September 9th, 2016

The Bank of Canada maintained its key rate and Apple announced the release of the iPhone 7


Blogue 25 mars EN


Several economic news related to Canada this week. First, many anticipated the announcement of the Bank of Canada this week and it’s the second-quarter economic report. Then, the Canadian real estate market continues to make headlines while Apple announced this week the release of its iPhone 7. Here are our top 5 reads of the week.

Bank of Canada

Many suspected that the Bank of Canada would keep its key rate at 0.5% and that’s exactly what happened this week. The Governor of the Bank of Canada reported that the Canadian economy had slowed down since the last economic report of June. GDP fell in the second quarter in Canada as a result of fires in Alberta and the drop in exports was greater than expected. A slowdown was also observed in the United States and in the world economy. “Global growth in the first half of 2016 was slower than the bank had projected in its July Monetary Policy Report, although the bank continues to expect it to strengthen gradually in the second half of this year,” said the Bank of Canada in a statement explaining its decision. However, the Bank estimates that the Canadian economy is expected to resume its pace in the third quarter with the resumption of oil production in Alberta. Here’s what you need to know about the report this week.

Real Estate

In recent months, the Canadian real estate market is experiencing considerable increases primarily located in the cities of Toronto and Vancouver. A new Statistics Canada report revealed this week that prices in Toronto have increased by 1% in the last month and 0.6% in Vancouver. A new tax of 15% was established in the province of British Columbia, for foreign buyers. This tax was put in place to make the market more affordable to buyers. Following the taxation, home sales have dropped 26% in August in Vancouver. But prices continue to rise. While in Toronto, the home sale price increased 23.5% in August compared to August last year. This week, Vancouver was awarded the title of the first “millionaire city” in Canada with an average salary of $ 1,036,202 per households, an increase of 7.1% since 2014. While many Canadians have become richer, those provinces dependent on oil saw their values decline. This is the case of Alberta, the net worth of households fell 0.7%. The Globe and Mail has consolidated the latest data in graphs that clearly demonstrate the value of these figures.

Unemployment Rate Ticks Up to 7%

Statistics Canada announced Friday that 26,200 new jobs were created in August after losing 31,200 jobs recorded in the previous month. These figures are higher than estimated by economists in August. According to Thomson Reuters, economists had predicted a gain of 15,000 jobs and a stable unemployment rate at 6.9% .However, the unemployment rate rose to 7% from 6.9% in July, while more people looking for a job have entered the labour market. The Canadian economy has become increasingly dependent on job growth to support consumer spending and offset the decline in business investment facing falling oil prices. The number of jobs increased in Quebec and Newfoundland and Labrador, while it declined in New Brunswick. There was little change in the other provinces.”After a weak July jobs report, it was encouraging to see a modest rebound in hiring, particularly given the details,” TD Bank economist Brian DePratto said. “Job growth came from full-time employment, and the unemployment rate rose for the ‘right’ reason as more Canadians were engaged with job markets in August, reversing a four-month trend.”

iPhone 7

This year, Apple’s September conference was less anticipated than usual. The giant is experiencing a more difficult year with sales that have decreased in recent quarters. Apple unveiled on Wednesday its new iPhone 7 and iPhone 7 Plus, an updated Apple Watch, and announced a new model of wireless headphones, positioning themselves in preparation for the holiday season. Many investors doubt the ability to boost sales of the famous phone and shares fell 2.62% on Thursday to finally close at 105.52$ on the New York Stock Exchange. Then, unlike previous years, Apple has decided not to release its sales figures for the first weekend which brings even more doubt about the ability to boost sales. Many have predicted that the US giant was going to launch a more innovative model in 2017. “While our survey indicates consumers have delayed upgrading or purchasing an iPhone in the past several months, we expect the iPhone 7 and especially new iPhones in 2018 to reaccelerate iPhone sales,” said Canaccord Genuity analyst Michael Walkley, in a recent note.

Analysis of the Markets

Our portfolio manager, Philippe Pratte, answered some questions from a journalist in Les Affaires this week. He performs an analysis of the markets and believes that the context is favourable to US banks: “US banks will benefit from any increase in interest rates in the US. The only question is when will this next increase be announced. In addition, the latest quarterly results were excellent and income is growing”. He also believes that US banks have more growth opportunities ahead of them compared to Canadian banks. He mentioned among others that historically, September is not favourable to the stock markets and the energy sector. After a quiet summer, he sees that market activity is resuming after the holidays. He mentions that he is keeping a little more cash than usual to seize opportunities. You can read Philippe’s latest market analysis in Les Affaires (subscription).

Good reading!


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