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Written By: Benjamin Pipicelli, Lexx Thomson, & Dorje Gyaltsen
Economics Newsletter – September 29, 2023
Canada’s Economy at a Glance
Author’s Commentary
Canadian Bond Yield Outlook
As of Monday, the yield on Canada’s benchmark 2-year debt reached 100 basis points above 10-year bonds, the largest gap since the early 1990s. The two-year yield was just below 3.8% at 8:13 a.m. EST. The yield curve is inverted in long-term vs short-term maturities. The current Canada credit rating is AAA, according to Standard & Poor’s agency. The current 5-Years Credit Default Swap quotation is 39.44 and implied probability of default is 0.66%.
The forward-looking outlook for Canadian yield curves suggests that longer-term government bond yields have retreated due to increased concerns over long-term growth. This decline, along with higher short-term rates led by the Bank of Canada policy rate hikes, has slightly inverted the yield curve. However, yields on long-term bonds are expected to rise in 2023 once the prospects of economic growth gain steam.
Some analysts see curve inversions as predictors of recessions. The depth of Canada’s curve inversion is signaling a “bad recession” not a mild one, according to David Rosenberg, chief economist & strategist at Rosenberg Research. It reflects greater risk to the outlook in Canada than the United States due to “a more inflated residential real estate market and consumer debt bubble,” Rosenberg said.
News and Noteworthy
Nike Q1 earnings expectations for Thursday
Nike (NKE) is set to report its fiscal first quarter 2023 earnings results on Thursday, September 28. Wall Street analysts expect the sports apparel giant to post revenue of approximately $13 billion for the quarter with earnings per share forecasted at $0.75 on an adjusted basis. In addition, analysts estimate Nike’s gross margin for the quarter to come in at 43.7%, compared to 44.3% in the same period last year. Read more.
Inflation in Canada accelerates again, jumping 4 percent in August
Canada’s annual inflation rate accelerated for the second month in August, increasing 4 percent as the price of gasoline surged and raising the odds of another Bank of Canada rate hike. Still, with more economic data to come before the central bank makes its next interest rate decision in October, economists say the increase in the Consumer Price Index (CPI) won’t bring the Bank of Canada off the sidelines yet regarding rate hikes. Statistics Canada said the increase in CPI was largely driven by rising gas prices. Read more.
Ask the Expert: How to protect your retirement savings from inflation
If inflation rates continue to rise, more than half of Canadians believe they’ll have to push back their target retirement date, according to the Healthcare of Ontario Pension Plan’s 2023 retirement survey. But experts say it doesn’t necessarily have to be that way. Inflation is a “future inevitability,” says Tony Maiorino, who leads a team of 250 client-facing advisors in his role as head of RBC Family Office Services. Read more.
Interac expanding e-transfer service, Wealthsimple to join
Interac Corp. is broadening the range of financial institutions that can participate in its e-transfer service, with financial services firm Wealthsimple as the first to become a new participant under the expansion. The company, which announced provisional approval for Wealthsimple on Wednesday, said the move extends access beyond federally regulated banks and provincially regulated credit unions. “I’m thrilled to accelerate our impact in the market by broadening access to the Interac e-Transfer service to an expanded category of financial institutions,” Interac chief executive Jeremy Wilmot said in a statement. Read more.
Canada climbs six spots on clean energy ‘attractiveness’ ranking
Canada jumped six spots in this year’s ranking of top destinations for clean energy investment by S&P Global Commodity Insights, placing 14th out of 37 nations in 2023. Ottawa’s latest budget boosted the outlook for Canada as new investment tax credits helped counter last year’s massive clean spending package from Washington, according to Timothy Stephure, S&P’s director of global power and renewables. The United States scored highest in this year’s S&P Global’s Renewable Market Attractiveness Rankings. Read more.
Economics Society News, Events, and Articles
– Keep an eye out on our Instagram page @UWEconSoc for updates regarding future events
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– Check out our latest original article, Breaking Down Barriers: Effective Solutions for Addressing Ethnolinguistic Fractionalization in Côte d’Ivoire written by Sneha Elavarasan!