Updated GDP numbers, the federal budget and the latest trade news

  • Andrew Masliwec, Analyst, Capital Markets


There’s been some uneasiness in the Canadian markets this week. As February grew to a close on Wednesday, Canadian stocks posted the worst month of trading since December 2015. There are also some possible problems on the horizon. For example: Trump may be escalating a trade war with Canada, Putin gave a PowerPoint presentation on nukes and Auston Matthews is still injured. 

If you are in commercial real estate however, 2017 brought nothing but joy as Canadian commercial property deals reached a record high for a 2nd consecutive year. Transactions in 2017 totaled $43 Billion up from 2016’s $34.7 Billion. Huzzah!


Overall, major interest rates are lower on the week as trade relations, GDP and market sentiment, seesawed benchmark rates to where they are today.  The current 5 year GoC is yielding 2.01% and the current 10 year is yielding 2.19%. The 5 year started the week at about 2.05% and the 10s woke up on Monday at about 2.25%. 

Economic News 

The major news came out this morning with GDP being printed at 8:30 am. Canada’s 4th quarter GDP annualized number was on the soft side at 1.7% (annualized) versus the 2% widely expected in the market. This marks second half growth for 2017 at 1.6% which is in stark contrast to the torrid 4.2% growth we saw in the front nine of 2017 ( golf reference meaning first half, is it spring yet?).  The month-over-month number for GDP was spot on with expectations at 0.1%, which has many on street thinking there’s weak momentum going into the first quarter of 2018 for GDP growth.  

There was one bright spot in the print, as residential investment grew by 13% which makes its share of nominal GDP a historical high of 7.8%. Although, that’s probably not sustainable.  From my point of view, it seems there was no discernable effect on the rates space from this release, as 5s/10s yields both increased about 2bps shortly after.  Of course, sometimes my point of view is wrong, so feel free to send in your comments and I’ll have them placed in a folder marked “important”.

Trade relations 

As mentioned previously, trade relations were a major headline this week. Trump said he would be enacting steep tariffs on two imports from Canada: Steel and Aluminum. Trump on Twitter mentioned, “IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!”. That could very well be true, but say it, don’t spray it. 

Steel and aluminum exports make up about 3% of our exports and the Bush administration did something similar in 2002 that was eventually lifted, so right now it’s a wait and see for economic impact. The markets reacted however, as more tariffs may now be considered on other industries which would have an aggregate effect on Canada’s economy. The Loonie dropped to a November low and stocks were continually sliding in Canada this morning. 

Federal Budget and the Bank of Canada

It’s also worth briefly mentioning the federal budget that was released this past Tuesday. I say briefly because there wasn’t much in there that affected the markets.  The budget forecasted a narrowing deficit of $18.1 Billion with still no target date to return to balance. Lower infrastructure spending and lower debt issuances for 2018/2019 by 17% were other highlights.

The Bank of Canada had a lot of information to digest this week: GDP growth was on a cruising trend in the 2nd half of 2017. NAFTA is up in the air. Trade relations are getting worse and the housing market is facing new regulations with higher interest rates. Hence, many market participants are moving closer towards two hikes this year and a hawkish BoC. With the Oscars coming up, it’s also worth noting that the Bank of Canada won the “Central Bank of the Year Award” this week. No idea who the designer on Poloz’s suit was.

Finally, we mark this week the passing of Canadian legend and entrepreneur, especially to every high school teenager. Paul Faraci, the Winnipeg-based creator of Pizza Pops passed away in February. If you didn’t know, Pizza Pops are only found in Canada, primarily due to safety concerns over burning the roof of your mouth when you bite into one. 

Have a good weekend,