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Daily Pulse


The Bank of Canada reiterated its pledge to keep interest rates at historic lows for years to come but dialed back its willingness to take even more aggressive action and said it could adjust its bond purchase program. In a decision Wednesday from Ottawa, policy makers led by Governor Tiff Macklem held the bank’s benchmark rate at 0.25% and said they’ll leave it unchanged until economic slack is absorbed so that the 2% inflation target is “sustainably achieved.” The central bank also retained a pledge to buy government bonds at the current pace and maintain extraordinary monetary policy stimulus throughout what it calls the recuperation phase of the recovery. The accommodative stance is largely unchanged from the last policy statement in July, part of the central bank’s efforts to help pull Canada out of the deepest downturn since the Great Depression. At the same time, the bank indicated it’s prepared to make some alterations to policy by paring quantitative easing if needed.

Construction on new homes surged to the highest level in more than a decade as Canada’s housing market continues to defy expectations of a slowdown. Housing starts surged to 262,396 units in August on an annualized basis, up 6.9% from an already elevated 245,425 units a month earlier, Canada Mortgage and Housing Corp. said Wednesday in Ottawa. The highest monthly total since September 2007 was powered by new construction in Toronto and Vancouver, particularly multiple units like condos.


The nearly 70% rally in gold prices over the past two years has been spectacular and has allowed the yellow metal to outperform the S&P 500 by 40% over the same period. Historically, gold outperforms equities when stagflation risk increases. In fact, a simple “stagflation indicator” (the spread between CPI inflation and real GDP growth) does a good job of explaining the relative performance of gold. In the 1970s, when CPI inflation was elevated and growth was weak, gold was strong. In the first decade of the millennium, gold also outperformed as inflation was lifted by a weak dollar and strong commodity prices. This time around, the collapse in growth was the driver of the outperformance. Ultimately, the true cause for the outperformance of gold is falling real yields. While declining real interest rates also allow for equity multiples to rise, their fall often materializes alongside a soft economy, which weighs on earnings. This was particularly true this time around where the rise in the “stagflation indicator” was more than fully explained by the collapse in growth. On a go-forward basis, gold will continue to outperform stocks under two conditions. Either growth remains very weak and justifies low real rates for an extended period (while hurting EPS) or inflation rises significantly faster and keep real rates low as the Fed stays behind the curve. BCA Research expects the second scenario to take shape over the next few years, and thus gold to remain well bid this decade.


Europe’s primary debt markets saw another barrage of deals on Thursday, with borrowers rushing to issue ahead of any potential resurgence of financial instability. Bond offerings, including sales from Japanese automaker Nissan Motor Co. and the City of Hamburg, are set to add at least 5.6 billion euros ($6.63 billion) to this week’s market total, which has already seen 44 billion euros of new debt. The activity comes as investors await the European Central Bank meeting and release of new economic projections that are likely to show recovery from the coronavirus remains fragile. While the ECB is widely expected to keep policy steady, investors will be closely watching comments from President Christine Lagarde as she’s quizzed about whether more monetary stimulus is likely this year.


China’s next five-year plan beginning in 2021 will call for increases to its mammoth state reserves of crude, strategic metals and farm goods, said officials familiar with the discussions. Beijing is keen to heed the lessons of the coronavirus crisis and deteriorating relations with the U.S. and its allies, according to the officials, who participated in the drafting of the plan. That means ensuring the nation’s secretive stockpiles, almost certainly among the world’s largest, are plentiful enough to withstand supply disruptions that could cripple its economy, the officials said, asking not to be identified because the matter is sensitive. China’s top leadership will next month lay out its strategy for 2021-2025 that will include ramping up domestic consumption and making more critical technology at home, in a bid to insulate the world’s second-biggest economy from worsening geopolitical tensions and fraying supply chains. Securing food supplies, fuel and materials is a precondition of greater self- reliance for the world’s biggest importer of commodities. Assuaging China’s anxieties over energy and food security in particular will be a focus of the new buying program, the officials said.

The author

Michel Doucet

Michel Doucet

Vice-President and Portfolio Manager
After obtaining a Bachelor's degree from the Faculty of Social Sciences at the Université du Québec in Montréal and his Master’s degree, Michel Doucet began his career as a junior economist at the National Bank head office in Montreal. In 1992 he joined the institutional equities and fixed income group at Lévesque Beaubien Geoffrion as an economist and market analyst. Over the years, he has led various projects related to the North American and international economies as well as Canadian public finances. In 1996, the team of institutional economists to which he belongs was ranked first in Canada by Brendan Wood International. In August 1997, Mr. Doucet joined the personal services division of Lévesque Beaubien Geoffrion where he served as an economist, fixed income market analyst and vice president. In 2004, he joined the Desjardins Securities full service team as Vice President. He now occupies the roles of fixed income strategist, economist and portfolio manager. He manages the Securities Portfolio Advisory Group, advisor marketing and distribution of financial planning and insurance.