Impeachment, Toronto Housing, Trade Deficit
Let’s Talk Impeachment.
In the reality TV show known as American politics, we’ve seen almost all of the President’s senior staff get voted off the island… and it’s looking like it could be Trump next.
Last week, an impeachment inquiry against Trump was launched after revelations that Trump pressured Ukraine’s president to investigate opponent Joe Biden, by withholding nearly $400 million in military aid.
So, what does a potential impeachment mean for financial markets?
History is inconclusive on this one. In Clinton’s case, the S&P 500 (an index of the 500 largest American companies) actually rose 27% between the announcement of the impeachment inquiry and Clinton’s acquittal. On the flip side, in the year Nixon was impeached, the S&P 500 dropped 33%.
The difference in outcomes has little to do with political drama, and more to do with the economic backdrop at the time of impeachment.
What about this time around?
The afternoon Trump’s impeachment inquiry was launched, we saw a short-lived knee-jerk reaction in the market, with the S&P falling 0.8% and the Dow Jones falling 0.5% that day. We’ve seen the market fluctuate lots in the three years Trump has been in office, and while this is a big deal politically, long-term market trends are unlikely to change.
What is concerning, however, is how the threat of impeachment will impact Trump’s economic decisions. Whether that includes backing out of the new NAFTA deal, or imposing more aggressive tariffs on Chinese or European imports, one thing is certain: markets hate uncertainty.
It’s anyone’s guess, but general consensus is to hold on to your hats! It’s going to be a bumpy ride.
SOS: Toronto’s Housing Market is Out of Control
Ask any Torontonian and they’ll tell you: the (down payment) is too damn high.
Just how bad?
This week, UBS, a multinational investment bank, reported that Toronto is now the second most overvalued housing market. In the world.
On average, a Toronto house that cost $500,000 in 2000 is selling for roughly $1.5 million today – almost tripling in valuation when inflation is accounted for. The overvaluation is largely attributed to low interest rates, an increase of people moving into the city, and a limited amount of housing supply in the market. As a result, the median price of a home in Toronto is a whopping $802,400- an impossible goal to meet for much of the middle class.
Young Canadians are especially feeling the heat from ever-rising housing prices – buying a home in 6ix is slowly becoming a distant dream for many. As housing prices rise, so does the down payment needed to qualify for a mortgage. A new report shows that an average Canadian would need to save for three decades to make a down payment on a Toronto home*. Compare that to Calgary, where the average Canadian would only need to save for a year.
What is the government doing to address housing unaffordability?
The government has made mortgage-lending rules stricter and levied a tax on international buyers, with the intention to lower demand. While these restrictions and regulations have been successful in slowing down the Vancouver housing market, the same cannot be said for Toronto.
Unsurprisingly, housing unaffordability is a hot-topic in the current federal election. If you want to learn more, our friends at Pressed News have conveniently summarized how the four parties plan on addressing the issue.
*The study bases income on median regional income figures from Statistics Canada, and assumes the buyer would set aside 20% of their income per year for a down payment
Canada’s Trade Deficit Narrows…
Canada’s trade deficit has decreased, according to new numbers released by Statistics Canada this week.
Back up… what’s a trade deficit?
Basically, a trade gap is the difference between the value of goods exported (sold) by a country, versus the amount of goods they import (buy). When a country imports more than they export, they have a ‘trade deficit’. In reverse, when a country exports more than it imports, they’re said to have a ‘trade surplus’.
August’s trade numbers outperformed economist expectations, which predicted a $1.2 billion deficit. Instead, Canada posted a $955 million deficit – far better news. The increase is attributed to gains in energy and aircraft exports.
Economists had originally predicted much a larger deficit based on expectations that Canadian trade would be negatively impacted by both the US-China trade war, and the diplomatic dispute with China surrounding the extradition of Huawei exec Meng Wanzhou.
A smaller deficit signifies more money in the pockets of Canadian producers, which is why after StatsCan released the numbers, the Canadian currency rose ever so slightly. Essentially, this is good news for the Canadian economy.
On a bilateral basis, the gains caused Canada’s trading surplus with the US, our largest trading partner, to increase to $4.9 billion. US President Donald Trump has often complained that the 1997 NAFTA agreement, under which trade between the US and Canada is currently moderated, is the cause of America’s almost constant trade deficit to Canada. We’re still waiting to see if the US will ratify the new version, and whether it will significantly impact the US-Canada trade gap.
And yes, while we still have an overall deficit, that’s not necessarily a terrible thing – most developed economies import more goods than they export. However, by keeping an eye on the trade gap, policymakers can gauge the strength of the country’s trade economy and key industries.