Canada

A surprise second-quarter contraction and a flat growth estimate for July suggests that the Bank of Canada has probably done enough to bring inflation to heel, Bloomberg News reported. Gross domestic product unexpectedly shrank at a 0.2% annualized pace last quarter, and economic growth at the beginning of the third didn’t look much stronger. While the contraction was partly due to wildfires and drought, household consumption was weak, suggesting aggressive increases to interest rates have already reined in spending by heavily indebted Canadians. First-quarter growth was revised downward.

Concerns about the shaky US office market ate into Canadian Imperial Bank of Commerce’s earnings, which fell far short of analyst estimates as the lender set aside more than expected for souring loans, Bloomberg News reported. Provisions for credit losses totaled C$736 million ($543 million) in the fiscal third quarter, according to a statement Thursday, more than the C$456 million analysts had predicted. The bank had put aside C$438 million in the previous three months. The Toronto-based bank’s C$1.52 of adjusted earnings per share missed an average analyst estimate of C$1.68.

Bank of Montreal set aside more money for potentially sour loans and severance costs as it absorbs Bank of the West during a difficult period for U.S. regional lenders, Bloomberg News reported. The Canadian bank earned C$2.04 billion ($1.89 billion) on an adjusted basis in the fiscal third quarter, weighed down by weaker results in its US personal and commercial division. The profit of C$2.78 per share was short of the C$3.13 expected by analysts in a Bloomberg survey.

Canada's second-quarter GDP report, due on Friday, is likely to show a sharp slowdown in economic growth, a Reuters poll of economists showed, which could lead the Bank of Canada to pause its interest rate hikes despite recent hotter inflation data, Reuters reported. The GDP report will be the last major piece of domestic data before the Canadian central bank makes its next policy decision on Sept. 6. It is expected to show the economy growing at a 1.1% pace in the second quarter, down from 3.1% in the first three months of the year, and below the BoC's 1.5% estimate.

Mortgage data from Canada’s two biggest banks are painting a picture of homeowners straining under high borrowing costs, Bloomberg News reported. Royal Bank of Canada, the country’s largest lender, disclosed that 43% of its Canadian residential mortgages had an amortization period of longer than 25 years, as of July. That’s up from 40% a year earlier, and just 26% in January 2022. Canadian banks have allowed customers to stretch payments for longer periods to help them bring down their monthly payments after a rapid rise in rates.

After months of underperforming the broader market, Canada’s Big Six banks are likely to continue struggling as expenses and loan-loss provisions rise and consumer finances deteriorate, Bloomberg News reported. Higher interest rates are expected to hurt lenders’ fiscal third-quarter earnings when they begin to report Thursday. Inflation data on both sides of the border have ratcheted up bets that central banks could raise rates further still, which would further erode spending power and borrowing demand.

Canadian June retail sales grew by 0.1% from the previous month driven mostly by car sales, data showed on Wednesday, a sign of weak consumer spending that could convince the central bank that interest rate hikes are sinking in, Reuters reported. The slight June gain was led by increases at motor vehicle and parts dealers as well as gasoline stations and fuel vendors, Statistics Canada said. Excluding sales of cars and car parts, retail sales declined 0.8% in June. Economists had forecast June sales would be flat and that they would rise 0.3% excluding autos.

Canada's big bank results are expected to bring to light a number of challenges as lenders set aside more funds for bad loans in a tough economy that has also led to a slowdown in dealmaking and forced borrowers to rethink about new mortgages, Reuters reported. The big six banks, which control a majority of the market in the country, have had to brace for macroeconomic uncertainties and build reserves while also ensuring they have enough capital to meet new regulatory requirements in case of uncertainties.

The U.S. Commerce Department on Thursday said it will set preliminary anti-dumping duties on tin-plated steel from Canada, Germany and China, in a move to shield domestic steelmakers that will prompt warnings of higher prices for cans made from the steel and the foods, paint and other products they contain, Reuters reported. The department said it will propose preliminary anti-dumping duties of 122.5% on tin mill steel imported from China, 7.02% on imports from Germany and 5.29% on imports from Canada. A formal Federal Register notice is expected later on Thursday.

Investment in Canada's financial technology sector was reduced to less than half in the first six months of 2023 from last year, according to a report from accounting firm KPMG on Thursday, Reuters reported. Startup valuations across the technology spectrum have been hit as high-interest rates and worries over a looming economic slowdown sour investor appetite, leading to a shift towards safer investments with greater focus on profitability and away from cash-burning firms.