The Week in Review
That's More Like It!
Ok, that was refreshing! It was a huge week for the equity markets, with the major North American indices rising from a low of 5.07% (The Dow Jones Industrial Average) to a high of 6.48% (The Nasdaq 100). The TSX was up 5.80% for the week, edged out slightly by the S&P500, up 5.85%.
This was nice relief following some significant losses in the past little while. The big question now, of course, is whether we'll see these gains sustained or whether the headwinds out there will knock these numbers back down this coming week.
In this edition of Pulse we'll look at the latest unemployment numbers from both Canada and the US. We'll also talk about some housing related issues with risky mortgages catching the eye of the Bank of Canada, some tax relief in Ontario, and the high cost of doing business taking a hit on condo development in Toronto, the pending $900 billion mortgage shock that's headed our way.
Also, hot on the heals of some major bargaining gains with the Big Three Detroit automakers, the UAW has now set its sights on Tesla and Toyota.
A big welcome to our new subscribers who have joined us over the past week. I know a lot of you have come from the Blossom family and we trust you'll find the weekly updates here to be a nice complement to the wealth of information you get from your fellow Blossom members.
Will Work for Food
The latest unemployment numbers are in for both Canada and the US, and things got a bit tougher for those looking for work in October.
Here at home we saw the unemployment rate move up 5.7%, slightly higher than the market expectations of 5.6% and an increase from the 5.5% we saw in September. Unemployment is now at the highest level since January 2022.
During the month, 17,500 jobs were added to the Canadian economy, lower than expectations of 22,500. The number of jobless came in at 1,229,400, up 40,300 for the month. Just over 60% of those unemployed were now without a job for over a month, signaling the increasing difficulty people are having finding jobs. It seems like just a few months ago that employers couldn't find people to work, and now the tide may be shifting. The labour force is expanding largely because of booming immigration, but employers are not keeping up with job openings.
This report may be another sign that the aggressive rate hikes we've seen from the Bank of Canada may be taking hold, softening the labour market.
Also during October, the US unemployment rate hit a 21-month high coming in at 3.9%, slightly above market expectations of 3.8%. In September, the unemployment rate was 3.8%. The number of unemployed rose by 146,000 to 6.51 million.
No doubt the same conditions we're seeing in the labour markets here are having a similar affect in the US, with the Federal Reserve having raised the target range for federal funds from 0.25% in early 2022 to the current range of 5.25% - 5.50%.
If you haven't heard the news, we're Rebranding! Click on this thumbnail to learn hear our 'full circle' story and our new look and feel!
Hopefully you're not one of the thousands of Canadians who have found themselves with negative amortization due to the skyrocketing cost of borrowed money since the beginning of the current rate-hike cycle. As interest rates have risen, certain variable rate mortgages have resulted in longer amortizations as payments remain fixed but a larger and larger amount each month goes to paying interest instead of principal.
RBC Capital Markets estimates that $900-billion worth of Canadian mortgages are due to renew between 2024 and 2026, accounting for almost 60% of all outstanding mortgages issued at chartered banks.
Underlining the seriousness of this issue, the Bank of Canada has stepped in and asked Canadian banks and regulators to investigate what measures can be taken to make sure this problem doesn't get even further out of hand. It's estimated that there are now more than $200 Billion in mortgages with extended amortizations across the country.
Significant in this request is that it's extremely rare for the Bank of Canada to get involved with banking products, which is normally the purview of the Office of the Superintendent of Financial Institutions. This fact alone just shines light on how serious a problem it's perceived to be.
More trouble in the housing sector. Toronto developers have made the financial decision to delay building around 14,000 new condos, citing higher borrowing costs and economic uncertainty.
It's been a tough year for condo pre-sales as costs have risen not only for developers, but also for individuals looking for housing. The surge in interest rates have made it too challenging for some in each of these groups.
According to research firm Urbanation Inc., only around 13,000 condo units have been developed through September, far below the expected 27,000 units. The report also highlights the fact that given the looming economic uncertainty, a growing contingent of potential buyers are not willing to take the risk of committing to a property that will take years to actually be built, becoming gun-shy after seeing a number of projects suspended.
With all of these headwinds in the housing sector, the Province of Ontario has announced that it will be removing the provincial portion of Harmonized Sales Tax to promote the development of new rental housing units. There are strict limitations on which developments will be eligible, with timelines running from 2023 to 2035, and further specifics on what type of construction will qualify for the program. Click here to read more details.
UAW Takes Aim at Tesla & Toyota
It's been quite a couple of months for UAW President Shawn Fain, who lead hard-fought negotiations between his automakers' union workers and the Big Three automakers, GM, Ford and Stellantis. Well, despite the grueling pace of these discussions it appears as though Fain has some jump left in his step.
Looking to capitalize on the momentum of the record contracts just signed, the UAW wants to expand the battle to face off against more auto companies. In a somewhat antagonistic statement, Fain commented that "Workers at Tesla, Toyota, Honda, and other are not the enemy, they're the UAW members of the future."
I'm sure we'll see how much these auto companies agree with him in the coming months.
Statistics Canada released its preliminary GDP estimate this week and the results will no doubt spur endless debate over whether Canada‘s economy is slipping into a recession.
It looks like GDP is going to fall by 0.1% annualized in the third quarter, and this follows a 0.2% drop in the second quarter. The current estimates will be revised on November 30, but if they do hold it will slide Canada into what some believe is a technical recession, which is typically measured as two consecutive quarters of declining GDP. There is lots of debate over the exact definition of a recession, but either way, these are not strong numbers.
If we look at the bright side, it should be more evidence to the Bank of Canada that will allow them to decide that we’re at the end of the rate hiking cycle. We’ve now seen the bank’s policy rate go from 0.25% in early 2022 to its current 5%. If the goal was to slow down economic growth, it seems to be working.
Now, despite what economists will say is a technical recession, Bank of Canada Governor Tiff Macklem disagrees. At a press conference last week, he said:
“We are expecting growth below 1% for the next three, four quarters. Is that a recession? No, it’s not a recession. It’s low positive growth.”
Feds Freeze Rates
Practically nobody was surprised this past week when the Federal Reserve Board left US interest rates unchanged at the 5.25% to 5.5% range. The Central Bank is attempting to maintain the delicate balance of fighting inflation while avoiding sending the US economy into recession by tightening too much.
The fed funds rate is now at a 22-year high.
Weekly Winners & Losers
It would take a whole separate edition of this newsletter to list all the companies that had superb returns over the past week. To keep things managable, here are the top gainers.
The Top Gainers were:
Shopify (SHOP), up 32.48%
Paramount Global (PARA), up 28.60%
General Holdings (GNRC), up 27.64%
Warner Bros. (WBD), up 23.25%
Gilden Activewear (GIL), up 21.85%
Sirius XM Holdings (SIRI), up 20.15%
Here's a look at the top losers for the week.
Notable Big Loser were:
First Quantum Minerals (FM), down 37.55%
Paycom Software (PAYC), down 33.84%
ON Seminconductor (ON), down 18.28%
Fortinet (FTNT), down 10.27%
In Other News this Week
🏭 Following a few months of improving data from the US manufacturing sector, the ISM Manufacturing PMI took a big hit in October, falling to 46.7 after posting 49 in September. This is now the 12th straight month of contraction.
🏧 The Competition Bureau has approved RBC's takeover the the Canadian division of HSBC, but the deal is now facing challenges from the House of Commons finance committee, which has asked Ottawa to reject the deal.