Our reports: Economic Impact

The latest financial news made simple. Here’s everything you need to know, thanks to our experts Stéfane Marion and Martin Gagnon. 

A great start with some major surprises

January 9, 2023        Transcription

In this video: Are forecasters predicting a recession? | Stock markets start the year strong | Global supply chain gains fluidity | Inflation decelerates for several sectors

2022: A bad year

Decembre 12, 2022        Transcription

In this video: Looking back on 2022: asset performance and rate hikes | Forecast 2023: impact of the economic cycle on inflation and the risk of recession

Market rebound to be confirmed

November 7, 2022        Transcription

In this video: The U.S. dollar stabilizes | Consumer confidence at an all-time low | The Canadian job market, tightening cycle and demographics

Fed raises the stakes

October 11, 2022        Transcription

In this video: The effects of the rising U.S. dollar on the global economy | Interest rates and the recession | Money supply on the decline: what does it mean? | The real estate market cooling down

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Little details that matter

Hello, Everyone, and welcome to Economic Impact. Today is January 9 and I want to take the opportunity to give our best wishes to friends and family of National Bank of Canada. Hello, Stéfane.

Happy New Year, Martin.

Same to you. Stéfane, a couple of weeks ago we talked about 2022, and it's important to look at it with the final numbers. And, it was the worst year ever for a balanced portfolio.

Yeah, Martin. I can make easy claim. No one alive has ever seen a bad year like we saw in 2022, with the combination of the stock market being down 22% and the bond market being down roughly 15%, you can see on this chart that it had never been observed on this magnitude. And, Martin, what was stellar also for 2022 or very telling for 2022 is it was the first time since 1958-1959 that the bond market had two consecutive years of drawn down. So, not a good year for fixed-income holders in both 2021 and 2022.

And, Stéfane, if I look quickly at all the dots, the bond market has never been down two years in a row.

No, Martin, and I don't think it will be. And, that's important. And the reason I don't think it will be, is because we are looking at a slowdown in 2023. It is actually the most anticipated recession of all times. Never before have we seen such a large portion of professional forecasters calling for contraction of the U.S. economy this year.

And, Stéfane, despite all of the gloom and doom that we read in the media over the Holiday season, yet the markets are up strong to start the year.

Yeah, so it's a large proportion of forecasters that are calling for a recession, Martin,  but it's around 50-50% as we stand right now. So, it's not surprising if you call a recession that the bond market would do well, start the year relatively firmer. But, what's surprising, Martin, it's been outpaced by riskier assets. So, stock market up everywhere around the world --- emerging markets, commodity producers, the tech sector. Every sector is up this year and that is quite surprising. It's a really great start to the year!

And, Stéfane, to explain that we can look at fresh news on the inflation and specifically on supply chains.

Yeah. I think the expectation we've been, we were trading on inflation all through 2022. I think it's still a story for 2023. And, what the market is seeing right now, if you look at the manufacturing sector, supply delivery times, import prices, new orders are all coming down suggesting a very rapid decline in inflation for goods. Martin, we had already started to see this, it's just being confirmed even more. And, I think that's really important from an inflation perspective. 

And you just said we had already seen this, but not on the service side, which was a real surprise.

Yeah, well, that's the big thing, as we start 2023. The central banks have been saying that it will take probably almost a full year for inflation to come down in the service sector. But what we saw in the latest data, no later than December of 2022, we saw a big drop in activity, economic activity, in the service sector, which is 65% of the economy. And the drop in December, it was the second largest in over a generation. So, Martin, that does suggest less economic activity in services. And, as you know, inflation is a lagging indicator on activity. If activity comes down, then inflation is likely to come down also in the coming months. So, I think that was the key development to encourage markets that inflation would come down probably faster this year.

And, Stéfane, everybody talks about the recession, but the key is the labour market.

Well, there's the thing, Martin. You don't want to overdo it. If economic activity comes down too quickly and then you start to impact the jobs market, then purchasing power is eroded, there is de-leveraging, and not a pleasant outcome for financial markets, particularly for equity markets. So, what we are seeing, Martin, at this time is that the possibility of a soft landing is still there. Yes, total employment was up at the end of last year in the U.S., but we are seeing that full-time jobs are stalling right now, for a few months. So, that does suggest that corporations are being careful, hiring full-time, which means less wage inflation, and which also suggests that the possibility of a soft landing is still there, Martin. I think it's a 50/50% call.

And that's really interesting, Stéfane, cause, at the moment, this tug-of-war going on, we're seeing the markets essentially not believing the Fed.

Yeah, in order to achieve a soft landing, Martin, however, it's important that the Fed stops raising rates. And what we're seeing in recent weeks is that the two-year Treasury yield is actually below the Fed funds right now. Historically, the Fed has never raised the policy rate when the two-year treasury rate was below the Fed funds. So, I think that we're getting near the point where the Fed can stop raising rates. The market has already jumped the gun on that one and saying the Fed is done, maybe 25 basis points. And, that's a lot less aggressive than what the Fed continues to send out in terms of indication guidance to markets right now. So, the bond market no longer believes the Fed that they have to hike aggressively this year.

One of the main themes of 2022 was the strength of the U.S. dollar, and that is starting to the erode, Stéfane.

Well, if you stop the Fed, Martin, you stop the surge in the U.S. dollar, which was the story for 2022, as you say. So, what we're seeing in recent weeks is the U.S. dollar is starting to come down. That's good news for emerging markets that have a lot of debt that is denominated in U.S. dollars. It means debt-servicing is easier. And also for commodity producers, such as Canada, as the U.S. dollar comes down, then it's less downward pressure on commodity prices. So, I think it's a win-win situation for the global economy, if the U.S. dollar weakens. And, I think part of that, Martin, reflects the fact that we're based on divergence in monetary policy this year. And, that a potential offset to U.S. dollar, or U.S. economic weakness, is the fact the Chinese economy is re-opening. And, I think that is the biggest surprise of recent weeks is this announcement by Chinese authorities that lockdowns are behind us and that they are re-opening to the world which will also help bring down inflation, I think.

Stéfane, in conclusion, you know, we are seeing a slowdown in 2023. There's this tug-of-war between those who claim there is going to be a recession and a strong labour market. There are a lot of elements compensating for the fear of slowdown out there. And, what is your take? It's still, it's a real tough scenario, Martin. So, I think it's still the 50/50% chance of soft landing versus recession. I need to confirm the inflation numbers in the coming months. So, I think things are looking, going in the right direction, but we need to confirm also that the central banks will pivot in the coming weeks. So, I would argue that the same conclusion that we gave a few weeks ago to our clients still stands. Let's be careful as we start the year. Yes, it's a great start for equity market. But, let's confirm that these inflation data start to come down, and that that the central banks are done hiking. And, that gives us a greater chance of achieving a soft landing, which will be more constructive for markets.

Excellent. Thank you very much, Stéfane. And, once again, Happy New Year, everybody. Thank you.

Hello, everyone, and welcome to this last Economic Impact video for 2022. My name is Martin Gagnon and, as usual, I am with our chief economist, Stéfane Marion. Hello, Stéfane.

Hello, Martin.

So, Stéfane, we will do a bit of a review of what happened in 2022 and we can say it was not a great vintage.

No, not a good one, Martin. Even though the quarter is ending on a positive note. If you can see the, you know, the blue bars on this chart, pretty good returns, so far, in the fourth quarter. But, not enough to salvage the 2022 year, which is still quite negative across all asset classes, except if you were in cash. So, a tough year, Martin. You rarely see both equities and the bond market declining the way they did in 2022. So, a frustrating year for investors.

So typically, Stéfane, we have some alternative assets that will be a bit of a safe haven and they were not.

Yeah, in a context where, you know, inflation is a bit on the high side, you would have thought that the housing market, which did well for part of the year, Martin, but in recent months homeowners are seeing an outright decline in in home prices, and something we haven't seen in quite some time. You have to go back to the last tightening cycle back in 2008-2009 to see home prices also declining.

And the new diversifiers, digital assets, didn't do it either.

Well, digital assets, some people called him digital tulips, Martin, so, it depends on the way you look at it. But, clearly not a good year for alternative investments. Bitcoins is down to 63%. The main concern there, Martin, is we're finding out that governance was not necessarily a priority for this asset classes and, under these conditions, investors are getting more nervous about alternative diversification. When you don't have good governance, it's hard to invest.

Now, let's talk about interest rates because, for sure, the big topic we will remember about 2022 is this unprecedented interest rate increases that we witnessed.

Yeah, Martin, because people will say, well, it's the highest interest rates and, you know, you have to take the Bank of Canada, for example, 4.25% on the overnight rate. And, then you'll say, well, we've seen it before in 2008. But, Martin, you're absolutely right. We've done 400 basis points in only one year, and this has never happened before. So, this is why financial markets are unnerved. The pace of which central banks have tightened is unprecedented. And, the Bank of Canada is not alone. Everyone has done it. So, therefore, it sets the stage for some economic uncertainty in the months ahead.

And, we did all of this because we needed to fight inflation. Yeah, well, that's something we haven't seen in a generation. And, you're right to point this out, Martin. So, inflation on a year-over-year basis is around 7% right now in Canada, but in recent months it has slowed to 3.5%, annualized. So, think about it, Martin. The overnight rate is at 4.25%. Inflation in the past three months is running on a 3.5% annualized rate. So, that means that monetary policy is clearly restrictive, at this point in time. So the good news, Martin, is it seems to be decelerating, enabling the banks, the central banks, to take a pause and assess the impact of prior rate hikes.

And in terms of assessment, they do have to look out east and see what's happening in China.

You're absolutely, yeah, you're right. And, and one thing the central banks are saying that we don't fully understand the inflation dynamics in 2022 where, Martin, China still had a 0 COVID policy. So, the global supply chain is not fully normalized. The good news now is that, you know, we've been talking about that for quite some time, but now they're starting to reopen the economy. There will be collateral damage on their healthcare system. However, for the manufacturing, global manufacturing, things will start normalizing. So, part of that, as China reopens, because now they're closed, as they reopen, I'm hopeful that we'll see better pricing for manufactured goods in the months ahead.

Looking at the months ahead, Stéfane, one sign that is a bit troubling for 2023 is the big yield- curve inversion that we're seeing.

Yeah, a number of economic indicators, leading economic indicators, Martin, are pointing towards a slowdown. So, the economy is still strong now but pointing to a slowdown. And, you're right to say that one of those leading indicators tends to be the yield curve. The yield curve now is the most inverted that we've seen in more than 20 years. Historically, Martin, there's only one precedent where you have a yield-curve inversion without it leading to a recession and significant job losses. So, again, close call for 2023. Clearly, there's an economic slowdown. The magnitude remains to be confirmed, but a slowdown is coming in 2023, that's for sure.

Talking about a slowdown, the real definition of a recession, Stéfane, is what happens in the labour market, are people losing their job. And, we're seeing still a very strong labour market, which is a bit puzzling. And, maybe you will be shedding some new light on this.

It, it is puzzling. And that's the definition whether you get massive deleveraging for an economy and significant layoffs. The difference this time around, so we know the slowdown is coming, Martin, but one of the options that employers have is to reduce their headcounts via attrition as opposed to outright layoffs, which depresses disposable income by significantly more than retirements. So, what you can see on this slide from a Canadian perspective, and that's true for many OECD economies, Martin, is that, right now, currently in Canada, 280,000 people are leaving the labour force every year for retirement. That exceeds the growth in the working age population. So, you see, we've never seen demographics, uh, like this before, which means that you could have a significant economic slowdown without necessarily massive layoffs, of course, depending if the central banks soon take a pause on their interest rate increases. But, if inflation decelerates, you could have economic deceleration, a significant slowdown, but not necessarily the massive layoffs because of these unprecedented demographics that we're coping with.

So, we may be arguing as to what is the real definition of a recession in 2023?

Absolutely.

Now, in terms of conclusions,  Stéfane, three quick questions. So, are we in a recession?

Not yet.

Not yet. Your outlook for 2023? 50/50?

I think so. The labour markets are still quite strong and I've just spoke to the demographics which is unprecedented. I think most of it will depend on the path of inflation, Martin, and whether these central banks are now able to take a pause. So, hopefully, the Bank of Canada is done right now with interest rate increases, and let's see what happens elsewhere in the world.

So, you just answered my second question.

The third one is what should we do in terms of asset allocation?

Well, let's play defense, Martin. The reality is we have to confirm that the Federal Reserve, or, I say, other central banks beyond the Bank of Canada, are willing to take a pause. We need inflation to decelerate. Until we confirm that the central banks are willing to do a pivot, I think let's play defense because we know the slowdown is coming. Now, I need the central banks not to exacerbate the slowdown in the coming weeks.

Excellent. Thank you very much, Stéfane. Thank you for listening to us. I hope you enjoyed all of those videos in 2022. Thank you for listening. Happy holidays. We'll see you next year.

Hello, everyone and welcome to this November 7th Economic Impact video for the National Bank of Canada family. As usual, I am with our chief economist, Stefane Marion. Hello Stefane.

Hi Martin.

Stefane, we have some pretty good numbers from the stock market for the fourth quarter.

Yeah, after a dismal few weeks, we are seeing a decent rebound so far this quarter as of November 4th. The quarter is not over Martin, but the message that we see is equity markets are doing well across the world and the bond market has been struggling again this quarter. There might be hope for a better performance in the coming quarters, but important to note that the S&P TSX is doing well. Of course, these are markets quarterly performance in Canadian dollars.

And let's take a look at the US dollar to see the impact of maybe a little bit of a slowdown from the Fed.

Yeah. And the reason the stock market globally, most, most regions are doing well, Martin, is because U.S. dollar is finally stabilizing. I think this is an anticipation that the Federal Reserve might take a pause in the not-too-distant future, although that has yet to be confirmed, but markets tend to anticipate in the future, right, so US dollar stabilizing, that means that the hopes are that the Fed will be able to take a pause in the not too distant future and then assess its situation. That would be good news for the global economy because what we're seeing right now is a very tangible slowdown. And if you look at the manufacturing, global manufacturing activity we're talking about contraction, Martin, and for the second month in a row So clearly a deceleration is happening, or contraction is happening in certain sectors of the economy.

And Stefane, that's for the business side, but on the consumer side, some worries on the horizon.

Yes, but Martin, if the Fed hopes to cool inflation, consumer inflation, CPI, clearly you have to see some cooling on, in certain indicators. And what we're seeing now is that consumer confidence is at a record low across the OECD. And that reflects the fact that consumers are hit left, right and center with higher interest rates, higher food prices, higher energy prices and also certain asset classes are coming down in prices such as the housing market. So clearly not, not a very joyful mood for consumers across the world.

And in order to go by, actually we've seen the US consumer digging in their pockets.

Yeah. Even though that's interesting because even though the gross domestic product, so economic activity surprise in the third quarter after two contractions, it was a rebound in US GDP that was achieved on the back of consumers who had to lower their savings rate in order to consume. And savings rate in US is back to the lowest level that we've seen since 2007. So, less firepower on that front for sure Martin in the coming months.

And another element affecting the consumer is housing prices.

Yeah, so if you want to reduce consumer spending in order to reduce inflation, drop in confidence, lower savings rate, but on top of it, you have a negative wealth effect coming from home prices that are dropping, falling, Martin. We've seen a drop in Canada in recent months, but this is also happening in US and note on this chart, that home prices increased more than in Canada during the pandemic, 56% versus 48% on this side of the border. Both countries will show a drop. We're expecting 15% in Canada and between 15 to 20% in the US. So, the wealth effect will not contribute to more spending. Quite the contrary.

Let's take a look at profit expectations and again, some worries on that side. Well, I think what's key also for central banks, to cool inflation, you want to reduce the hiring cycle, you don't want to collapse it, Martin. But what we're seeing now in the US is that the share of US corporations that are guiding upwards for their earnings per share for the coming year has come down significantly. It's actually the worst diffusion since the pandemic. Only 20% of corporations are guiding upwards and at the end of the day under these circumstances, Martin, what you're seeing across the world is that even though we've seen this rebound in equity market so far in Q4, we're waiting to see what happens with the Federal Reserve, because most equity markets are in bear market 20% or more.

But Canada is resisting.

Yes, that's interesting, down only 12% since the peak and that is a reflection of some resilience of our economy, but also the composition of the S&P TSX that is more skewed towards commodities and commodities are really helping maintain some, you know, higher levels of profits than would otherwise be the case.

And Stefane, we had some good numbers. Again, the labor market surprisingly strong.

Yeah, but there's a twist on that Martin, because yes, labor markets surprised on both sides of the border. However, with this uncertainty regarding the earnings outlook, corporations are more cautious and yes, they're adding to total employment. But note that full time jobs have stalled on both sides of the border. So, what it seems to indicate, Martin, is that corporations are more likely to go into a hiring freeze scenario as opposed to outright layoffs. That's why people that were saying that, claiming, that both Canada and US were already in recession, the last employment reports actually dismiss that view. They're saying that it's a hiring freeze, stall speed, but it's not the major contraction that we've seen in the past that would qualify as a real recession. So the jury is still out in terms of what type of slowdown we'll see.

And Stefane, we had 50 basis point, not 75, your take on this.

Ah, well, I think from a Bank of Canada standpoint, they could afford to surprise market and by being less aggressive because inflation is clearly decelerating on this side of the border, not the case in the US. I think there's a reason for that. I think people forget that when it comes time to analyze the impact of how your food and energy prices, particularly on the energy side, on the energy front, particularly as we enter the winter months where people have to heat their homes. And electricity is really important component. What we're seeing in Canada versus the US - is electricity prices are much more stable than we've seen in the US, an increase of 5% since the start of, or 6%, since the start or since 2019 versus 30% or so in the US, much more than that in Europe. So that explains why the savings rate in Canada is a little bit higher than what we're seeing in the US. But at the same time it helps explain why you have this faster deceleration of inflation.

And we have to be careful, there's a huge difference between Europe, the States and Canada on that front.

Ohh, absolutely. But the key message is that if you're trying to explain the resilience Canada versus the others on the consumer sector, while energy has been much less of a drag for household expenditures.

And another reason to explain how Canada is doing is demographic. And we talked a lot about the 500,000 new immigrants.

We're getting a lot of questions as to why are home prices, why are we expecting only 15% decline versus others that are climbing much worse than that. And the reason why we're a little bit less pessimistic is the reason that we still have these great demographics that support the housing sector. And the federal government upped the ante last week by announcing its intention to welcome 500,000 people a year, and most of those are economic immigrants. That supports the household formation, thus limiting the downside to home prices and Martin, at the same time, it increases your taxpayer base, which is really important going forward if you want to keep your social programs the way they are right now.

So Stefane, in conclusion, a similar message as last month we’re not in the recession camp. We still believe there's a slowdown but not a contraction of the economy, right?

Well. Economic slowdown for sure, Martin. Outright layoffs on a significant scale for North America that would qualify as a real recession. Again, the jury is still out on this one. But, again to get the scenario that we're forecasting, we need the central banks to take a pause. And again, I insist on the fact that it's great news for Canada. Now we need better news on the inflation front from the US so we have to play defensive for the next few weeks and or in order to confirm this slowdown on inflation.

So, we remain prudent, lots of volatility. Maybe some more interest rate hikes, but modest.

We're hoping that, come December, the central banks will be able to take a pause and that would be great news for the global economy in order to not fragilize what is already an incoming slowdown, even more.

Thank you very much Stefane. Thank you for listening to us and send us your comments. We'll be back in about a month. Thank you.

Hello, everyone, and welcome to this Economic Impact video. Today is October 11. This is for the extended family of National Bank of Canada. My name is Martin Gagnon and, as usual, I am with our economist, Stéfane Marion. Hello, Stéfane.

Hi, Martin. The last time we spoke it was mid-September. We said, "let's be careful" and just after that we did have some pretty hawkish comments from the Fed.

Yeah, Martin, no pivot yet for the Federal Reserve. If anything, they've added even more market uncertainty by providing their forecast for interest rates where they now claim that they will move interest rates higher than what they said earlier this summer. And, then, they will keep them higher for longer, Martin, through 2023. So, clearly, not a market-friendly message that we got on September 21 from the U.S. Federal Reserve.

And, we did see quite an impact on the currency market. And I think that's important to mention, Martin. The U.S. dollar actually surged to a new record high. We're actually exceeding the worst that we saw during the pandemic. What's happening, Martin, is that this is, this is the Fed leading all other central banks with their higher interest rates - leading to currency appreciation, which increases global financial stress, Martin, because other central banks are forced now to defend their currencies. So, if you take it all together, U.S. raising interest rates, U.S. dollar appreciation, other central banks raising interest rates, global financial stress now is well above average. The good news is we're not back to the worst that we saw during the pandemic or in 2012. But, clearly, Martin, more financial stress globally is now being observed.

And, there is some collateral impact, obviously, with all of this.

Well, at some point you will get collateral damage on the economy. It's exactly what we're seeing right now. Global manufacturing sector actually showing contraction for the first time in three years. Not all regions are in contraction, Martin. North America is still expanding. But, other parts of the world, many emerging markets, as well as Europe are in contraction mode. So, more uncertainty for the earnings outlook for global corporations.

And we're seeing quite a disparity in the stock market performance and, especially, on the emerging market side.

Oh, yeah. And, and this, this uncertainty about, uh, the outlook for profits is taking its toll on some markets. Emerging markets are now down 32% from their previous peak. Um, you can see that the U.S. is at a new cyclical low. Europe now in bear market territory. So, most important benchmarks, equity benchmarks, are now in bear market territory. The good news, for now, is that Canada continues to resist, Martin. We are, we're not, we haven't touched a bear market territory so far this cycle. And let's look at this.

We've talked about this before... a bit of a safe haven in Canada, right?

Well, at this juncture, we're down 12%. Everyone's down, Martin. We're down less than other markets just because if you look at the composition of the S&P/TSX, we have more energy, we have more commodities, more agricultural products that are produced in this country. So, that brings more resilience to the Canadian economy. So, even though we're down, we're down significantly less than others. Why? Because we benefit from this current environment of geopolitical stress and high commodity prices.

So, Stéfane, the #1 question we're receiving is the following: Will the central banks create a recession in their fight for inflation? How do we look at this?

That's a risk, Martin. And, clearly, when you look at financial markets, people tend to look at the yield curve as the primary signal of an incoming recession. I will say if you look at the 10-year minus three-month tenure in the U.S., this is how the U.S. Federal Reserve looks at the shape of the yield curve, it's very flat, Martin, but it's not inverted. So, that's good news. So, I would say that, at this juncture, the risks of recessions are clearly increasing with the Federal Reserve maintaining a very, very harsh word relative to interest rates and inflation. But, the yield curve has yet to invert, Martin. So, what happens on inflation in the coming weeks will be the key determinant as to whether or not the Federal Reserve decides to invert the yield curve, which would then, be leaning indicator of an incoming recession.

So, Stéfane, we don't often talk about money supply, and we actually ignored it during the pandemic, but it's important to go back to our economics classes and take a look at this to have a sign of what inflation is doing.

So, it remains to be seen if the Fed inverts the yield curve, Martin. All will depend on inflation. I think the good news that we have right now with respect to the outlook for inflation is that money supply, which was completely ignored during the pandemic, the central banks were under the, were working, under the impression that you can lower interest rates, inject liquidity in the markets, leading to a surge in money supply with no impact on inflation. Well, history proved them wrong. And now the good news, however, Martin, is with the recent tightening in financial conditions, money supply is decelerating quite significantly. And, if you look at this slide historically, when money supply grows at 3% only, you don't get much inflation. Actually, you get good news on inflation. So, I think that is a very important signal that inflation could slow down quite significantly in the coming weeks, coming months.

And, actually we're going to get some readings this week. Stéfane, what do you expect?

I think we're in the window now, Martin, where this money supply signal should lead to better readings on inflation. If we don't get them, Martin, you'll get more hawkish central banks, yield curve inversion, much more difficult financial market conditions. So, I'm hoping that this week we get better news on inflation due to this drop in money supply, but also all the other things that we spoke to in recent weeks as you know supply chains starting to improve in the manufacturing sector, etc., etc. So, I am expecting better news on inflation.

Excellent. Let's end by talking about Canada. It's a bit of a sluggish economic environment. At least, we're in a down, but what's your read?

Well, again, when we compare ourselves to others, uh, we might be stagnating, not much in terms of growth. If you look at what's circled, month-to-month readings on GDP are not very impressive. So, but we're stagnating. As you said, it's better than a contraction unlike other parts of the world. So, I think that is key how to slow inflation down in Canada. And, this is what the Bank of Canada said, if they, if we can get another few good readings on inflation, we will see a top on interest rates. So, expect another increase in interest rates in Canada. But, the good news is that with slowing growth, inflation should decelerate more significantly in Canada in the coming months.

And, we're seeing quite an impact on the real estate market?

Yeah, and, Martin, the reason why we're seeing more of this situation in Canada is, clearly, one of the sectors that was doing very, very well throughout the pandemic is now cooling significantly and contributing to the slowdown in Canadian GDP growth. So, home resell activity with the higher mortgage rates have clearly, clearly seen a significant deterioration. The good news, Martin, is that we might soon see a bottom on home resell activity just because immigration is so strong in Canada right now. The population is growing at the fastest pace in many years. So, that provides some support for the residential market. But, yes, Martin, we're seeing this big drop in, in resale activity across the country.

And what about prices?

Well, that's good news, Martin. Look, we can't have it all. We're looking, the central banks are looking for lower prices and they're seeing lowering prices. So, home prices are down 4% since the recent peak in Canada. With the higher mortgage rates, Martin, we expect more downside. So, in total we would go back 15% below the previous peak. Uh, some people will be discouraged when I say this, Martin, but if you keep things in perspective, that would bring us back to where home prices were at the start of 2021, which is "a lesser bad" under these circumstances.

So, in conclusion, Stéfane, let's be really on top of inflation news coming out in the coming weeks. We do expect a significant increase in October, but we're sticking to a pause after that. Well, Martin, the central banks are not saying they're going to pause. But, if we're hoping for them to pause after October, we need to see better news on inflation. So, again, the central banks are data dependent. We need that better news on inflation. If not, the markets will remain significantly volatile in the coming weeks. So, this inflation reading becomes extremely important going forward.

And there's been a good pullback in rates. Is it tempting?

Well, you look at the fixed-income markets, Martin, rates have increased significantly. I think, it's if we see a top, if you think about the top, a potential top on interest rates, I think we're closer to a peak now. I think it becomes a more a more interesting entry point to start looking at the fixed- income component of the portfolio again. If that inflation slows, it becomes more interesting.

Excellent! Thank you very much, Stéfane. Thank you for listening. Keep sending us your questions. Be safe out there and we'll see you in about a month. Thank you.

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