Markets are down modestly today.
Canadian inflation for December came in as expected at 3.4%. “Excluding gasoline, the headline CPI slowed year over year, from 3.6% in November to 3.5% in December.” Hopes for the Bank of Canada to lower interest rates by April appear to be fading somewhat. The 5-year Canada bond yield is back up to about 3.43%. It fell below 3.2% in early January after plunging over 100 basis points in the last part of 2023 on hopes of interest rate cuts. A lower 5 year yield can be good news for stocks – unless it signals recession. Some investments benefit from a higher rate. I think the CWB.PR.B would benefit from a higher rate when it resets at the end of April. Other rate reset preferred shares (with a long time until the next reset) and certainly perpetual preferred shares benefit from a lower 5 year Canada bond yield.
CMHC released December housing start figures this morning. For Canada overall, housing starts were up 1% in December but down 7% for the year. In Alberta housing starts were up 65% in December (single-family up 39%) and were down 1% for the year. Alberta is finishing the year strongly. This is positive for Melcor Developments which will hopefully report a decent Q4 although I am not expecting the overall 2023 year to be all that high. Their ROE remains substandard. New Brunswick was up 170% in December but one or two multi-family projects in a small province can make the numbers highly volatile. New Brunswick was down 5% for the year. Nova Scotia was up an impressive 29% for the year driven by multi-family starts.