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Daily Pulse

Canada

Three of Canada’s six biggest banks said Tuesday they expect most borrowers who took advantage of pandemic-related deferral programs to resume payments, countering fears of a sharp increase in impaired loans. At Bank of Nova Scotia, 99% of mortgage borrowers whose deferrals have expired are current on their payments, the lender said in a statement. Scotiabank now has C$39 billion ($30 billion) of deferral exposure, down from C$41.5 billion as of July 31, and expects the “vast majority” of its remaining balances to expire this quarter, Chief Executive Officer Brian Porter said in the statement.

The U.S. removed aluminum tariffs it slapped on Canada a little more than a month ago, after being threatened with retaliatory duties. The tariffs increased domestic aluminum prices amid a shortage of beverage cans in North America, heightening concerns that an increase in the raw material could fall on the shoulders of domestic brewers and soda companies, and eventually consumers.

Cominar Real Estate Investment Trust said its board has started a strategic review and hired two investment banks to help it evaluate alternatives. The process will be overseen by a special committee of independent trustees and advised by National Bank Financial and BMO Capital Markets. “The REIT has not established a definitive timeline to complete the strategic review process and no decisions have been reached at this time. There can be no assurance that this strategic review process will result in any transaction or, if a transaction is undertaken, as to the terms or timing of such a transaction,” company says.

United-States

An intriguing dichotomy is taking shape in the US economy, one increasingly repeated around the world. The manufacturing sector is recovering smartly from the depth of the COVID-19 recession, but the service sector is having a tougher time healing. This differentiated performance makes sense. Social distancing measures have a much smaller impact on the manufacturing sector than the service sector. Moreover, the manufacturing sector is supported by some important tailwinds such as China’s stimulus-driven recovery, pent-up demand, depressed inventory levels, and easy monetary conditions. Additionally, capex intentions continue to rise sharply, which confirms that important supports for cyclical spending and manufacturing activity are growing. The sectors of the economy most affected by the pandemic and the continued social distancing measure are leisure, food and hospitality as well as travel. They account for roughly 10% of GDP, but they also represent 25% of employment.

Amazon.com Inc. plans to open 1,000 small delivery hubs in cities and suburbs all over the U.S., according to people familiar with the plans. The facilities, which will eventually number about 1,500, will bring products closer to customers, making shopping online about as fast as a quick run to the store. It will also help the world’s largest e-commerce company take on a resurgent Walmart Inc

Europe

The ZEW survey for the month of September shows that investors are only getting more upbeat about the economic outlook as the growth expectations component of the survey rose further in Europe and globally. Moreover, the evaluation of current economic conditions also improved meaningfully in Europe, despite the growing second wave of infections. Climbing growth expectations are important for risk assets and bond prices. In the past, when the ZEW Global Expectations component rose, this often caused yields to increase, albeit with a vastly variable response time. Moreover, the strength in the European growth expectations component points to a rebound in the relative performance of financials and industrials. If the current wave of consolidation in the banking system can continue, this will facilitate a rebound in financials, even if a temporary one.

The global economic slump won’t be as sharp as previously feared this year, though the recovery is losing pace and will need support from governments and central banks for some time yet, according to the OECD. The world economy will shrink 4.5% this year, less than the 6% forecast in June, the Paris-based institution said on Wednesday, upgrading its outlook in response to rebounds in activity since lockdowns ended. There were big revisions for the U.S. and the euro area, as well as China, which is now forecast to grow modestly, the only Group of 20 country with such a prospect.

Asia

In August, China’s industrial production strengthened further, rising to 5.6% year-on-year and beating consensus expectations of 5.1%. Fixed-asset investment also picked up, moving up from -1.6% to -0.3% year-on-year. While private capex continues to contract, the improvement in its growth rate from -5.7% to -2.8% drove the amelioration in the growth rate of aggregate fixed asset investment. On an annual basis, Chinese retail sales rose for the first time this year in August. Retail sales expanded by 0.5% year-on-year and beat the consensus expectation of 0%. Durable goods benefited as car sales and household appliance sales grew 11.8% and 4.3% year on year, respectively. The strength in real estate transactions, the expansion in lending to households and the decline in the unemployment rate indicate that the stimulus-driven recovery will only strengthen these existing trends in consumer spending

China’s policy makers are in no rush to rein in a rapid advance in the yuan, as traders push the currency toward its largest quarterly rally on record. The yuan has strengthened 4.5% since the end of June to 6.7566 per dollar, set for the biggest ever quarterly gain in Bloomberg data going back to 1981. The currency is the best performer in Asia in the third quarter, with the buying momentum close to the strongest since January. The yuan is being supported by a slump in the dollar, while Chinese media has been attributing the gains to the nation’s economic recovery. The People’s Bank of China has also helped by not standing in its way, which for some in the market is an incentive for the currency to push higher.

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.