Better inflation data is bad news for the loonie

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BMO economist Sal Guatieri discussed the relationship between inflation and the loonie,

“Better inflation news for Canadians was bad news for the currency. It slid 0.8% to C$1.336 (below 75 cents US), its weakest level in nearly two years and decidedly beaching the general trading range (C$1.25-to-$1.31) in place this year. The inflation report firmed up expectations of a lighter 50-bp rate hike from the BoC in October, contrasting with the widely expected 75 bps punch from the Fed on Wednesday. Ten-year government yield spreads widened to 46 bps in favour of the greenback, the largest gap in three years. Alas, a sagging loonie won’t help the BoC beat back inflation.”

“Inflation and the loonie” – (research excerpt) Twitter

***

Citi global economist Nathan Sheets is not optimistic about global growth,

“Central banks are demonstrating greater resolve to fighting inflation, and increasingly willing to sacrifice growth to get there. We’ve added to terminal policy rate forecasts across AE [advanced economies] , nudged our 2023F global growth forecasts lower, and anticipate rolling recessions in Europe, parts of Latam and eventually US. Stagflation risks still loom, but we are anticipating a “transitory” one as we expect our projected front-loaded hikes will be enough to bring inflation path towards target, giving central banks room to stop hiking by end of 2022 to 1Q23, and several EM to even start cutting rates ahead of the Fed. China’s projected growth rebound in 2023F provides counterweight to slowdown risks, but risks to our growth forecast are to the downside. Overview of September projections — We have kept our 2022 global growth forecast at 2.9% while downgrading our 2023 forecast by 0.1pp to 2.1% (2021: 5.8%). We have again raised our 2022 global inflation forecast to 7.5% (+0.2pp) while leaving 2023 at 5.5% (2021: 4.0%)”

“Citi is not overly optimistic about global growth” – (research excerpt) Twitter

***

The Teranet-National Bank Composite House Index uncovered extreme weakness,

“[The index in August] experienced its largest contractions ever in a single month (-2.1 per cent) due to rapidly rising interest rates and a slowing resale market ... August’s data were also unique in that the declines extended to almost all of the 31 cities covered by the index, excerpt for the three CMAs located in Alberta (Calgary, Edmonton, Lethbridge), which is unprecedented … Since its peak in May 2022, the composite index has already fallen 4.1 per cent, led by significant declines in Hamilton (-10.5 per cent), Halifax (-8.7 per cent) and Toronto (-8.3 per cent)”. Significant price declines were also observed in several cities not included in the composite index, including Abbotsford-Mission and many cities in the Golden Horseshoe (Brantford, Oshawa, Barrie, Kitchener, Guelph and Peterborough) … We expect the composite index to decline from its peak reached earlier this year by 10-15 per cent by the end of 2023″

“The Teranet-National Bank House Price Index – National Bank Economics

“Record Canadian home price decline in August” – (charts) Twitter

“Teranet-NB home Price Index methodology” – (research excerpt) Twitter

***

Diversion: “My father was a criminal. Here’s how I found out” – Maclean’s

Tweet of the Day: