Let’s see…we have semiconductor sales down 24% since October and oil prices (WTI) down 20% since April, the most negative yield spreads between 7- to 10-year bonds and their 1-to 3-year counterparts since the tech bubble, a contraction in global manufacturing and the highest job-cut announcements in the auto and industrial goods sectors since 2010 (Challenger, Gray & Christmas). And this is only Wednesday.
Canadian financials make up 34% of the TSX composite index and are similarly overweight in most Canadian equity funds, managers and portfolios. The end to a decade long commercial and household credit boom has broad implications for Canadian lenders, borrowers, investors and the economy.
Steve Eisman, portfolio manager at Neuberger Berman. joins BNN Bloomberg to weigh in on the performance of Canada’s banks in the second quarter. Eisman says that he’s been adding to his Canadian bank short positions. Here is a direct video link.
Yesterday, as stocks celebrated odds of US Fed rate cuts in 2019, a World Bank report reduced its semi-annual forecast for global growth to 2.6%–from 2.9% at the start of the year—and slashed its forecast for growth in trade to 2.6% from 3.6%. This downgrade did not include further weakness from an additional 25% US tariffs on Chinese and Mexican goods that could begin this month.
Shrinking output is evident around the world, with May’s US ISM factory index falling to 52.1–the lowest reading since October 2016, and JPMorgan ’s Global Manufacturing PMI index falling below the 50 level that denotes contraction from expansion. See WSJ: Global Economy Cools Faster than Expected.
If the US Fed cuts its policy rate (presently 2.5%), the Bank of Canada is pretty certain to follow (presently 1.75%), just as the Bank of Australia did yesterday– responding to world-record household indebtedness and weakness in that nation’s (also) obscenely valued housing market. See: Bank of Canada poised to follow Fed with rate cuts, traders bet.
Lowering already low rates will not pack much punch here though. The bind is not high-interest rates, but a cash crunch caused by too much debt, too high asset prices, and too little wage gains over the last three decades.
Central banks are pulling ineffective levers now. The Great Oz is no more. Free-falling demand, Treasury yields and commodity prices, confirm it.
