Aurelia Butler

TORONTO (Reuters) – The roughly 75,000 Canadian homeowners awaiting mortgage renewal notices next month are bracing for a shock interest rate jump due to a surprise global bond rally, which will further squeeze already tight household budgets.In Canada, homeowners can take out five-year mortgages, unlike in the U.S. where customers can snag a 30-year mortgage. This means many Canadians who locked into sub 2% fixed-rate mortgages five years back are preparing for renewal letters with a steep rise in interest rates, made worse by the bonds rally.In some cases, renewed home loan rates could reach 7%, which would push up the average Canadian mortgage by at least a few hundred dollars per month, mortgage brokers estimate.Canadians are already struggling to repay their debts amid high costs of living and rising interest rates. That has forced banks to put aside money in case of defaults, weighing on their overall profits.With roughly about C$200 billion ($146.36 billion) in home loans coming up for renewal next year, mortgage brokers and lawyers are preparing for more distress sales in the property market.”We’re having a lot of phone calls about people with concern… (about) what they should be doing to brace themselves for the maturity date, or the renewal of their mortgage,” said Daniel Vyner, a broker at Toronto-based boutique mortgage firm DV Capital.The rate for a five-year mortgage was about 5.34% in November 2018 and the three-year was priced at 3.59% in November 2020, according to data compiled by financial data firm Wowa Leads. Homeowners receive a notice four to six weeks before their renewal date as lenders hatch out various options with fresh interest rates based on market trends at the time of renewal. A global move in bonds yields that has pushed the Canadian 5-year yield up by as much as 68 basis points since early September, to touch a 16-year high on Tuesday at 4.46%, will likely be reflected in the November renewals.”This dramatic rise in bond yields means that when the computer chugs along and sets up the rates for next week, they will be using higher rates based on these high bond yields,” Toronto-based mortgage broker Ron Butler said.The big banks generally contact clients four to six months in advance outlining renewal options.Variable home loans, which accounted for roughly half of Canada’s outstanding mortgages from July 2021 to June 2022, were already rising in tandem with the Bank of Canada’s record pace of interest rate hikes. The country’s mortgage debt stands at C$2.1 trillion, as of January of this year, according to Canada Mortgage and Housing Corp.Now the fixed-rate mortgages, driven by bond yields, are rising as well leaving homeowners nowhere to hide.A sharp jump in mortgages would further tighten household budgets and aggravate the cost of living crisis which has become rallying point for many Canadians. Prime Minister Justin Trudeau’s popularity has plunged in opinion polls in response.And the mortgage pain could grow if the Bank of Canada raises its benchmark interest rate one more time over the coming months as money markets expect, from the current 5%, and likely to stay higher for longer, analysts say.One homeowner said on X social media platform that his previous rate of 2.6% is now jumping to 6%. “I don’t know how people can afford to live in these G7 countries.” One in five borrowers expect to renew their mortgage in the next year, jumping to more than two-thirds over the next three years, according to Mortgage Professionals Canada.Hanif Bayat, CEO of Wowa Leads, estimates that at least 75,000 consumers receive these letters every month with revised higher interest rates as their renewal approaches. He suggests that the spike in bond yields over the past month could on average add C$600 in monthly payments.One step homeowners could take is re-amortization, brokers said, which means increasing the number of years they would take to repay their loan. “I hear worry, consistent, definitive worry,” Butler said. ($1 = 1.3665 Canadian dollars) More

A blowout US jobs report on Friday has intensified debate about whether the Federal Reserve will raise interest rates again this year, with economists and analysts divided over the strength of the data and how far it will influence the direction of monetary policy.Employers added 336,000 new roles in September, figures from the Bureau of Labor Statistics showed. That was sharply higher than an upwardly revised figure of 227,000 for August, and well above consensus estimates of 170,000. Behind that striking headline number, however, were more mixed and complex messages about what the report meant for the economy, interest rates, the bond market and equities. ‘Strength without heat’The overall picture suggested that the “economy is still continuing to grow and run pretty well, despite higher interest rates and tighter financial conditions”, said Wylie Tollette, chief investment officer of Franklin Templeton Investment Solutions, who saw that scenario increasing the odds of the Fed raising borrowing costs once more in 2023.Friday’s report also showed that the US unemployment rate had held steady at 3.8 per cent, while average hourly wage growth — a number closely monitored for signs of accelerating inflation — slipped from 4.3 per cent to 4.2 per cent annually.“Clearly wage growth is moderating — and that, to me, is the single most important metric,” said Kristina Hooper, chief global markets strategist at Invesco.Further complicating the narrative, the job gains announced on Friday were driven narrowly by industries that had lagged a broader recovery in the labour market after the initial Covid-19 crisis — such as education, health and leisure, and hospitality.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Strategists said the data suggested that — despite some high-profile wins for US labour unions — many people who had held out for higher-wage jobs were feeling pressure to accept positions with lower pay, amid tightening credit conditions.The report “says something about a lack of bargaining power on the part of American workers”, said David Kelly, chief global strategist at JPMorgan, who observed that the mixed composition of Friday’s data pointed to “strength without heat”.The jobs figures will only sharpen scrutiny of next week’s inflation data, with economists expecting an annual consumer price index reading for September of 3.6 per cent — down slightly from 3.7 per cent in August.If robust jobs growth translates into rising inflation, the Fed might need to turn the policy screws once more, analysts said — with knock-on implications for government bonds and broader financial markets. The Fed’s next stepsBeyond inflation, there is perhaps no other data point the Fed watches as closely as the monthly payrolls report. What officials have been looking for are signs of cooling demand across the labour market, which has shown surprising resilience despite a historically aggressive series of interest rate increases.Before September, the pace of monthly payrolls growth had steadily decelerated alongside the number of job openings, even as the unemployment rate bounced around close to its multi-decade low. Wage growth has also moderated, providing relief to policymakers who had worried that a tight labour market was fuelling inflationary pressures. Taken together, Fed officials said this amounted to clear signs that the slowdown they have wanted to see is transpiring.The latest report throws a small wrench into that narrative, but economists by and large conclude that the direction of travel for the labour market towards slower growth has not fundamentally changed.Given that wage growth moderated again in September and that some seasonal quirks affected last month’s data, many still believe that the Fed will hold off on delivering the final quarter-point interest rate increase that officials last month projected would be needed this year. Futures markets on Friday were pricing in a roughly 40 per cent chance of a further interest rate rise this year, up from roughly 30 per cent a day earlier, according to the CME’s FedWatch tool. Much will depend on the October 12 CPI report. If that indicates a faster-than-expected inflation pace, Nancy Vanden Houten, the lead US economist at Oxford Economics, believes it “could be enough to cause the Fed to act” at its next meeting beginning October 31.Bond market repercussionsThe jobs report reignited a sell-off in government bonds that had been gathering steam since the Fed’s September 20 policy meeting. At the time, officials held interest rates steady in a range of 5.25 per cent to 5.5 per cent — but their “dot plot” projections pointed to one more increase in 2023 and a slower pace of cuts over the next two years than markets had been pricing in.Immediately after the report, long-dated Treasury yields shot to fresh 16-year highs, while both the policy-sensitive two-year yield and the benchmark 10-year yield also soared as the prices of the debt instruments sank.But those yields later slipped from the day’s highs, with some suggesting that investors had returned to the numbers after a visceral reaction and recognised the softer-than-anticipated wage growth figure.“Since the dot plot, markets have been walking on eggshells,” said Invesco’s Hooper. “There is this heightened sensitivity focused on [rates staying] ‘higher for longer’ that just expands to a general sense that the Fed is going to be more hawkish than anticipated.”That might ultimately spark a self-fulfilling prophecy, analysts said, with markets working on the Fed’s behalf by pushing up borrowing costs.In the corporate debt world, risky borrowers have already felt the pressure of rising rates and worries about “higher for longer” funding costs, with the spread between yields on junk bonds and their Treasury equivalents widening from 4 percentage points in late September to 4.33 percentage points by the end of Friday.But JPMorgan’s Kelly predicted that long-term interest rates would come down over the next year because “inflationary pressures do not look extreme”. That should help stocks and bonds, he added, but “the big picture is that the economy is going to be slowing”. In markets, “the fever may rise a little bit more — but my guess is that this time next year, we’ll be worried more about the chills rather than fevers”.Equity investors find reasons for optimism Wall Street’s benchmark S&P 500 and the technology-heavy Nasdaq Composite initially dropped following the hot jobs data. But those declines soon reversed, with both stock indices closing up more than 1 per cent on the day.“The reaction is pretty surprising,” said Tim Murray, multi-asset strategist at T Rowe Price. “You would think a very high number like we had would have spooked investors even further about inflation, about the Fed.”Tech, media and chipmaking stocks including Facebook-owner Meta and Disney were among the day’s biggest gainers. The rally helped US shares to a small weekly gain, after closing out their worst month of 2023 on worries about “higher for longer” interest rates.Dean Maki, chief economist at Point72 Asset Management, highlighted the “offsetting forces” within the jobs report. “The strength of the report does make it more likely the Fed will tighten, and it did push Treasury yields higher,” he noted, “and those are negative factors for equities.” But the numbers also underscored US economic resilience, he said — which could spark optimism about future corporate revenue and profit growth. More

Ireland has collected record levels of tax in recent years, driven by a fast-growing economy and booming corporate tax returns. The finance ministry still expects the tax take to rise by 6% this year, but that is down on the 7% forecast in April.The downgrade follows a second successive monthly fall in corporate tax receipts in September that Finance Minister Michael McGrath said on Tuesday indicated a recent boom in the returns that Ireland is heavily reliant on was over.Having more than doubled in the space of two years to make up 27% of the entire tax take, corporate tax receipts – mostly paid by a small number of multinational companies – were also forecast to rise by 7% this year.Instead they are now expected to rise by 4% to 23.6 billion euros. The finance ministry also cut the forecast for 2024 to 24.5 billion euros from 25.1 billion euros.As a result it lowered the 2023 projected budget surplus to 9.6 billion euros or 1.8% of gross domestic product (GDP), from the 10 billion euros forecast in July. Ireland is one of the few euro zone economies whose public finances are in surplus.Ministers plan to include a number of temporary financial supports in next week’s budget to help households and businesses with cost-of-living pressures, some of which will kick in this year and further lower the projected surplus.The government has not yet specified the cost of those measures, just that they will not be on the scale of the 4 billion euro package of one-off measures introduced a year ago. More

Another seven entities from Finland, Germany, India, Turkey, United Arab Emirates and the United Kingdom were also added to the trade export control list. The circuits include microelectronics that Russia uses for precision guidance systems in missiles and drones launched against civilian targets in Ukraine, the Commerce Department said in a statement.”Today’s additions to the Entity List provide a clear message: if you supply the Russian defense sector with U.S.-origin technology, we will find out, and we will take action,” Assistant Secretary for Export Enforcement Matthew Axelrod said in the statement.China called the U.S. action “economic coercion and unilateral bullying”.”The United States should immediately correct its wrong practices and stop its unreasonable suppression of Chinese companies,” China’s Ministry of Commerce said in a statement. It has been 20 months since Russian invaded Ukraine. A Russian missile strike in a village in northeastern Ukraine on Thursday killed at least 52 people in one of the most deadly attacks yet.Companies are added the U.S. Entity List when Washington deems them a threat to U.S. national security or foreign policy. Suppliers must then be granted generally hard-to-get licenses before shipping goods to entities on the list. More