7/5 Short Week Macro Update
Hope you all had a fantastic 4th of July or Canada day! Here's a short macro update featuring @DonMiami3 and @GeoEconomic10 covering both American and Canadian datapoints.
Tons of economic data coming out tomorrow that we will have all week and weekend to digest. Below is a few important datapoint from the last 10 or so days - albeit hitting the light side on the content with the holiday and most of our contributor team deserved a weekend off the content. Enjoy!
Weekly Macro Data Update (@DonMiami3)
Keeping this weeks macro update short since we have another update a few days away on Sunday (with the short week) but hope you all had an incredible Canada Day or 4th of July depending on where you were celebrating. I enjoyed a long weekend off and spent some time on the water and made sure to keep the tan going into this shortened workweek. The 4th was busy all around - we saw a record number of Americans flying and out and about over the long weekend - although we’re probably near a seasonal peak for the summer as we trend towards school resuming in August (especially for families).
The 10 year yield broke out today - again pushing 4% - which is putting pressure on mortgage rates to the upside now seeing almost 7.1% on the 30 year fixed.
10 year yield above breaking out of the pennant - and below the average 30 year mortgage rate. I expect this will further cool home buying and mortgage origination activity.
Check out Canada’s latest brilliance - the 90 year mortgage:
In Q1 - the economic growth in the US was strong seen below. The number came in above the consensus 1.4% although it revised down from the number at the peak. Looking at the trend it will be interesting to see if this number continues to slow into Q3 and Q4 as the Fed is forecasting and as they continue to take rates higher.
Initial jobless claims taking into account the 4 week moving average jumped to the highest this cycle (calling this cycle the post-COVID reset)
Other economic data again gave off mixed signals about the economy - although I will talk about many of these in the coming Sunday report.
For now - watch rates and let’s see where things trend the rest of the week.
Canadian Economic Update (@GeoEconomic10)
While the USA is well positioned for the next decade with an innovative and well diversified economy, Canada due to its highly indebted private sector is looking at another lost decade.
It’s economy of $2tr is mostly comprised of energy, lumber and real estate activity. It’s real estate sector never saw a downturn in last 25 years and has grown to unsustainable levels compared to local incomes.
More than half of Canada's mortgages of $2.2Tr are floating. There is another $900bn that will renew into high rates which are 3x higher compared to pandemic lows.
In addition Canada has a far worse housing price bubble completely divorced from incomes. So already very low affordability and mortgage payments getting repriced at rates means every household's budget explodes coupled with a core inflation that is entrenched at 4%+.
Canadian economic activity is still positive due to massive population increase but in a per capita basis Canadian GDP per capita is falling.
This would still not stop Bank of Canada from hiking at the next meeting due to the intrenched inflationary pressures.
Everyone needs to respect the lag. As more and more Canadians renew their mortgages at higher interest rates and economy slows, Canada could fall into a recession. This coupled with high unemployment can cause systematic risk to the banking system and a severe shock to the economy.