Goods-export volumes and business investment, two problematic areas for the economy during the postoil-shock adjustment, look to be on the upswing. Consumer spending remains buoyant.

In an upbeat speech on Monday that caught the attention of financial markets, Carolyn Wilkins, the BoC’s number-two official, said the bank is seeing “signs that growth is broadening across regions and sectors.” This new found “diversity” of growth, as she put it, suggests that growth is on a more sustainable track.

With all that in mind, Ms. Wilkins’s speech made it clear that the Bank of Canada is now pondering “whether all of the considerable monetary-policy stimulus presently in place is still required.” After all, the bank cut its key rate in half in 2015, to 0.5 per cent, to help the economy weather the oil shock; with that in the rear-view mirror, the economy may no longer need monetary policy to be pressing so heavily on the gas pedal.

But that doesn’t mean a rate hike is imminent – indeed, even the most hawkish forecasters see it as six months away. As the years of false starts have taught us, a lot of things are going to have to go right in those six months for the central bank to finally see its way to its first rate increase since 2010. To wit:

Housing: The overheated housing markets in the Toronto and Vancouver regions may provide motivation for the central bank to move sooner, rather than later, on rate hikes. The bank has long pointed to housing and household-debt excesses as a serious potential risk to the stability of Canada’s financial system, and it well knows that higher interest rates would have a cooling effect. But until recently, the weaknesses in the broader economy have pulled monetary policy in the opposite direction, demanding lower rates. Last week, Bank of Canada Governor Stephen Poloz acknowledged that the twin forces of economic growth and housing-related risk are pulling in the same direction now.

But housing bubbles (if we can call them that) can be very fragile things. In its semi-annual Financial System Review last week, the Bank of Canada essentially acknowledged that they are susceptible to hard-to-predict downturns. The negative economic consequences of a sharp correction, coupled with the pressures on indebted households in those regions, would almost certainly sideline rate hikes.

Inflation: Ultimately, the Bank of Canada uses an inflation target of 2 per cent as its guide for whether the economy needs higher interest rates. And despite the evidence of economic recovery, inflation is nowhere to be seen. The Bank of Canada’s three measures for core inflation – the underlying price pressures in the economy, looking through temporary, sector-specific gyrations – range from 1.3 to 1.6 per cent, and have generally been falling in the past few months, not rising. The strengthening and broadening growth is expected to push inflation higher; but until the central bank is convinced that is happening, interest rates aren’t going anywhere.

Trade: For an export-heavy economy, trade is critical to the recovery. Even as the trade numbers have generally improved in recent months, the gains have remained uneven and unpredictable. The outlook ahead is brighter, amid improving U.S. and global growth. But the protectionist threats from U.S. President Donald Trump, and the prospect of a reopening of the North American free-trade agreement, leave trade as a massive wild card hanging over Canada’s economic outlook.

Business investment: After a long journey in the wilderness, businesses are finally in the mood to spend again, most notably in the battered energy sector. That investment in new capacity is critical to sustaining economic momentum. But it’s still very early days. A downturn in commodity prices could stop it in its tracks. The uncertainty over Mr. Trump’s economic and trade policies also threaten businesses’ long-term investment decisions; if that continues to linger, spending and growth may suffer.

All that said, the mere fact that the Bank of Canada is talking about this stuff publicly right now is pretty strong evidence that it wants rate hikes to be part of the market’s conversation. It could have waited for its quarterly Monetary Policy Report, to be published a month from now, to discuss its latest views on the economic recovery, as is its usual custom. Instead, it used Ms. Wilkins’s speech to publicly update its view.

And that view is that the light ahead has turned green – but it’s still well down the road. A lot could still happen between here and there.

The Globe and Mail. 14 Jun 2017. Road signs on the path to higher rates
DAVID PARKINSON

After nearly seven years without a Bank of Canada interest-rate increase, seeing a rate hike on the horizon has all too often been like seeing a rainbow. “This time is different” is something we’ve heard too many times to not be cynical.
But this time is different. The conversation has shifted discernibly in the past couple of weeks – from what might convince the Bank of Canada to start raising rates, to what’s going to stop them.
Critically, the central bank is convinced that the oil shock – that massive road block that forced a two-year economic adjustment, setting back Canada’s long recovery from the 200809 Great Recession – has been removed.
What has emerged is an economy firing on most, if not all, of its cylinders. Growth has averaged a blistering 3.5 per cent, annualized, over the past three quarters. Employment has risen by 187,000 over the past six months. Goodsexport volumes and business investment, two problematic areas for the economy during the postoil-shock adjustment, look to be on the upswing. Consumer spending remains buoyant.
In an upbeat speech on Monday that caught the attention of financial markets, Carolyn Wilkins, the BoC’s number-two official, said the bank is seeing “signs that growth is broadening across regions and sectors.” This new found “diversity” of growth, as she put it, suggests that growth is on a more sustainable track.
With all that in mind, Ms. Wilkins’s speech made it clear that the Bank of Canada is now pondering “whether all of the considerable monetary-policy stimulus presently in place is still required.” After all, the bank cut its key rate in half in 2015, to 0.5 per cent, to help the economy weather the oil shock; with that in the rear-view mirror, the economy may no longer need monetary policy to be pressing so heavily on the gas pedal.
But that doesn’t mean a rate hike is imminent – indeed, even the most hawkish forecasters see it as six months away. As the years of false starts have taught us, a lot of things are going to have to go right in those six months for the central bank to finally see its way to its first rate increase since 2010. To wit: Housing: The overheated housing markets in the Toronto and Vancouver regions may provide motivation for the central bank to move sooner, rather than later, on rate hikes. The bank has long pointed to housing and household-debt excesses as a serious potential risk to the stability of Canada’s financial system, and it well knows that higher interest rates would have a cooling effect. But until recently, the weaknesses in the broader economy have pulled monetary policy in the opposite direction, demanding lower rates. Last week, Bank of Canada Governor Stephen Poloz acknowledged that the twin forces of economic growth and housing-related risk are pulling in the same direction now.
But housing bubbles (if we can call them that) can be very fragile things. In its semi-annual Financial System Review last week, the Bank of Canada essentially acknowledged that they are susceptible to hard-to-predict downturns. The negative economic consequences of a sharp correction, coupled with the pressures on indebted households in those regions, would almost certainly sideline rate hikes.
Inflation: Ultimately, the Bank of Canada uses an inflation target of 2 per cent as its guide for whether the economy needs higher interest rates. And despite the evidence of economic recovery, inflation is nowhere to be seen. The Bank of Canada’s three measures for core inflation – the underlying price pressures in the economy, looking through temporary, sector-specific gyrations – range from 1.3 per cent to 1.6 per cent, and have generally been falling in the past few months, not rising. The strengthening and broadening growth is expected to push inflation higher; but until the central bank is convinced that is happening, interest rates aren’t going anywhere.
Trade: For an export-heavy economy, trade is critical to the recovery. Even as the trade numbers have generally improved in recent months, the gains have remained uneven and unpredictable. The outlook ahead is brighter, amid improving U.S. and global growth. But the protectionist threats from U.S. President Donald Trump, and the prospect of a reopening of the North American free-trade agreement, leave trade as a massive wild card hanging over Canada’s economic outlook.
Business investment: After a long journey in the wilderness, businesses are finally in the mood to spend again, most notably in the battered energy sector. That investment in new capacity is critical to sustaining economic momentum. But it’s still very early days. A downturn in commodity prices could stop it in its tracks. The uncertainty over Mr. Trump’s economic and trade policies also threaten businesses’ long-term investment decisions; if that continues to linger, spending and growth may suffer.
All that said, the mere fact that the Bank of Canada is talking about this stuff publicly right now is pretty strong evidence that it wants rate hikes to be part of the market’s conversation. It could have waited for its quarterly Monetary Policy Report, to be published a month from now, to discuss its latest views on the economic recovery, as is its usual custom. Instead, it used Ms. Wilkins’s speech to publicly update its view.
And that view is that the light ahead has turned green – but it’s still well down the road. A lot could still happen between here and there.

The Globe and Mail. 14 Jun 2017. Housing: Industry ‘exceedingly disappointed’ by new controls

We’re having those discussions [about builders’ rent-control concerns] – we haven’t committed to that. … I’m always openminded, but at this point our consideration is to temper demand and increase supply to protect consumers. Charles Sousa, Ontario Finance Minister.
Developers are urging the Ontario government to walk back rent-control measures, announced in April, that they believe will sap builders of the incentive to produce new housing units.
Mr. Murphy said his industry was “exceedingly disappointed” by the announcement of the new measures in April, saying they were too harsh at a time when the province needs more purpose-built rental housing.
He said his industry has asked the province to exempt new construction from the rent-control rules to provide an incentive to keep building, and to raise the maximum rent-increase cap to 10 per cent from 2.5 per cent.
“We suggested 10 per cent, but we could have discussions – it could be less than that,” Mr. Murphy told reporters at an Ontario Housing Summit conference in Toronto. “In other words, you’d never have a doubling of rent, you’d never have a 40-per-cent or 50-per-cent increase.”
Ontario Finance Minister Charles Sousa defended the province’s 16-point housing plan during remarks at the summit on Tuesday, but said he is willing to talk to builders about their concerns with the rent-control rules. “We’re having those discussions – we haven’t committed to that. … I’m always openminded, but at this point our consideration is to temper demand and increase supply to protect consumers.”
Mr. Sousa said the apartment industry built very little purpose-built rental accommodation in past decades when there wasn’t rent control on those buildings, so it is unclear if rent control can be blamed for deterring construction. But David Horwood, vice-president of Hamilton-based Effort Trust Company, which owns more than 10,000 rental units in Southern Ontario, told the housing summit his firm has cancelled at least one planned project and is reviewing others because of the rent-control changes.
He said there was little new apartment construction in prior years because there was weak demand growth for rental properties and financing was expensive. But he said the economics changed over the past few years and many companies such as his had decided to start building.
Mr. Horwood said the industry was surprised by the April changes, which seemed to emerge out of nowhere with little consultation.
“All of a sudden, the rug came out from under us,” he said.
Also at Tuesday’s summit, experts said they are not confident other measures announced in the Ontario plan in April will have a major impact on home affordability, notably a new 15per-cent tax on foreign buyers.
Although home prices dropped in May compared with April in the Toronto region, Cherise Burda, executive director of the Ryerson City Building Institute, said most of the policy initiatives have not taken effect yet and the decline is due to the psychological impact on buyers who have stepped back to assess the measures.
“Certainly nothing has changed on the ground since this was introduced – what has changed is the psychology,” Ms. Burda said.
Jason Mercer, director of market analysis at the Toronto Real Estate Board, said there was no evidence showing foreign buyers constituted a major part of Toronto’s market, so the tax is not necessarily a long-term solution for the supply problems in the market.
The province’s measures may not even be fully responsible for the recent cooling in the market, he added, because there were already signs of softening in April before they were introduced, he said.
Ipsos Reid polling data unveiled at Tuesday’s event shows the province’s measures are broadly popular, however, with 89 per cent of 2,000 people surveyed saying they support the new rules over all and 81 per cent supporting the foreignbuyers tax.

REUTERS. Jun 14, 2017. Canadian home prices rise in May as Toronto climbs - Teranet

OTTAWA (Reuters) - Canadian home prices rose in May as Toronto remained robust despite recent government efforts to cool the market, while prices in Vancouver picked back up to hit a fresh peak, data showed on Wednesday.

The Teranet-National Bank Composite House Price Index, which measures changes for repeat sales of single-family homes, showed prices rose 2.2 percent last month.

Prices were higher in all 11 cities included in the index, led by a 3.6 percent increase in Toronto and a 3.1 percent rise in nearby Hamilton.

While other recent data suggested activity in the Toronto market cooled in May, Wednesday's report pointed to accelerating price growth in the resale market.

Compared with a year ago, prices were up 28.7 percent in Toronto and 23.5 percent in Hamilton, a record for both. For Toronto, Canada's largest city, it was the fourteenth consecutive month of acceleration in home prices on an annual basis, the report said.

Amid worries of overheating, the Ontario government announced measures at the end of April to try to rein in price gains in Toronto and the surrounding areas, including a foreign buyers tax.

Prices rose 1.5 percent on the month in Vancouver, bringing the city's price index to a new peak. Still, the annual pace of gains slowed to 8.2 percent.

The British Columbia provincial government imposed its own foreign buyers tax in Vancouver last summer, which helped cool the West Coast market, but there are signs the market is rebounding.

The Bank of Canada warned last week that rising consumer debt levels and an unbalanced housing market have raised household vulnerabilities.

(Reporting by Leah Schnurr; Editing by Matthew Lewis)

BLOOMBERG. 2017 M06 14. Home Capital Naysayers Squeezed as Cost of Shorting Surges
by Katia Dmitrieva

• Short sellers charged almost 100% rate for bearish bets
• Mortgage lender’s stock has plunged amid OSC allegations
• CIBC Funds Trim Home Capital Stake as Stock Recovers

Home Capital Group Inc.’s stock has crumbled this year after a regulator alleged executives at the alternative-mortgage lender misled investors, so you might expect short sellers would be pouncing on the Canadian stock.

But bets against it have plunged in recent weeks as the bearish arguments slammed into a wall of economic reality: the Toronto-based company is probably too costly to short.

Short sellers must first borrow shares to sell before they can initiate their bets against a company. For Home Capital, the annual interest rate for completing this crucial step has surged to almost 100 percent, according to S3 Partners, a financial-analytics firm. Marc Cohodes said his shorting cost was only about 10 percent just before a securities regulator accused the company and its directors of misleading shareholders about mortgage fraud in April.

“The fact that the short interest is down so much is a sign that people covered, but it has nothing to do with the fundamental flaws at this company,” Cohodes, a San Francisco-based investor who’s been betting against the lender for over two years, said by phone Monday. “They just can’t get back in. There are no shares to borrow. People who covered can’t find or afford shares to re-short.”

A Zero?

Cohodes said he’s still shorting Home Capital, despite the higher cost. It’s worth it because the shares are “going to go down to zero,” he said.

Home Capital declined to comment through external spokesman Boyd Erman.

Shares of Home Capital, which provides mortgages to borrowers who’ve been turned away from more traditional banks, such new immigrants and the self-employed, peaked this year at C$31.85 in January. The stock went into a tailspin, falling as low as C$5.85, after the Ontario Securities Commission said on April 19 that the company, its former chief executive officer and other directors misled investors and didn’t properly disclose information, chiefly about brokers submitting loan documents with falsified client income. Home Capital clients pulled capital from their high-interest savings accounts amid the crisis.

The shares have recovered somewhat, rebounding above C$12 this week, amid reports that Home Capital has been approached by funds including Brookfield Asset Management Inc. and Onex Corp., and that the firm is working out a deal with regulators. The shares declined 3.8 percent to C$10.87 at 9:53 a.m. in Toronto Wednesday.

Borrowing costs for short sellers work like this: Say a trader wants to short C$10 million ($7.5 million) of shares. At a 100 percent interest rate, it would cost C$10 million to borrow those shares for a year. At 10 percent, it would be only C$1 million. As Home Capital’s cost-to-borrow rate surged, the number of shares sold short has dwindled to the lowest level since July 2015, according to data compiled by IHS Markit Ltd.

One hedge fund manager, who asked to not be identified discussing trading strategies, said he covered his short position after the shares plunged 65 percent in one day on April 26. When he sought to re-enter the trade, his broker quoted him a price of 300 percent because there aren’t many shares being loaned to short sellers.

ENERGY

Global Affairs Canada. June 13, 2017. International Trade Minister to visit Calgary to promote Canada’s innovative energy economy

Ottawa, Ontario – The Government of Canada believes that all Canadians should benefit from trade and is working hard to expand trade and investment opportunities for Canadian businesses around the world, to support growth and create more good-paying jobs for Canada’s middle class.

The Honourable François-Philippe Champagne, Minister of International Trade, will be in Calgary, Alberta, on June 14, to attend the Global Petroleum Show (GPS). Participating in the Energy Leaders Forum, Minister Champagne will speak about the changing nature of the economy and highlight business opportunities and Canadian technologies that are at the forefront of global efforts to reduce emissions.

While at GPS, Minister Champagne will meet with regional business leaders and entrepreneurs representing a critical engine of the Canadian economy, the innovative energy sector. Minister Champagne will discuss what Canada’s progressive trade agenda means for the energy industry and how it will open more doors for Canadian businesses, workers and their families.

In Calgary, Minister Champagne will also meet with his Alberta provincial counterpart, the Honourable Deron Bilous, Minister of Economic Development and Trade.

Quote

“Canada has a strong reputation for its world-class expertise in high-demand industries, such as energy and science and technology. Continued innovation in these fields will position Canada to lead the way in meeting the world’s energy needs, reducing greenhouse gas emissions and creating well-paying middle-class jobs for a clean, robust and low-carbon economy.”

- François-Philippe Champagne, Minister of International Trade

Quick facts

Canada’s oil and gas and downstream industries are among our country’s largest employers, providing direct employment to 190,650 workers across the country in 2016.
The three-day Global Petroleum Show (GPS) attracts more than 50,000 energy professionals from more than 90 countries.

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LGCJ.: