Risks to Canada’s Economy Rising

QI TAKEAWAY — With inversions across Canada’s forward yield curve, we sense the reality of recession risk has been postponed, not allayed, which questions the certitude that Wednesday will bring a 50-basis point hike from the Bank of Canada. We would add that Bank of America’s Friday downgrade of transports included moving to neutral for both Union Pacific’s and Canadian Pacific’s stocks. Rail being the relative outperformer in the sector leaves it vulnerable.

  1. Canada’s Nanos Confidence Index was down 12% YoY in March, far better than the 30% YoY plunge in UMich Sentiment; however, 49% of Canadian households cited inflation as an impediment in a recent Nanos survey, suggesting the gap with the U.S. may soon close
  2. Despite the popular narrative that Canada could replace Russian exports, per CIBC, roughly half of Canada’s goods exports are not resources; compounding matters is growing weakness in the U.S. housing market, as evidenced by the recent retrenchment in lumber futures prices
  3. A 50-bps hike by the BoC this week may not be fully set in stone in light of global recession prospects; with 59% of Canadians predicting lower next-gen living standards in February, recession risk may be clearer should that percentage hit a fresh peak in Nanos’ May survey
Posted in Quick Quill.