CANADA ECONOMICS
OECD
The Globe and Mail. 28 Nov 2017. Canadian growth to slow in 2018: OECD. Organization’s forecast estimates lagging wages and housing prices will weigh on the national economy in the near future. OECD: Organization expects further interest-rate hikes from the Bank of Canada
BARRIE McKENNA
Canada’s economy is headed for much slower growth in 2018 and beyond as consumers react to sluggish wage growth, higher interest rates and a cooler housing market, the Organization for Economic Cooperation and Development says.
The economy will grow 2.1 per cent in 2018 and 1.9 per cent in 2019, down from 3 per cent this year, the OECD said in a forecast released on Tuesday that roughly mirrors those of the Bank of Canada and private-sector economists.
“Recent strong private consumption gains have not been supported by commensurate increases in wages and thus are set to ease with further interest rate rises, slowing job growth, the absence of further substantial increases in government transfers and house price appreciation that is assumed to return to a more historical average annual rate of around 3 per cent in real terms,” the report said.
The OECD, of which Canada and 34 other major developed countries are members, also said that exports would continue to be sluggish over the “next few quarters” owing to a stronger Canadian dollar, now at roughly 78.5 cents (U.S.). The OECD likewise expressed concern about the possible demise of the North American freetrade agreement as well as the recent imposition of U.S. countervailing duties on key Canadian exports, including commercial jets and softwood lumber.
The report warns that Canada’s growth would take a much bigger hit if there was a “disorderly housing market correction.” That would lead to weaker housing investment, undermine household wealth and weigh on consumer spending.
“A sufficiently large shock could even threaten financial stability,” the report said.
On the other hand, if house prices and household debt resume climbing, Ottawa will need to take further action to cool the market, the OECD said.
The report generally applauds the various measures Ottawa and the provinces have deployed to discourage housing speculation and risky borrowing, including stricter mortgage rules.
But the OECD takes a swipe at the Ontario government’s expansion of rent controls, which it said “risks discouraging the supply of new housing.”
The OECD expects further interestrate hikes from the Bank of Canada as the central bank tries to hold inflation near the midway point of its target of 1 per cent to 3 per cent. The bank has already raised its benchmark overnight rate, which sets the trend for mortgages and other loans, twice this year. The rate now stands at 1 per cent.
The consumer price index is forecast to be 1.5 per cent this year, 1.9 per cent in 2018 and 2 per cent in 2019, according to the OECD.
The OECD also called for “policy action” by governments in Canada to address gaps in affordability and quality of daycare, which have led to a large gender-pay gap.
INTERNATIONAL TRADE
Global Affairs Canada. November 28, 2017. Canada requests WTO consultations on U.S. duties on Canadian softwood lumber
Ottawa, Ontario - Canada today formally requested World Trade Organization (WTO) consultations with the United States concerning the U.S. Department of Commerce’s recent final anti-dumping and countervailing duty determinations on imports of certain softwood lumber products from Canada.
The U.S. Department of Commerce’s decision to impose punitive anti-dumping and countervailing duties on Canadian softwood lumber producers is unfair, unwarranted and deeply troubling.
As the Government of Canada has said for some time, we will forcefully defend Canada’s softwood lumber industry. We recently challenged the countervailing duties under Chapter 19 of the North American Free Trade Agreement, and today we are beginning litigation via the WTO.
The Globe and Mail. REUTERS. 28 Nov 2017. WTO reels in face of U.S. obstructionism
TOM MILES
Diplomats are searching for ways to prevent the global trade dispute-resolution system from freezing up, after the Trump administration blocked appointments to the body that acts as the supreme court for global trade.
U.S. President Donald Trump has vetoed the appointment of judges to fill vacancies on the seven-member Apellate Body of the World Trade Organization, which provides final decisions in arguments between countries over trade.
“Members are already having a conversation about what to do with this situation,” WTO director-general Roberto Azevedo told reporters. “They are floating ideas, they are discussing. We have to see how that evolves.”
The WTO normally has seven judges, and needs three to sign off on every appeal ruling. But two have left and another goes in December, leaving only four – just one above the minimum – to deal with a growing backlog of trade disputes.
Mr. Azevedo said he did not think the situation was a threat to the WTO’s survival, but it was already having an impact, and the longer it went on, the more acutely it would be felt.
In a confidential note sent to all WTO members on Monday, a copy of which was reviewed by Reuters, the Appellate Body said departing judges would continue working after they left on appeals filed before their terms ended. The United States has objected to that practice in the past.
Appointments to the Appellate Body are meant to be unanimously agreed by all 164 members, as with all decisions at the WTO. The fine print says the WTO can switch to majority voting if necessary, but diplomats are reluctant to do that for fear of unravelling a system that relies on consensus as a bulwark to protectionism.
Mr. Azevedo said the Trump administration had made clear it had misgivings about the way the world trade system has functioned, although it had not linked any specific demands for reform with the decision to halt appointments to the appeals panel.
The Trump administration has not publicly explained why it is blocking the appointment of judges to the trade panel. The U.S. mission to the WTO in Geneva declined to comment.
Several trade experts said the move seemed to fit Mr. Trump’s ideology of favouring bilateral trade deals over the multilateral system embodied by the WTO.
NAFTA
THE GLOBE AND MAIL. NOVEMBER 26, 2017. OPINION. Why is Canada letting dairy farmers imperil NAFTA?
AARON GAIRDNER, is executive director of Affordable Milk Canada and previously served as chief of staff to Canada's foreign minister, defence minister and agriculture minister.
Canada is an agricultural powerhouse. We are the world's fifth-largest agricultural exporter, with more than 90 per cent of Canadian farmers competing around the world and winning. We export half of our beef, 75 per cent of our pork and 90 per cent of our canola.
Much of this trade is with the United States. They are the largest market for our agricultural products, with annual trade at an impressive $56-billion.
Our government is now renegotiating the North American free-trade agreement, our free-trade pact with the United States and Mexico. It is in our national interest to preserve the open access to the U.S. market that Canada's progressive, export-oriented farmers depend on.
But negotiations are never easy. The Trump administration is demanding Canada end its isolation of milk and dairy products in a renewed NAFTA. Isolation? That sounds very un-Canadian. But it's true.
Many decades ago, Canada erected a near 300-per-cent border tax on dairy, poultry and egg products in order to insulate 8 per cent of Canadian farmers from competition. This system – called supply management – also regressively fixes the price of these products at double the market rate. That's right – this isolationist policy means we all pay double for basics, such as milk and cheese.
Not surprisingly, the World Trade Organization has essentially banned Canada from exporting these products. But we should be exporting more food, not less. The world's population is expected to reach 9.7 billion by 2050. Canadian farmers are an essential part of ensuring the world, especially the world's poorest, are fed.
Meanwhile, back in Ottawa, an army of dairy lobbyists have been using heavy protectionist rhetoric, such as the need for "food sovereignty," in an effort to maintain our massive dairy tariffs.
They are anti-free trade. These isolationist dairy farmers would rather kill NAFTA than join the rest of the Canadian farmers who successfully sell their products around the world. Dig down into their rhetoric and you will find an alarming hostility toward foreign foods. The impression is left that they don't want Canadians eating imported food – be it butter from New Zealand or chicken from New York.
Will our government choose maintaining dairy tariffs over signing a new NAFTA deal? We'll soon find out. The U.S. administration has been very explicit with its threat to withdraw from NAFTA if we do not completely open up our dairy, poultry and egg markets.
And why shouldn't the Americans make such a demand? After all, free trade is a two-way street. Canada and the United States already trade hundreds of farm products tariff-free. The Americans have a deepening $3.1-billion agrifood trade deficit with us. So why should they see milk differently than other products such as bacon, tofu or orange juice? Fair is fair.
As the NAFTA talks drag on, there is a growing anxiety amongst Canada's progressive farmers whose outlook goes beyond Canada's borders. These farmers only see downside in the sky-high dairy, poultry and egg tariffs. They view them as harming their global market access and now threatening their most important market, the United States.
Fortunately, Prime Minister Justin Trudeau and his ministers take a global view and generally support free trade. They care about things such as ensuring the world's poorest are fed.
Their political support base is in urban and suburban Canada. Where voters care about unnecessarily high grocery bills. Where they value diversity on the grocery-store shelf – not some isolationist cocktail of sovereigntist economics and opposition to foreign foods.
Let's all hope Mr. Trudeau has the courage to take the progressive path by tearing down the sky-high border tax on milk. He'll be helping Canada's poorest at the grocery store and making a transformative change in Canada's approach to global food security.
The Globe and Mail. 28 Nov 2017. Another war in the woods: U.S. pushes Canada on paper exports. Stop the presses – U.S. paper mills are upset over what they see as subsidized Canadian newsprint being used by American newspaper publishers. Newsprint: Groundwood case is following the softwood pattern
BRENT JANG
While the softwood-lumber dispute has strained Canada-U.S. trade relations, a separate fight is brewing over other products that Canadian forestry mills sell south of the border, notably uncoated groundwood paper, such as newsprint.
Groundwood from Canada is subsidized and being dumped at below market value, according to U.S. producer North Pacific Paper Co., also known as Norpac.
Norpac complains that U.S. paper makers are being hurt by Canadian groundwood: Newsprint, book pages and other uncoated products used in commercial printing.
The U.S. Department of Commerce is expected to issue its preliminary ruling on imposing countervailing duties by Jan. 8 and anti-dumping duties by Jan. 16.
The groundwood battle comes as Canada takes an increasingly tough approach to renegotiation talks for the North American free-trade agreement. One of the key sticking points in NAFTA discussions is Canadian support for and U.S. opposition to Chapter 19, which sets up trade panels to settle disputes.
Norpac, the operator of a paper plant in Longview, Wash., complained about Canadian groundwood to the Commerce Department in August, and since then, it has asked Commerce officials to dig deeper into the industry in Canada.
On Nov. 15, for instance, Norpac said Montreal-based paper maker Kruger Inc. enjoys electricity subsidies through Hydro-Québec. Kruger has acknowledged its interruptible power arrangement with HydroQuébec, said Norpac, which is owned by hedge fund One Rock Capital Partners LLC of New York.
Norpac said other subsidies in Canada include the Ontario government providing Resolute Forest Products Inc. with what amounts to breaks on electricity rates and also unfair financial assistance.
Canadian paper makers and U.S. newspaper publishers argue that the dispute isn’t about trade. They point out that demand for newsprint has fallen sharply over the past decade, especially as readers shift to digital alternatives such as laptops, tablets and cellphones.
The News Media Alliance, whose members represent more than 1,350 U.S. newspapers such as The New York Times and The Washington Post, has sought unsuccessfully to have the U.S. International Trade Commission dismiss Norpac’s case. The commission issued a preliminary ruling in September that the U.S. groundwood industry is being injured by Canadian shipments, clearing the way for the Commerce Department to continue its investigation.
“But of course, print is declining during this digital transformation,” the alliance warned the commission in September. “Because print subscriptions have declined by more than 30 per cent over the last 10 years, our industry is necessarily using less paper. This is simply a fact of life in the digital ecosystem. It has nothing at all to do with trade issues, but everything to do with the digital reality of publishing in 2017.”
The groundwood case is following the softwood pattern, with the Commerce Department considering countervailing duties to penalize Canada for what Norpac calls subsidies for uncoated groundwood paper. Anti-dumping duties would be imposed on Canadian producers selling their groundwood below market value.
Kruger, Montreal-based Resolute and Catalyst Paper Corp. of Richmond, B.C., are the three mandatory respondents in the countervailing investigation. Resolute and Catalyst are the two mandatory respondents in the anti-dumping probe. Connecticut-based White Birch Paper Co., which has three Quebec paper mills, is the voluntary respondent in both the countervailing and anti-dumping cases.
In a filing to the Commerce Department, Norpac said there are five producers of uncoated groundwood paper in the United States: Norpac, Resolute, White Birch, Inland Empire Paper Co. of Washington State and Maine-based Twin Rivers Paper Co.
Norpac said the Commerce Department should disregard the views of Resolute and White Birch because “the companies’ interests lie more in their Canadian production operations.”
But Resolute warns that if the U.S. imposes punitive tariffs on Canadian imports, it will worsen economic hardships for American publishers.
“Demand for newsprint has been in decline,” Resolute spokesman Seth Kursman said in a statement. “It is the dominant business reality facing the paper industry. However, it is market erosion, not trade practices, causing today’s competitive turmoil.”
Norpac is targeting products such as newsprint, directory paper, bookgrade paper and groundwood printing and writing paper. About 80 per cent of newsprint is sold directly to newspaper publishers, Norpac estimates.
Catalyst and the B.C. government have asked the Commerce Department to exclude other paper products from the U.S. countervailing and anti-dumping probes. “As written, the scope of the investigations covers other applications such as food, packaging and hygiene,” the B.C. government said in its submission in support of Catalyst.
FINANCIAL SYSTEM
BANK OF CANADA. November 28, 2017. Financial System Review - November 2017
This issue of the Financial System Review reflects the Bank’s judgment that the high level of household indebtedness and housing market imbalances remain the most important vulnerabilities. While these vulnerabilities are still elevated, improving economic conditions and recent changes to housing policy should support an easing of these vulnerabilities over time. A third vulnerability highlighted in the FSR concerns cyber threats and the interconnectedness of the financial system.
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/fsr-november2017.pdf
Analysis of Household Vulnerabilities Using Loan-Level Mortgage Data
Olga Bilyk, Alexander Ueberfeldt, Yang Xu
This report examines detailed data on home mortgages to provide a better understanding of the vulnerabilities associated with the mortgage market. The proportion of low-ratio mortgages is growing, particularly in regions with strong house price growth. Moreover, these borrowers exhibit less flexibility to adverse shocks, since they have high debt levels relative to income and have taken mortgages with long amortization periods.
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/fsr-november2017-bilyk.pdf
Shoring Up the Foundations for a More Resilient Banking System: The Development of Basel III
Tamara Gomes, Sheryl King, Alexandra Lai
The authors trace the development of the Basel III standards for banking regulation. Basel III builds on two earlier frameworks, in response to weaknesses revealed during the global financial crisis. They highlight how implementation of the standards will underpin greater financial stability and provide a sound foundation for economic growth.
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/fsr-november2017-gomes.pdf
BANK OF CANADA. November 28, 2017. Vulnerabilities in the Canadian financial system remain elevated, but elements for improvement are emerging
Ottawa, Ontario - The high level of household indebtedness and housing market imbalances remain the most important vulnerabilities identified by the Bank of Canada in its Financial System Review (FSR), published today. While these vulnerabilities are still elevated, improving economic conditions and recent changes to housing policy should support an easing of these vulnerabilities over time.
“Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch financial vulnerabilities closely,” said Governor Stephen S. Poloz.
While household debt relative to income continues to rise, there have been notable shifts in mortgage activity over the past year, including an improvement in the quality of new high-ratio mortgages (those with a down payment of less than 20 per cent).
At the same time, some indicators suggest increasing risks associated with new low-ratio mortgages, such as a greater proportion of these mortgages being issued to highly indebted households. Recent changes to guidelines for low-ratio mortgages will take effect in January 2018 and are expected to mitigate some of these risks over time.
The Bank of Canada continues to monitor housing market imbalances closely, particularly for signs of extrapolative expectations. In both the Greater Toronto Area and the Greater Vancouver Area, economic fundamentals, combined with limited supply, continue to support house price growth. However, housing policy measures, together with higher mortgage rates, are expected to weigh on housing activity.
A third vulnerability highlighted in the FSR concerns cyber threats and the interconnectedness of the financial system. Through the Bank’s oversight of critical financial market infrastructures, it imposes high standards for risk resilience. In this context, the Bank is working with industry and public sector partners to reinforce the resilience of core payment systems and to ensure that key financial system participants can recover quickly in the event of a cyberattack.
BANK OF CANADA. November 28, 2017. Release of the Financial System Review. Opening Statement. Stephen S. Poloz - Governor
Ottawa, Ontario - Good morning. Thank you for coming here to the Bank of Canada. Senior Deputy Governor Wilkins and I are happy to be with you to talk about the latest issue of the Bank’s Financial System Review (FSR), which we published today.
I will start with a reminder about the purpose of the FSR. In it, we identify key vulnerabilities in the financial system, which can interact with and magnify economic shocks. We monitor the evolution of these vulnerabilities, and we look at their potential implications for the financial system and economy if a significant shock were to occur.
The most important vulnerabilities for the financial system remain the high level of household indebtedness and imbalances in housing markets. These vulnerabilities continue to be elevated and it will take a long time for them to return to more sustainable levels. A stronger economy and sound policies are working in the same direction to help bring about a gradual easing of these vulnerabilities, and this trend should continue. Let me give you some details.
Since our last report in June, household debt has continued to rise more quickly than household income. Borrowing for mortgages and home equity lines of credit is driving this growth. Further, we see that households with the highest debt relative to their income are carrying a growing share of the total. That said, new and pending rules for housing finance should help mitigate this vulnerability.
Last year, the government introduced stricter rules for high-ratio mortgages—that is, where the down payment is less than 20 per cent of the value of the home. These rules are continuing to improve the quality of new high-ratio mortgages. Fewer of these mortgages are being issued, particularly among highly indebted households.
However, we have become increasingly concerned about low-ratio mortgages—those where the down payment is more than 20 per cent of the value of the home. We are continuing to see an increase in new low-ratio mortgages that have riskier characteristics. More of these are being taken out by highly indebted households, and a growing share of borrowers is choosing an amortization period longer than 25 years. Last month, the Office of the Superintendent of Financial Institutions announced enhanced guidelines for low-ratio mortgages that are similar to the changes announced for mortgage insurance last autumn. There will be restrictions on borrowing from multiple sources to finance a purchase, and borrowers will have to show that they could handle higher interest rates. That is just good practice for anybody who is taking on new debt.
While we can be confident that the new rules will help mitigate this vulnerability, their precise impact will depend on how both borrowers and lenders respond. We will be watching this closely when the guidelines come into effect next year.
Another important development since June is the Bank’s tightening of monetary policy through two interest-rate increases, which came in the context of improving economic fundamentals. The effect of these moves on mortgages is complex. Roughly 15 per cent of borrowers have floating-rate mortgages, and they felt the impact immediately. However, interest rates on fixed-rate mortgages only change when they are renewed, and about half of all mortgages will not reset for more than a year. Some of those that will reset next year could even see their interest rate decline, depending on their term. Improvements in the labour market, particularly stronger wage growth, should help households adjust to higher interest rates. But clearly, this is another area we will watch closely.
The second vulnerability, imbalances in the housing market, has also been affected by recent changes in government policy. Price growth has slowed in the Greater Toronto Area after the Ontario government introduced policies aimed at housing affordability. This slowing pulled down national house price growth to an annual rate of 10 per cent.
The Toronto-area market is following a pattern similar to what took place in the Greater Vancouver Area last year, where resales fell sharply and new listings rose after the B.C. government announced a tax on non-resident buying. It is worth noting that prices in the Vancouver area are once again growing more quickly than the national average. The Bank will continue to monitor housing market imbalances closely, particularly for signs of extrapolative expectations.
Higher interest rates and stricter mortgage-finance rules should also help mitigate this vulnerability. However, the economic fundamentals of the Canadian housing market remain strong. Demand is being supported by increases in employment and population, and supply is being held back by basic geography and restrictions on land use.
The third vulnerability I will quickly mention is related to cyber security. There has been a worldwide increase in the frequency, severity and sophistication of cyber attacks. Because our financial system is so interconnected, a successful attack on one institution can potentially lead to widespread disruptions. We are working with our partners in the banking industry and public sector to ensure the system is robust and that institutions can recover quickly should any disruptions occur.
To better understand the potential implications of all these vulnerabilities, we examined the same risk scenarios as we did in June. The risks are essentially unchanged. However, the policy changes affecting housing finance are clearly a step in the right direction. Still, it will take time for these, as well as the effects of recent interest rate increases, to significantly reduce the vulnerabilities.
Meanwhile, our financial system continues to be resilient and is supported by improving economic fundamentals, in particular, by strength in the labour market.
With that, Senior Deputy Governor Wilkins and I are happy to respond to your questions.
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/opening-statement-281117.pdf
THE GLOBE AND MAIL. NOVEMBER 28, 2017. ECONOMY. New mortgage stress tests could disqualify 10% of buyers: Bank of Canada
BARRIE MCKENNA
OTTAWA - New mortgage stress tests coming in 2018 could disqualify about 10 per cent of prospective home buyers, affecting $15-billion a year in new borrowing, the Bank of Canada says.
The impact of the new restrictions is expected to be concentrated in the Toronto and Vancouver areas – the markets that have seen the steepest run-up in prices in recent years.
Indeed, two-thirds of the dent in new mortgage borrowing is expected to be concentrated in those two markets, which combined account for half the value of home sales in Canada. The tighter rules could disqualify as many as 12 per cent of buyers in those cities.
The central bank issued the projections Tuesday as part of its twice-yearly review of the country's financial system.
Overall, the Bank of Canada says the main threats to the system – rising household debt and overheated house prices – remain elevated. That's roughly where the threat level has been since 2013.
But for the first time in a while, the bank says there "preliminary signs of improvement" in the quality of new lending triggered by the improving economy, higher interest rates and tighter mortgage rules announced in 2016.
"Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch vulnerabilities closely," Governor Stephen Poloz said in a statement, accompanying the bank's Financial System Review.
Debt and housing vulnerabilities will take "a long time" to return to more normal levels, Mr. Poloz added.
The report also highlighted the possibility that a cyberattack could knock out key parts of the payment system. The bank said it is now working closely with the various players involved in clearing financial transactions to bolster their ability to deal with a major attack. The various players are looking at setting up "standby relationships" with the major Canadian banks to keep the payment system running if a prolonged outage hits one of the four major clearing networks – for cheques, electronic payments, stocks and derivatives.
Elsewhere, the Bank of Canada pointed out that a combination of higher mortgage rates and tighter lending rules are starting to work – by cooling the housing market and discouraging riskier borrowing.
Most borrowers will be able to handle a "moderate increase" in mortgage rates, especially if their incomes also rise, according to the bank. Nearly half of outstanding mortgages in Canada face an interest rate reset within the next 12 months, according to the report.
House prices were rising at a rate of 10 per cent a year across the country in October, brought down by a significant slowdown in Toronto. Prices are heating up again in Vancouver, particularly in the condominium market, the bank said.
Starting in January, federal regulators are extending mandatory stress tests to ensure that people taking out low-ratio, uninsured mortgages can handle setbacks, such as higher rates, according to new rules issued by the federal Office of the Superintendent of Financial Institutions.
The impact of the measures is expected to be less severe than the earlier 2016 changes for so-called high ratio mortgages, where borrowers put down less than 20 per cent of the value of the home.
Low ratio mortgages are ones where borrowers put up down payments of 20 per cent or more. These represent three-quarters of mortgages across the country, and 9 out of 10 mortgages in Toronto and Vancouver.
Borrowers who put down less than 20 per cent on a mortgage must buy mortgage insurance and face other restrictions.
The bank acknowledged it isn't sure exactly how borrowers will react to the new rules. The assumption is that most will choose to buy smaller homes. Others may put off buying a house or put more money down.
However, some borrowers may try to get around the rules by taking out riskier loans with longer amortization periods from alternative lenders that are not federally regulated, including credit unions and private mortgage lenders. Right now those lenders have a relatively small share of the mortgage market.
The bank said it will be closely monitoring developments in in the private lending market, worth as much as $15-billion a year. That includes watching new mortgage registrations to track how many borrowers are trying to duck the new regulations.
REUTERS. NOVEMBER 28, 2017. Bank of Canada sees easing of housing vulnerabilities
OTTAWA, (Reuters) - The vulnerabilities created by Canada’s high household debt and hot housing market remain elevated but should ease over time amid improving economic conditions and tighter mortgage rules, the Bank of Canada said on Tuesday.
FILE PHOTO: A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada on May 23, 2017. REUTERS/Chris Wattie/File Photo
In a more upbeat assessment of the risks facing Canada’s financial system than six months ago, the central bank said continued demand and limited supply should support house price growth in Toronto and Vancouver, but higher interest rates and tighter rules will likely weigh on activity.
The closely watched report noted an improving labor market, especially employment growth, and said a moderate increase in mortgage rates would be “significant but manageable” for most borrowers. Canada’s household debt hit record levels as buyers stretched to get into a roaring housing market.
“Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch financial vulnerabilities closely,” Governor Stephen Poloz said in a statement.
Suggesting the first steps in the right direction have been taken to lessen the vulnerabilities posed by debt and housing market imbalances, the bank said stricter guidelines for low-ratio mortgages - which take effect in January - should mitigate risks over time.
Reporting by Andrea Hopkins and Leah Schnurr
BLOOMBERG. 28 November 2017. Bank of Canada Sees Financial System Vulnerabilities Easing
By Theophilos Argitis
- Central bank warns risks remain elevated, measures take time
- Growth of uninsured mortgages continues to be key worry
The Bank of Canada is optimistic higher interest rates and regulatory efforts to rein in risky borrowing will make the country’s financial system more resilient, though the process could take time to unfold and the outcome remains uncertain.
In its semi-annual financial stability report, Canada’s central bank painted a picture of a housing market where key steps have been taken to improve the quality of lending, particularly in the most expensive cities such as Toronto. At the same time, it warned risks remain elevated, particularly high household debt levels, and measures to rein in loans to the most highly indebted households will take time to work.
“Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch financial vulnerabilities closely,” Governor Stephen Poloz said in a statement.
The language in the report parallels the main message in the central bank’s last Financial System Review in June -- that of strengthening resiliency of the financial system on the back of an improving economy -- that provided the backdrop for two rate increases in July and September.
Three Reasons
The Canadian dollar pared some of its intraday losses after the report. The currency was down 0.2 percent to C$1.2798 per U.S. dollar at 10:48 a.m. in Toronto trading.
The central bank cited three main reasons why it expects risks to mitigate over time: income growth, new mortgage finance policy measures and higher mortgage rates.
New regulations -- the federal government’s in 2016 and the banking regulator last month -- limit the creation of new highly indebted households, and should reduce demand in cities like Toronto where speculative demand has been a factor, the central bank said.
“The effects of tighter mortgage rules implemented last year have already improved the quality of new insured lending,” the Bank of Canada said. “Income growth, new mortgage finance policy measures and higher mortgage rates are expected to mitigate this vulnerability over time.”
Uninsured Mortgages
One area that remains a major concern for the central bank is the growing share of uninsured mortgages, those with loan to value ratios at or below 80 percent, which is being fueled by higher Toronto and Vancouver home prices and tighter qualification rules for insured mortgages. The issue was a focus for a second consecutive report, with the central bank saying a portion of these loans are displaying riskier characteristics.
The proportion of low ratio loans to highly indebted households is trending up, and the share of these mortgages amortized longer than 25 years is also increasing, it said. The issue has been particularly prominent in regions with the highest price growth, such as Toronto.
The Bank of Canada analyzed the impact of October regulatory changes by the Office of the Superintendent of Financial Institutions, which make it more difficult to qualify for insured mortgages. It concluded they are “expected to decrease the proportion of highly indebted households among new borrowers” particularly in high price growth regions.
Uncertain
But the end result is still uncertain, the central bank cautioned.
“As borrowers and lenders adapt to the new OSFI guidelines, it will take some time to assess the extent to which this vulnerability is being alleviated,” it said.
Based on the impact of the federal government’s 2016 measures to curb riskier insured mortgages, “a material impact” on new lending could take as long as six months, it said. And because of the largest stock of debt, it could take “several years” to have a significant impact on overall vulnerability.
The central bank had a similar message for how higher borrowing costs and the new regulatory measures will impact housing markets like Toronto. It should reduce demand, “but the impact of these policy measures on the market is uncertain,” it said.
“There is uncertainty about how borrowers and lenders will react to the new OSFI measures,” it said. “There is also uncertainty around the sensitivity of the housing market to higher interest rates.”
(An earlier version of this story was corrected to show that low-ratio mortgages are those with loan to value at or below 80 percent.)
— With assistance by Erik Hertzberg
ENERGY
The Globe and Mail. 28 Nov 2017. TransCanada to restart Keystone pipeline. Keystone to restart with lower rates: TransCanada
JEFF LEWIS
TransCanada has announced it will do a controlled restart of its pipeline on Tuesday, after a spill earlier this month, easing industry fears of a lengthy shutdown. TransCanada Corp. says it will restart its Keystone pipeline at reduced rates on Tuesday after getting clearance from U.S. regulators, easing industry fears of a lengthy shutdown.
Calgary-based TransCanada said in a statement on Monday that repair and restart plans for the pipeline have been reviewed by the U.S. Pipeline and Hazardous Materials Safety Administration without objection, permitting the controlled return to service.
Portions of the 3,455-kilometre pipeline were shut down on Nov. 16 after a 5,000-barrel spill in South Dakota, cutting the flow of Canadian crude into the U.S. Midwest and weighing on prices for oil sandsderived barrels. The move to restart the 590,000-barrel-a-day line spells immediate relief for oil sands producers already grappling with tight export capacity as a series of big-ticket expansions gear up and proposed new pipelines face mounting delays.
The outage on Keystone led to a steeper discount on Western Canada Select heavy crude, highlighting the industry’s increasing sensitivity to even temporary shutdowns. On Monday, WCS fetched about $16.35 (U.S.) under the West Texas intermediate benchmark, broker Net Energy Inc. said, compared to about $14 before the leak.
Bank of Nova Scotia analyst Michael Loewen said South Dakota’s Public Utilities Commission (PUC) may still conduct a review of the pipeline. “However it appears that a potential crisis may have been averted,” he said in a note.
“Without objections from the Pipeline and Hazardous Materials Safety Administration, it does not appear that volumes will be impacted going forward unless the PUC finds any wrongdoing and revokes permits.”
In the release, TransCanada offered no explanation for the cause of the spill and pointed to a gradual increase in shipments. “We are communicating plans to our customers and will continue working closely with them as we begin to return to normal operating conditions,” it said. The spill is the third since the pipeline started operations in 2010 and came days before regulators in neighbouring Nebraska approved an alternative to TransCanada’s preferred route for its Keystone XL pipeline expansion through the state.
On Monday, the company asked the Nebraska Public Service Commission (PSC) to reconsider that decision.
A spokesman for TransCanada said the company is seeking permission to address questions it says the commission’s approval raised.
“It is not an attempt by TransCanada to have the PSC alter its approval of the alternative mainline route,” Terry Cunha said in an e-mail, referring to the path approved by the commission.
He said the company continues to review Keystone XL’s costs and schedule.
U.S. President Donald Trump approved the $8-billion pipeline last March, reversing former president Barack Obama’s rejection of the pipeline on environmental grounds.
It would deliver as much as 830,000 barrels a day from Alberta as far as Steele City, Neb., where crude could be shipped on other lines to refineries on the U.S. Gulf Coast.
The Calgary-based oil industry is also keen to move crude to Canada’s Pacific coast, where Kinder Morgan Canada Ltd.’s $7.4-billion (Canadian) Trans Mountain pipeline expansion has already been delayed by nine months.
TransCanada (TRP)
Close: $63.49, up 1¢
THE GLOBE AND MAIL. REUTERS. NOVEMBER 28, 2017. TransCanada encouraged by recent Keystone XL shipper talks
TransCanada Corp's talks with shippers for its Keystone XL pipeline have been encouraging in the last weeks, and the company expects to eventually rally enough commercial support, Chief Executive Russ Girling said on Tuesday.
The company is expected to make a final investment decision on the $8-billion Alberta-Nebraska pipeline by December, taking into account commercial support and regulatory approval from the state of Nebraska.
"Over the last few weeks, discussions with our customers have continued, and we're very encouraged with the progress," Girling told investors at an event in Toronto.
The Calgary, Alberta-based company expects to "conclude sufficient binding shipping commitments to advance the project," he said, adding it was still evaluating last week's decision from the state of Nebraska.
The state had approved the project, which was cleared federally by U.S. President Donald Trump this year, but denied TransCanada's preferred route Nebraska's decision had cleared the last major regulatory hurdle, but would push up construction costs. It also opened the door to potential delays and emboldened activists who said they would try to kill the project through protests.
In a statement before the Toronto event, TransCanada said it expected comparable earnings before interest, taxes, depreciation and amortization (EBITDA) to grow at an average annual rate of about 10 per cent through 2020.
TransCanada said it expects its annual dividend to grow at the top end of its previously estimated range of 8-10 per cent through 2020.
The company said on Monday it would restart the Keystone crude oil pipeline, which is separate from Keystone XL, at reduced pressure on Tuesday, nearly two weeks after closing the line after it leaked 5,000 barrels of crude in rural South Dakota.
The company did not provide any details on Tuesday on the potential impact of the pipeline closure.
REUTERS. NOVEMBER 27, 2017. Oil falls on doubts over OPEC, pipeline restart
Christopher Johnson
LONDON (Reuters) - Oil prices dipped on Tuesday, weighed down by uncertainty over the outcome of an OPEC meeting this week at which an extension to its price-supporting oil output cuts will be discussed.
Brent crude oil LCOc1 fell 44 cents on the day to $63.40 a barrel by 1406 GMT. U.S. light crude CLc1 was 26 cents lower at $57.85, after falling 1.4 percent in the last session.
Members of the Organization of the Petroleum Exporting Countries and other key producers, including Russia, meet on Nov. 30 to discuss whether to continue to limit production in an effort to drain global inventories to help push up prices.
They cut production by 1.8 million barrels per day (bpd) in January and agreed to hold down output until March. The market had expected OPEC to extend the limits by another six to nine months, but this is now less certain.
“We believe that the outcome of this meeting is much more uncertain than usual,” Goldman Sachs analysts said.
“We view risks to oil prices as skewed to the downside this week as we believe that current prices, time spreads and positioning already reflect a high probability of a nine-month extension,” the Goldman analysts said.
Doubts have emerged over whether Russia will agree to join the OPEC-led group in an extension of production curbs, which Economy Minister Maxim Oreshkin has described as negative for the country’s economy.
Though the government wants high oil prices ahead of a presidential election in March 2018, officials have also voiced worries about pricier oil boosting the rouble and undermining the competitiveness of Russia’s economy.
Citigroup’s head of commodity research told Reuters on Tuesday that he expects OPEC to extend the deal until the middle of next year, rather than the end.
But anything less than an extension until the end of next year will cause a sell-off in the price, Citi’s Ed Morse added.
U.S. crude touched $59.05 a barrel on Friday, its highest since mid-2015, fueled by the outage of the Keystone pipeline, one of Canada’s main crude export routes to the United States.
But TransCanada Corp (TRP.TO) this week said it would restart the 590,000 barrel-per-day pipeline at reduced pressure on Tuesday after getting approval from U.S. regulators.
“This bearish development adds to the underlying unease surrounding the outcome of Thursday’s OPEC meeting,” PVM Oil Associates analysts said in a report.
Consultancy Wood Mackenzie said it looked as if producers had nearly concluded an agreement to extend cuts until the end of next year.
“(But) if the production cut agreement ends in March 2018, our forecast shows there would be a projected 2.4 million bpd year-on-year increase in world oil supply for 2018,” said Ann-Louise Hittle, vice president for macro oils.
(This version of the story corrects paragraph 1 to say OPEC meeting is this week, not next week)
Additional reporting by Amanda Cooper in London and Keith Wallis in Singapore; Editing by Louise Heavens
BLOOMBERG. 28 November 2017. TransCanada Says Growth Outlook Safe Despite Keystone XL Limbo
By Kevin Orland
- Pipeline operator extends dividend forecast through 2021
- Company seeks to file amended application for alternate route
TransCanada Corp. reaffirmed forecasts for profit and dividend growth a week after a Nebraska regulatory decision left the fate of the company’s $8 billion Keystone XL pipeline megaproject clouded.
Earnings before interest, taxes, depreciation and amortization will grow at an average annual rate of about 10 percent between 2015 and 2020, the Calgary-based company said in a presentation to investors on Tuesday. TransCanada also held firm to plans to lift its dividend at the upper end of its projected 8 percent to 10 percent range, and extended that outlook by an additional year through 2021.
Those projections, though, are overshadowed by questions over the long-delayed Keystone XL. The Nebraska Public Service commission approved the project last week, but stipulated a different route than the company envisioned for the 1,179-mile (1,897-kilometer) conduit. While the decision seemed to remove a key hurdle to construction, foes have said they believe it opens challenges to the new route because it wasn’t vetted to the same degree as the original.
“We continue to review that decision and its potential impacts on the cost and schedule of the project,” Chief Executive Officer Russ Girling said at the presentation in Toronto.
Seeking Permission
In a request dated Friday, the company asked the state to reconsider its ruling and allow it to file an amended application to address questions raised in the ruling.
In its motion, TransCanada isn’t seeking to have the commission alter its approval of the alternate path for the conduit, Terry Cunha, a spokesman for TransCanada, said in an emailed statement.
TransCanada has generally found itself in analysts’ and investors’ favor as an option to invest in energy without much exposure to volatile oil and natural gas prices. The shares have gained 4.9 percent this year, compared with a 13 percent decline for the S&P/TSX energy index, and 15 of the 19 analysts covering the stock recommend buying it.
While the company has delivered earnings that beat analysts’ estimates for the past 13 quarters, it faced recent turbulence. The company last month pulled the plug on the proposed Energy East pipeline, which would have carried western Canadian crude to refineries in the country’s east. And it faced some criticism for maintenance-related outages on its gas system in Alberta that weighed on the price of Canadian gas over the summer.
Landowner Opposition
Keystone XL, which has been on the drawing board since 2008, has drawn stiff landowner opposition. Last week’s decision prompted objections that the public service commission had no mechanism for approving the alternate route, according to a filing by landowners.
Even with Nebraska’s decision in hand, TransCanada still must formally decide whether to build the line, which would send crude from Hardisty, Alberta, through Montana and South Dakota to Nebraska, where it will connect to pipelines leading to U.S. Gulf Coast refineries.
TransCanada plans to resume service on its existing Keystone crude pipeline on Tuesday after it was shut Nov. 16 because of a leak in South Dakota. The repair and restart plans have been reviewed by regulators with no objections.
AVIATION
The Globe and Mail. The Canadian Press. 28 Nov 2017. Analyst forecasts stabilization for beleaguered Bombardier. Bombardier, developer of aircraft such as this Global 7000 business jet seen in Nevada in October, has demonstrated evidence of a more stable financial footing with recent strategic moves, DBRS says.
DBRS Ltd. has upgraded Bombardier Inc. slightly to a trend of stable from negative, one month after Moody’s downgraded the transportation company.
The rating service on Monday maintained its B rating.
However, DBRS notes that there is evidence of stabilization in the company’s financial profile, “albeit at a very weak level,” and an outlook for modest improvement over the next 12 months.
It says there has been material progress in improving margins, especially in the rail division, over the past two years and there is “greater visibility” about the viability of the C Series following the Airbus partnership.
DBRS says strategic moves such as the Airbus deal and development of the Global 7000 business jet demonstrated the more stable footing, while its cash position remains “adequate” in the near-term.
The rating comes about a month after Moody’s Investors Service downgraded Bombardier’s corporate rating to B3 from B2 and changed its rating outlook to negative from stable.
Moody’s said its downgrade reflected the belief that Bombardier’s debt will remain high through 2019 and it will face challenges in generating positive cash flow because of the potential delay of C Series deliveries.
AGRICULTURE
StatCan. 2017-11-28. Poultry and egg statistics, September 2017
Egg production rose 3.4% from September 2016 to 65.2 million dozen in September.
In October, placements of hatchery chicks on farms decreased 3.5% compared with October 2016, to 63 million birds.
Stocks of frozen poultry meat in cold storage decreased 2.9% from November 1, 2016, to 87 736 tonnes on November 1.
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171128/dq171128g-eng.pdf
StatCan. 2017-11-28. Canadian potato production, October 2017
- Potato production: 105.9 million hundredweight, 2017; 0.4 % increase (year-over-year change)
- Source(s): CANSIM table 001-0014: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=0010014&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
Potato production was 105.9 million hundredweight (4.8 million tonnes) in 2017, up 0.4% from 2016.
Prince Edward Island represented 22.3% of total potato production in 2017, followed by Manitoba (21.0%) and Alberta (19.4%).
Harvested area was stable at 342,217 acres in 2017.
The average yield increased 0.4% to 309.4 hundredweight per harvested acre, with Alberta having the highest average yield of 390.7 hundredweight per acre.
Chart 1: Potato production in Canada
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171128/dq171128h-eng.pdf
EDUCATION
Innovation, Science and Economic Development Canada. November 27, 2017. Federal government creates 10,000 paid internships for Canadian students and recent graduates. Work-integrated learning gives students hands-on experience and skills for the middle-class jobs of today and tomorrow
Ottawa - Canada’s talented and skilled workforce is a competitive advantage for our country that attracts investment, drives innovation and strengthens the economy.
That’s why our government is investing in Canadians—to make sure our students and recent graduates have the skills they need for the middle-class jobs of today and tomorrow.
The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development, and Mona Fortier, Member of Parliament for Ottawa–Vanier, today announced the creation of 10,000 paid internships to help Canadian students better prepare for the modern-day workforce.
Fulfilling a budget commitment, the government is investing $221 million in Mitacs, which will help it meet its goal of creating 10,000 paid internships per year by 2020–21, providing our students with career-building opportunities while also helping our companies innovate and compete globally.
The program is based on proven outcomes—such as creating jobs and developing skills—and has become a key factor in building our country’s capacity for innovation and in driving our long-term prosperity.
Quotes
“Through these 10,000 paid internships, Canadian students will get the hands-on learning experience and skills required to successfully transition from the classroom to the workforce. Investing in the talent of tomorrow is the best way of spurring innovation, strengthening our economy and growing the middle class.”
– The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development
“The support announced today by the Government of Canada will help connect top talent from Canadian post-secondary institutions to businesses and not-for-profit organizations. This investment in Mitacs’ work-integrated learning programs will help deliver 10,000 internships per year, enabling students to develop skills to launch their careers and companies to innovate and compete globally.”
– Alejandro Adem, CEO and Scientific Director, Mitacs
“As a current internship student, I know first-hand that the practical experience I’ve gained will bridge the gap between my academic life and my future employment as part of Canada’s workforce. The government’s commitment to creating 10,000 internships per year will give me and my colleagues the opportunity to gain the invaluable skills we need for the jobs of tomorrow. This funding is a direct investment in our future!”
– Alexia Polillo, Intern
Quick Facts
- The 10,000 paid internships will be made possible through renewed and expanded funding provided to Mitacs in Budget 2017.
- Over its 18-year history, Mitacs has supported more than 21,000 post-secondary internships and trained more than 19,000 student and post-doctoral participants.
- In 2016–17:
o 182 fellowships were awarded to top-ranked post-doctoral fellows across Canada; and
o 550 international interns came to Canada for 12-week research projects through Globalink Research Internships.
________________
LGCJ.:
