“Canada’s Debt Problem Gets Helping Hand From Economic Boom.”
There are two things that could impede Bank of Canada Governor Stephen Poloz from raising interest rates further in the coming months: worries about the financial system’s ability to cope with higher borrowing costs and concern that plenty of slack remains in the economy. By the end of this week, the picture should be at least a little clearer on both fronts.
On Tuesday, the central bank’s semi-annual report on financial stability will reveal its thinking about risks such as how vulnerable are highly indebted households to a major housing correction. That’s followed Friday by Statistics Canada’s gross domestic product numbers for the third quarter and October jobs data that will show the extent to which the economy continues to eat into its spare capacity. The reports are widely seen reinforcing market expectations for continued interest rate increases, but only gradually as the Bank of Canada tiptoes its way to more normal levels.
Poloz’s main message at his last Financial System Review in June — which came just before his first rate increase in seven years — was that despite an unsustainable jump in Toronto home prices earlier this year and the consequent rise in debt levels, the financial system’s resilience was actually strengthening on the back of an improving economy. And since then, Canada’s economy has done even better than Poloz had thought at the time.
While economists expect Statistics Canada to report a slowdown to 1.8 percent annualized growth in the third quarter, growth in the second quarter turned out to be a much stronger 4.5 percent and the economy is on pace for 3 percent growth for all of 2017.
Canada currently has the second-highest gross debt to income ratio in the Group of 20, the International Monetary Fund reported in October. Canada’s debt addiction is frequently the subject of such warnings, yet CIBC’s Mendes says they’re misleading. He says the overall economic backdrop in Canada is much better than in other countries with less debt.
“$10,000 in sight for bitcoin as it rockets to new record high.”
Bitcoin’s vertiginous ascent showed no signs of abating on Monday, with the cryptocurrency soaring to another record high just a few percent away from $10,000 (£7,493.59) after gaining more than a fifth in value over the past three days alone.
The digital currency has seen an eye-watering tenfold increase in its value since the start of the year and has more than doubled in value since the beginning of October, lifted by the prospect of crossing over into the financial mainstream, amid a flurry of crypto-hedge fund launches. It surged as much as 4.5 percent on Monday to trade at $9,721 on the Luxembourg-based Bitstamp exchange , before easing back to around $9,600 by 1155 GMT.
Data compiled by Alistair Milne, the Monaco-based manager of the Altana Digital Currency Fund, showed U.S. bitcoin wallet provider Coinbase added 300,000 users between Wednesday and Sunday, during the U.S. Thanksgiving holiday. The total number of Coinbase users globally now stands at 13.3 million.
Bitcoin’s price has been helped in recent months by the announcement that the world’s biggest derivatives exchange operator CME Group would start offering bitcoin futures. The company said last week the futures would launch by the end of the year though no precise date had been set.
So far, institutional investors have largely stayed away from the market, viewing it as too volatile, too risky and too complex to invest other people’s money into. But some say the launch of the CME futures could lure in more mainstream investors.
“Germany coalition: Crucial week of talks in bid to end impasse.”
German Chancellor Angela Merkel and her former centre-left partners are preparing for crucial coalition talks in a bid to end a political stalemate. After initially refusing to hold discussions with Mrs Merkel’s CDU-CSU conservative bloc, the Social Democrats have agreed to meet her on Thursday. They differ over issues such as housing, healthcare and migrants.
Mrs Merkel failed to form a coalition government with the liberal Free Democrats and the Greens last week. The FDP walked out after four weeks of talks, saying there was «no basis of trust» between the parties. In the election campaign, the Social Democrats (SPD) favoured more spending on education and infrastructure, changes in health insurance, and no cap on the number asylum seekers.
Meanwhile, Mrs Merkel has said she wants to cut some taxes. She may also want to pursue a tougher migrant policy to win back conservative voters. Analysts say the SPD has the stronger hand in the negotiations and is expected to have significant influence in any deal. Under pressure, SPD leader Martin Schulz agreed to talks with Mrs Merkel’s Christian Democrats (CDU) and the Christian Social Union (CSU).
The SPD governed in a «grand coalition» with Mrs Merkel between 2013 and 2017. But Mr Schulz promised to take his party into opposition after September’s election, when his party had its worst result since 1949. On Monday he appeared to contradict this promise slightly, telling journalists in Berlin that all options were still on the table. These options range from joining Mrs Merkel in a coalition; Mrs Merkel forming a minority government or calling a new election.
“The Big Banks Still Like Asian Equities.”
As the 2018 market-strategy notes roll in from banks’ research teams, one call that stands out prominently is further gains in Asian equities, which have already this month hit record highs.
The thinking is that the region’s world-beating economic growth rates will be sufficient to keep up earnings momentum in a year that’s projected to feature a roll-back in monetary stimulus by the world’s main central banks.
«We maintain our bullish view into 2018 and expect Asian (and EM) equities to double in the next two years,” Bank of America Merrill Lynch strategists wrote on Monday, in one of the most bullish takes on the year ahead. The gains will be driven by “strong” earnings growth and a “re-rating” of investors’ views on appropriate valuations, they wrote.
Morgan Stanley, however, is barely in the bullish camp. Asian stocks retreated from Friday’s record after analysts at the bank downgraded Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co., saying their shares had risen too much. Strategists led by Jonathan Garner downgraded Japan to equal-weight and South Korea to underweight, while having an overweight stance on China, India and Japan. The regional equity benchmark index fell 0.6 percent Monday as of 2:54 p.m. in Hong Kong.
The MSCI Asia Pacific Index, up about 28 percent for the year so far, is now headed for its best annual gain since 2009. A number of analysts see outperformance by emerging markets more broadly, with bets on China among popular calls for 2018 even as that country moves to rein in credit growth.