Aurelia Butler

OTTAWA (Reuters) – Buying a house may remain out of reach for many Canadians for the foreseeable future, with mortgage costs unlikely to fall enough to offset lofty home prices and weak spending power, economists and real estate agents say. Even with expectations that Bank of Canada will keep cutting rates in the coming months, the issue of home affordability – which has strangled Prime Minister Justin Trudeau’s poll numbers – is unlikely to fade before the next election. The mandate for the Liberal minority government ends at the end of October 2025, but an election could come well before then, with the Conservative opposition spoiling to end Trudeau’s nine-year run at the top. “You won’t get back to an affordable range for housing on a sustained basis for a decade,” Tony Stillo, director at forecasting and analysis group Oxford Economics, said last week at a conference.Many Canadians have been priced out of the housing market since interest rates started rising two years ago. At the same time, a huge influx of immigrants has pushed Canada’s population to record levels, further boosting housing demand and prices.With interest rates now starting to ease, the cheapest mortgage interest rate – the five-year fixed – now carries a rate of about 4.75%, down 150 basis points from a year ago. Even so, the decline – and expectations of further easing – has failed to trigger an uptick in home buying.For “the majority of potential buyers who are on the sidelines, if it means $50 or even $100 less a month thanks to lower interest rates, it’s still unaffordable,” said Robert Hogue, assistant chief economist at the Royal Bank of Canada.In the most expensive markets of Toronto and Vancouver, many potential buyers are still priced out, he said. Some of them should be able to buy a house next year, but not enough to restore balance.Housing affordability is a function of house prices, interest rates and a borrower’s income. For prospective buyers, those metrics have skewed unfavorably since the start of the pandemic. Canadian house prices on average have increased by more than 30% since April 2020 while interest rates soared by 4.75 basis points until they started coming down in June.Calculations based on average house prices from the Canadian Real Estate Association show that monthly interest payments on a five-year fixed rate mortgage are still 40% higher than in January 2020, even after a drop in mortgage costs from last year’s highs.During the same period, real or inflation-adjusted household income has risen by 2.3%, while nominal income has increased by 21%, according to estimates from Statistics Canada.For affordability to return to pre-pandemic levels, house prices would need to come down by at least 10% and mortgage interest costs would have to drop by half from current levels.NO CRAZY MARKETHome sales in Toronto – often considered the bellwether of the Canadian real estate market – are at about 20-year lows due to sky-high prices, said John Pasalis, president of Realosophy Realty, a Toronto-based real estate brokerage. “It’s unbelievably unaffordable,” he said, adding that activity would likely pick up as interest rates keep coming down, but it would not be a “crazy market.”The cheapest five-year mortgage rates have come down substantially, but many borrowers, especially those with higher risk profiles, only qualify for mortgages carrying higher rates that are still hovering between 6% and 7%, Pasalis said. Earlier this month the government changed one of its rules on mortgage payments, allowing first-time buyers or people purchasing a newly-built home to take loans with 30-year amortizations, instead of 25 years. Although the move is intended to lower monthly payments and make home ownership affordable to more people, critics say it may have opposite effect by boosting demand and raising prices.At a conference on last week, Finance Minister Chrystia Freeland disputed that claim. She said the measure would support supply by encouraging builders to construct more homes to meet a rising demand of new homes. More

China’s long-dated bond yields reversed sharply last week, after touching record lows, after the central bank and government authorities announced massive stimulus and other plans to revive a moribund economy.The People’s Bank of China (PBOC) said the operation was to “strengthen counter-cyclical adjustment of monetary policy and keep banking system liquidity reasonably ample”.The bank did not specify whether it bought or sold short-term or long-dated bonds as it did last month. Until last week, China’s bond market had seen a prolonged record-breaking rally as banks and investors sought safer assets in a flailing economy. The central bank warned market participants for weeks about the inflated prices of bonds and sold long-dated bonds last month to cool a feverish market. “Ultimately, the PBOC’s goal of maintaining an upward-sloping yield curve supports lower short-term yields to stimulate economic growth and higher long-term yields to encourage investment,” said Wei Li, multi-asset quant solutions portfolio manager at BNP Paribas (OTC:BNPQY) Asset Management.Last week, China rolled out its most aggressive stimulus package since the pandemic, spurring record gains in the stock market. But bond prices dropped sharply.”It’s possible that some funds may shift from bonds into equities, especially as market participants anticipate stronger growth prospects and higher returns from stocks. However, this shift may not be dramatic,” Li said. “The key factor will be how sustainable and impactful these policy measures are in driving economic recovery and investor sentiment.” Ten-year and 30-year bond yields have jumped 13 and 22 basis points, respectively, since Wednesday last week. The spread or gap between 1-year and 10-year bonds widened by 15 basis points, suggesting a steeper yield curve.Assets of Chinese bond mutual funds dropped for the first time this year in August, to 6.55 trillion yuan, down 6% from the previous month, official data showed.The swift reversal in yields suggests the PBOC could begin purchasing long-term bonds, a significant departure from its earlier actions. The PBOC said in August that it bought short-dated bonds and sold long-dated bonds during the month, the first such disclosure in a new open market operation column.($1 = 7.0120 Chinese yuan renminbi) More

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Highlighting the economic calendar this week will be the latest US nonfarm payrolls report, which may offer a glimpse into the health of the labor market.In a note to clients on Sunday, the BofA analysts said they anticipate that the figures could “add fuel” to expectations that the Federal Reserve was on course to quell inflation without sparking a broader downturn in the labor market or wider economy — a scenario known as a “soft landing.”Economists expect the US economy to add 144,000 jobs in September, up slightly from 142,000 in the prior month. The unemployment rate, meanwhile, is seen matching August’s level of 4.2%.In August, payrolls rose from a downwardly revised reading of 89,000 and were below forecasts of 164,000, while the jobless rate ticked down from 4.3%.As a whole, the numbers indicated a downshift in labor demand — a trend identified recently by several Fed officials as a key driving force behind their decision to announce a jumbo 50-basis point interest rate reduction earlier this month. The Fed had previously raised rates to a more than two-decade high in a bid to combat price pressures.Ahead of Friday’s non-farm payrolls report, markets will have the chance to parse through job openings and private sector hiring figures as well.Meanwhile, investors will also be scrutinizing the September reading of the Institute for Supply Management’s manufacturing and services purchasing managers’ indices for further signals on the momentum of the American economy.The BofA analysts projected that the ISM surveys will suggest weakness in the manufacturing sector but “an expanding services sector.”The ISM manufacturing PMI, due out on Oct. 1, is seen coming in at 47.6, up from 47.2 in August but still below the 50-point mark separating contraction from expansion. Non-manufacturing PMI on Oct. 3 is tipped to edged up to 51.6 from 51.5 in the prior month.”In short, we think the data will reinforce outlook for a soft landing,” the BofA analysts said.”Economic momentum is cooling, not crumbling.” More

(Reuters) – U.S. East and Gulf Coast port workers are set to go on strike at midnight on Monday with no talks currently scheduled to head off a stoppage threatening to halt container traffic from Maine to Texas and cost the economy as much as $5 billion a day.The labor contract between the International Longshoremen’s Association (ILA) union representing 45,000 port workers and the United States Maritime Alliance (USMX) employer group expires late Monday, with negotiations at an impasse over pay.A port strike will go ahead starting Tuesday at 12:01 a.m. ET, the ILA said on Sunday. The USMX “refuses to address a half-century of wage subjugation,” the union said in a statement on Sunday.If union members do walk off the job, it would be the first coast-wide ILA strike since 1977, affecting ports that handle about half of the nation’s ocean shipping.No negotiations are taking place and none are planned before the Monday deadline, a person familiar with the matter said on condition of anonymity as the matter is a sensitive one. The union has previously said the strike would not impact military cargo shipments or cruise ship traffic.But a strike could stop the flow of everything from food to automobiles at major ports, potentially jeopardizing jobs and stoking inflation weeks ahead of the U.S. presidential election.Business Roundtable, which represents major U.S. business leaders, said it was “deeply concerned about the potential strike at the East Coast and Gulf Coast ports.”The group warned a labor stoppage could cost the economy billions of dollars daily, hurting businesses, workers and consumers across the country. “We urge both sides to come to an agreement before Monday night’s deadline.”A short strike could have a limited economic impact given many companies have imported extra goods ahead of a possible work stoppage or shifted more shipments to West Coast ports. But a strike that continues for weeks could have serious economic impacts.”These people today don’t know what a strike is,” Harold Daggett, the ILA’s fiery leader, said in a recent video post. “I’ll cripple you. I will cripple you.”For months, Daggett has threatened to shut down the 36 ports covered by his union if employers like container ship operator Maersk and its APM Terminals North America do not deliver significant wage increases and stop terminal automation projects.The dispute is worrying businesses that rely on ocean shipping to export their wares, or secure crucial imports.Steve Hughes, CEO of HCS International, which specializes in automotive sourcing and shipping, accused the ILA of “holding the entire country over a barrel.” HIGH STAKESAn ILA strike could wedge labor-friendly President Joe Biden into a no-win position as Vice President Kamala Harris runs a razor-tight election race against former President Donald Trump.Biden on Sunday said he did not intend to intervene to prevent a walkout if dock workers failed to secure a new contract.U.S. presidents can intervene in labor disputes that threaten national security or safety by imposing an 80-day cooling-off period under the federal Taft-Hartley Act, forcing workers back on the job while negotiations continue.On Friday, Biden administration officials met with the USMX employer group to directly convey “that they need to be at the table and negotiating in good faith fairly and quickly” – a message it had delivered earlier to the ILA.The USMX has accused the ILA of refusing to negotiate. Retailers that account for about half of all container shipping volume, and are headed into their all-important winter holiday sales season, have been busily employing backup plans.”There is potential for another violent move across consumer stocks next week if – as is consensus thinking – the East Coast Longshoremen do indeed strike,” Jefferies analysts said in a client note.Many of the big retail players rushed in Halloween and Christmas merchandise early to avoid any strike-related disruptions – incurring extra shipping and storage costs. Retail behemoth Walmart (NYSE:WMT), the largest U.S. container shipper, and membership warehouse club operator Costco (NASDAQ:COST) say they are doing everything they can to mitigate any impact. But a lot of shippers do not have that flexibility as they are small, do most of their business on the East and Gulf Coasts or lack the financial might to load up on safety stock. Ash Bhardwaj, CEO of Onx Homes, has factories in Florida and imports materials used to build homes in the company’s planned communities through the Port of Miami.Like other shippers in his position, he was resigned to his fate. “Everyone will have the same problem,” Bhardwaj said. More

1. Futures mutedUS stock futures hovered around the flatline, with investors looking ahead to a speech from Powell on Monday and the fresh jobs market data (more below).By 03:30 ET (07:30 GMT), the Dow futures contract had shed 30 points or 0.1%, while S&P 500 futures and Nasdaq 100 futures were unchanged.The 30-stock Dow Jones Industrial Average ended the prior session at a new record high. Fueling sentiment was a Commerce Department report that suggested a waning in inflationary pressures and a muted uptick in consumer spending.The figures bolstered bets that the Fed may roll out another outsized 50-basis point interest rate cut at its next gathering, according to the CME Group’s (NASDAQ:CME) FedWatch Tool. The central bank, prompted by indications of easing price pressures and weakening in labor demand, slashed borrowing costs by 50 basis points earlier this month.Traders are now turning their attention to comments on the outlook for the economy from the Fed’s Powell at the National Association for Business Economics annual meeting in Tennessee at 13:55 ET.2. Jobs market report ahead this weekHighlighting the economic calendar this week will be the latest US nonfarm payrolls report, which may offer a glimpse into the health of the labor market.Economists expect the US economy to add 144,000 jobs in September, up slightly from 142,000 in the prior month. The unemployment rate, meanwhile, is seen matching August’s level of 4.2%.In August, payrolls rose from a downwardly revised reading of 89,000 and were below forecasts of 164,000, while the jobless rate ticked down from 4.3%. As a whole, the numbers indicated a downshift in labor demand — a trend identified by several Fed officials as a key driving force behind their decision to announce a jumbo rate reduction.Analysts at ING argued in a note to clients that the jobs market continues to hold “the key to the pace” of upcoming potential interest rate cuts, particularly as inflation — once the major focus of a series of aggressive Fed borrowing cost hikes — shows signs of abating.”If we get the unemployment rate rising back to 4.3% next Friday and a sub 75,000 payrolls print expect the calls for a second 50 [basis point] rate cut to grow markedly,” the ING analysts said.3. CA governor vetoes controversial AI billCalifornia governor Gavin Newsom has vetoed a bill that aimed to place fresh regulations on artificial intelligence, arguing that the measure could stifle innovation.The bill would have set strict guidelines around those creating AI tools, including mandates for safety testing for advanced AI models that cost more than $100 million to develop. It would have also made AI software developers create a mechanism to turn off AI models, amounting effectively to a kill switch.Democratic State Senator Scott Wiener, the bill’s sponsor, had said it would help to protect the public from AI before the technology becomes too unwieldy.However, big-name tech groups, including Instagram-owner Meta Platforms (NASDAQ:META) and ChatGPT-maker OpenAI, voiced their opposition to it, warning that the proposed rules would hinder both AI’s development and California’s role as a destination for crafting the nascent technology.In a letter to the state’s senate, Newsom flagged that 32 of world’s most important AI firms are based in California, adding that the new framework would “curtail the very innovation that fuels advancement in favor of the public good.”4. Chinese manufacturing activity dips in SeptemberChinese factory activity contracted in September, although it was just above economists’ forecasts, in a sign of the challenges facing lawmakers in Beijing as they attempt to reinvigorate the world’s second-largest economy.The official manufacturing purchasing managers’ index (PMI) came in at 49.8 during the month, rising from 49.1 in August and topping expectations of 49.4. A mark below 50 indicates contraction.The Caixin manufacturing PMI was 49.3, slipping from 50.4 in August and below projections of 50.5.Meanwhile, the official non-manufacturing PMI read 50 and the Caixin services PMI index was 50.3, dropping from a prior level of 51.6.Last week, China unveiled a raft of new stimulus measures as lawmakers push to deliver on a target of 5% annual growth.”While the official PMIs held up okay in September, the Caixin PMIs dropped quite sharply which suggests that the economy lost some momentum this month. The stimulus package announced last week thus comes at a much needed time, and should provide some near-term support to activity,” analysts at Capital Economics said in a note to clients.5. Crude rises amid Middle East tensionsOil prices rose Monday on the possibility of a widening Middle East conflict after Israel stepped up its attacks on the Iranian-backed Hezbollah and Houthi militant groups.By 03:30 ET, the Brent contract climbed 0.9% to $72.20 per barrel, while U.S. crude futures (WTI) traded 0.8% higher at $68.71 a barrel.Israel said it bombed Houthi targets in Yemen on Sunday, just a few days after killing Hezbollah leader Sayyed Hassan Nasrallah in an escalating conflict in Lebanon.Both contracts fell last week as demand worries increased after fiscal stimulus from China, the world’s top oil importer, failed to reassure market confidence. More

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