Summary
In early September, the Bank of Canada maintained its target overnight interest rate at 5.00% after back-to-back increases in June and July, and 10 rate hikes since March of 2022. Pressure on Canada’s labor market has eased a bit, with unemployment rising to 5.5% as of July from 5% earlier this year, allowing for the pause from higher interest rates. Similar to the dilemma faced by the U.S. Federal Reserve, inflation in Canada (at a 3.3% annual pace in July) is still running above the 2% desired by its central bank. However, rate hikes clearly have been working and often have a lag effect. Canada’s GDP growth turned to a slightly negative 0.2% in 2Q, with housing and consumer spending the main culprits in dragging the reading lower. A majority of economists now see the Bank of Canada as finished with its rate-hike campaign, with potential cuts moving into the first half of next year. The most-recent pause was a bit of a relief for the bank and housing industries, where elevated interest rates have started to crimp demand for home mortgages. We believe that select companies in our Canadian coverage continue to offer investment opportunities.
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