Good morning. Two weeks out from the U.S. presidential election, Donald Trump and Kamala Harris are fighting to show how their competing visions will strengthen the American economy. Below, we’ll unpack the battle in an extended version of Charted, and break down the Bank of Canada’s expected interest rate cut today. But first:
In the news
Looking for an off ramp: Dye & Durham Ltd. has put itself up for sale, becoming the latest in a series of Canadian tech companies to consider finding a buyer following a rocky few years for the sector.
Labour pains: Scotiabank economists are warning that Ottawa may be “over-correcting” as it reins in the temporary resident population.
A measure of relief: Imperial Oil Ltd. is lowering the price of fuel in Norman Wells, N.W.T., as the town deals with a cost-of-living crisis.
Happening today
- The United States reports existing home sales for September.
- The European Commission issues its consumer confidence index for October, a week after European Central Bank President Christine Lagarde declared: “We’re breaking the neck of inflation.” Nice, but yikes!
- A flurry of earnings includes Canadian Pacific Kansas City Ltd..; Whitecap Resources Inc.; Waste Connections Inc., AT&T Inc., IBM Corp., Tesla Inc. and Boeing Co.
Bank of Canada Governor Tiff Macklem seems happy the results of this month's "Central Banker Report Cards" from Global Finance magazine. "A-" still has an "A" in it!Justin Tang/The Canadian Press
In focus
A lower lending rate. Now what?
Making the cut: The Bank of Canada is widely anticipated to make its fourth consecutive cut to its benchmark lending rate, which now sits at 4.25 per cent. The cut comes as the pace of inflation slows and the central bank aims to navigate the economy around the possibility of a recession and toward a soft landing.
Analysts and investors are largely expecting a larger 50-basis-point cut today, with interest rate swap markets putting the odds at around 90 per cent. Money markets see 75 basis points worth of cuts by the end of the year, which means the BoC would have to go big either today or at its next meeting in December.
But the timing matters: As Mark Rendell reports, Canada’s economic growth is sluggish, unemployment has risen sharply and consumers and businesses remain downbeat.
Most economists think the current Bank of Canada policy rate is too restrictive in that context, and have leaned toward an expectation the bank will move more quickly to stave off the risk of a recession. But moving too swiftly has its own risks, such as weakening the loonie against the U.S. dollar and potentially sparking another run-up in home prices.
What it means for mortgages: The cost of variable-rate mortgages can be expected to fall steadily in the months ahead. But given the events of the past few years, no one would judge you for opting for a fixed rate. There’s something to be said about certainty, especially with concerns lingering that Canada could sink into a recession.
A potential workaround, Rob Carrick writes, is to take a variable-rate mortgage now and then convert it to a fixed-rate loan after fixed rates move lower.
“You’re parking yourself,” one mortgage broker told him. “It’s a temporary placement.”
Making the grade: Global Finance, a publication that has been rating central banks for 30 years, gave the Bank of Canada an A- earlier this month, hailing Governor Tiff Macklem’s monetary policy as “convincing.”
Follow along: You can find our live blog of the Bank of Canada announcement here.
Charted
Trump vs. Harris offer two paths to prosperity
The U.S. economy is in relatively healthy shape. Inflation has retreated, interest rates have fallen and wages have risen. It has the highest gross domestic product per capita among major countries, and its lead is growing.
Even though a lot of that can be chalked up to supply chains getting back on track and the actions of the U.S. Federal Reserve, Harris can make a strong case for Bidenomics (which has been dubiously redubbed “Kamalanomics”) driving the country to new heights of prosperity:
But perception is everything. Inflation is slowing, but prices are still high. The data might show a brighter path ahead, but you can’t eat data.
That’s where Trump enters the chat. Americans are paying more for goods than many can afford. That might change in a few fiscal quarters, but it’s undeniably true now. As our team of Jason Kirby, Matt Lundy and Mark Rendell show today in an analysis of each candidate’s economic visions, the affordability squeeze is real, and a major opportunity for Trump to appeal to consumers having trouble keeping up.
- Grocery prices, for example, are up around 20 per cent since the start of Biden’s presidency. A dozen eggs cost, on average, around US$3.80 today compared to US$1.40 in January, 2021.
After adjusting for inflation, households were collectively no better off than they were in early 2021. That gives Trump another potent talking point on affordability, if he were open to talking about anything other than tariffs. But tariffs are his answer to most economic issues, including prices.
“You just watch: They’ll come down, and they’ll come down fast,” he said in August.
How do tariffs do that?
Short answer: They don’t. There’s a shaky argument made by some people that foreign producers would lower prices to stay in the U.S. market, but little to no evidence that has played out under previous Trump measures.
Economists are more inclined to agree with Harris, who has called Trump’s tariff proposal a “sales tax on the American people.”
That’s because tariffs are paid for by American importers and businesses, who would then pass along those costs to consumers.
An example:
- A 50 per cent tariff is placed on lamps coming from foreign producers.
- A U.S. lamp importer must now pay a 50 per cent of the price on those lamps to the government.
- The importer raises prices on lamps to offset the loss. Or it stops importing lamps. Either way, a bad time to love lamps.
It isn’t just the American economy that might suffer from a slate of new tariffs. Yesterday, the International Monetary Fund issued a warning about the potential costs of rising protectionism and fragmenting global trade.
💡 Read more: You can check out our economic team’s analysis in 12 charts here.
A final note: We must do better as a society than simply adding “onomics” to the end of luminaries’ names. E-mail me your suggestions: cws@globeandmail.com
The outlook
On our radar and reading list
In court: Former Abercrombie & Fitch chief executive Mike Jeffries is facing charges of luring men into sex parties held around the world, sometimes by dangling the promise of modelling for the clothing retailer.
Under the sea: Companies are diving to the bottom to scoop up metals essential for our EV-driven future.
Butter beware: Police in Guelph, Ont., reported yesterday the latest in “at least seven large-scale butter thefts” in the city over the last 10 months.
Not to get too galaxy-brained over today’s BoC decision, but we’ll note the average monthly price of butter has risen from $3.86 in October 2017 to as high as $6.42 last May, according to Statistics Canada. Most recent data show prices still hovering around $6.
Morning markets
Global markets drifted with investors reluctant to make bets ahead of the hotly contested U.S. election. TSX futures pointed lower ahead of the Bank of Canada’s rate decision, while Wall Street futures retreated on worries of a less dovish Federal Reserve.
Overseas, the pan-European STOXX 600 was down 0.27 per cent in morning trading. Britain’s FTSE 100 slid 0.44 per cent, Germany’s DAX gave back 0.26 per cent and France’s CAC 40 dropped 0.66 per cent.
In Asia, Japan’s Nikkei closed 0.8 per cent lower, while Hong Kong’s Hang Seng rose 1.27 per cent.
The Canadian dollar traded at 72.29 U.S. cents.