BREAKING NEWS WITH THE BANK OF CANADA CUTTING INTEREST RATES BY 25 BASIS POINTS. THE FIRST CUT IN 4 YEARS. AND ONE OF THE HEADLINES AROUND THE WORLD TODAY IS THAT OUR CENTRAL BANK BECOMES THE FIRST G7 COUNTRY TO EASE ON RATES. WE'RE BACK AGAIN WITH WARREN LOVELY CHIEF RATES STRATEGIST AT NATIONAL BANK FINANCIAL ALONG WITH CHRISTINE TAN OF SLG I ASSET MANAGEMENT AND IT'S YEN BORDELEAU, THE BRECK FROM NINEPOINT PARTNERS THANKFUL TO HAVE ALL OF YOU HERE TO MAKE SENSE OF THIS DECISION. BUT I GUESS WARREN FOR THE BANK OF CANADA TO NOW HAVE THIS G7 HAD LIFE MAKING THE ROUNDS TODAY. WHAT'S THE SIGNIFICANCE OF THAT? WELL, IT'S AN OLYMPIC YEAR, RIGHT? SO WE'RE AWARDING MEDALS. SO I GUESS IN THE CONTEXT OF THE G7 RACE ON A ON INTEREST RATE CUTS. WE GOT TO THE TAPE AHEAD OF ECB KNOW WHO WILL BE GOING TOMORROW. I THINK THE BIG QUESTION THAT WE PROBABLY ALL ARE TRYING TO THINK AND ANSWER WILL BE. >> HOW FAR AHEAD OF THE U.S. CENTRAL BANK, THE FEDERAL RESERVE CAN THE BANK OF CANADA GET THAT IS? I THINK WE SHOULD JUST CLARIFY THAT OUR POLICY RATE WAS LOWER WAS ALREADY. YES. SO WE'RE STARTING WITH A 50 BASIS LOWER THAN THE U.S. LEVEL. WE'RE NOW 75 BASIS POINTS BELOW THE U.S. AGAINST THE QUESTION WILL BE THE GOVERNOR MAY BE INDICATING HERE THAT THERE'S SOME ADDITIONAL INTEREST RATE CUTS. CAN WE GET TO 100, MAYBE EVEN FURTHER THROUGH THE U.S. WITHOUT UNDULY PRESSURING THE CANADIAN DOLLAR. I THINK THIS IS REALLY GOING TO ONE OF THE KEY ISSUES THAT A LOT OF INVESTORS WILL BE THINKING ABOUT AS WE DIGEST TODAY'S DECISION. WELL, I KNOW EVERYBODY HAS DIFFERENT INTERPRETATIONS OF THE DATA THINGS LIKE RECESSIONARY RISK, IT AND GUESS ONE QUESTION WOULD BE, ESPECIALLY FOR NOW RUNNING AHEAD OF THE U.S. FEDERAL RESERVE. WHY TAKE WHAT WHAT MIGHT BE DESCRIBED BY SOME AS PREEMPTIVE ACTION. WHY DO THIS IF WE'RE NOT QUITE. >> IN THIS ARE THE ECONOMIC ZONE THAT IS REALLY WHAT WHAT'S WAS SORT OF THE THINKING BE THINKING THAT WHAT PEOPLE, IF YOU LOOK AT THE ALL THE BIG BANKS REPORTED EARNINGS LAST 2 WEEKS AND WE SAW A LOT OF PRESSURE WITH THE CONSUMER. CANADIAN CONSUMERS ARE MORE AND MORE DELINQUENT ON CREDIT CARD LOANS, AUTO LOANS, UNSECURED PERSONAL LENDING. SO PIERRE MUCH MORE PRESSURE AND THE AND THE CONSUMER IN CANADA. SO I THINK THAT THERE'S A REASON WHY WORK. CUTTING AHEAD OF THE FED. ECONOMY HAS BEEN MUCH WEAKER UNEMPLOYMENT RATES, HIGHER DELINQUENCY RATES ARE HIGHER. SO WE'RE SEEING THESE ORANGE AND WARNING IT'S NOT FLASHING RED, BUT IT'S DEFINITELY FLASHING ORANGE IS THIS CHRISTINE, IS THIS SORT A BYPRODUCT EVEN THE WAY OUR MORTGAGE MARKET WORKS WITH CONSTAND CYCLING INTO NEW PRODUCTS, SHORTER DURATION PRODUCTS. WE'VE HEARD A LOT OF BETTER RESILIENT U.S. CONSUMER. BUT WE'VE ALSO HEARD ABOUT THOSE WHO ARE TIED TO THE MORTGAGE MARKET. >> YOU KNOW, IF THEY'RE ALREADY LOCKED IN FOR 30 YEARS THEY HAVEN'T QUITE FELT B EFFECTS THE SAME WAY SOME CANADIAN CONSUMERS FELT. ABSOLUTELY. I THINK HE ATTENDED THE MORTGAGE MORTGAGE DIFFERENTIAL BETWEEN THE U.S. AND CANADA IS A BIG FACTOR. >> THE OTHER BIG FACTOR IS HOW DIFFERENT THE FISCAL SPENDING PICTURE HAS BEEN IN THE U.S. VERSUS CANADA. SO EVEN AT A TIME AND IT'S REALLY UNPRECEDENTED AT A TIME WHEN ECONOMIES SO STRONG THE U.S. IS RUNNING A FISCAL DEFICIT, HIGH-FIVES ALMOST 6% THAT'S EXPECTED STILL RUN AT 6.1% NEXT YEAR. AND THAT'S NOT SOMETHING WE SHOULD UNDERESTIMATE IN TERMS OF THIS AMERICAN EXCEPTIONALISM THAT'S BEING FUNDED BY A DEFICIT. SO CERTAINLY THAT DIFFERENCE IS THERE. THE MORTGAGE PRESSURE IS THERE. ALSO HOUSING PRICES ARE DIFFERENT 8 U.S. HOUSING DID CORRECT CANADIAN HOUSING PRICES DID NOT REALLY CORRECTED TO SOME EXTENT, WE NEVER DELIVERED AFTER THE 2008 FINANCIAL CRISIS IN THE U.S. HOUSEHOLDS IMMENSELY WORDS. WE NEVER HAD THAT HERE, JUST KEPT GOING. THAT'S RIGHT. WE FEEL PRETTY GOOD ABOUT OUR PEOPLE TOOK ON SALE EXCEPTIONAL. YEAH. BUT YOUR POINT ON SPENDING IN THE U.S. GOOD. FISCAL HAWKS IN CANADA CAN TAKE NOTE, OUR BORROWING ABILITY MIGHT BE A LITTLE ACT, IF U.S. GOVERNMENT. >> ON THE CURRENCY FRONT WARREN, WE'VE BEEN WATCHING THE LOONIE UNDER SOME PRESSURE THIS MORNING. I'M NOT SURE WE WOULD CALL THIS A DRAMATIC MOVE. WE DID GO TO SESSION LOWS AGAINST THE GREENBACK. LET'S FACE IT. THE CANADIAN CURRENCY HAS BEEN HOVERING AROUND $0.73 FOR >> MONTHS NOW. BUT WE ARE NOW NOTABLY BELOW THAT LEVEL. AS THIS NEWS WAS BREAKING, WE'RE TALKING TO THE FORMER BANK OF CANADA VISOR. DAVID WOLFE IS WITH FIDELITY AND HE MADE THE ARGUMENT THAT IN TIME GIVEN THE RELATIVE WEAKNESS OF OUR ECONOMY, THE LOONIE COULD TESTS LOWS FROM 2002. HOW ARE YOU THINKING ABOUT THE DYNAMICS OF OUR ECONOMY RATE POLICY AHEAD COMPARED TO THE U.S. AND WHAT THAT MEANS FOR SOMETHING LIKE THE YEAH. WELL, I THINK CLEARLY WHAT CURRENCY MARKETS ARE TELLING US THAT INTEREST RATE DIFFERENTIALS MATTER. OKAY FOR THE CANADIAN DOLLAR, COMMODITY PRICES, OIL IN PARTICULAR MATTERS ALSO. BUT >> AND THE INTEREST RATE DIFFERENTIAL CANADA VERSUS THE U.S. IS A KEY VARIABLE WHEN IT COMES TO WHERE THE CANADIAN DOLLAR'S GOING TO TRADE. AND NOW WE HAVE A CENTRAL BANK CRYSTALLIZING A RATE INTIMATING THAT ADDITIONAL RELIEF. WHEREAS THE U.S. IS NOT THERE YET. SO THIS EXPECTATION LARGE MAY BE GROWING. INTEREST RATE DIFFERENTIALS IS PRESSURING THE CANADIAN DOLLAR. I THINK ULTIMATELY IN TIME, SOME OF THIS MIGHT BE A THEORETICAL DISCUSSION OR THEORETICAL WORRIED BECAUSE I THINK THE U.S. WILL GET TO THE U.S. FEDERAL RESERVE WILL GET INTEREST RATE CUTS WERE SEEN SOME WEAKNESS EMERGE IN THE U.S. EVENTUALLY. FINALLY AFTER THE SPIRIT OF RESILIENCE. IT'S JUST UPDATE ON THAT TODAY'S JONES YESTERDAY, KNOW, IT'S YOU AND YOU WERE CURIOUS KNOW WHAT THE BANK OF CANADA MIGHT TO SAY ABOUT ALL THESE THINGS. SO FOR THOSE JUST AS A REMINDER TO OUR AUDIENCE, THE BANK OF CANADA GOVERNOR TIFF MACKLEM WILL BE FIELDING SOME MEDIA QUESTIONS COMING UP AFTER THE HALF-HOUR POINT. >> WHAT, WHAT WOULD YOU LIKE TO KNOW WHAT WOULD HELP TO GIVE YOU A BETTER UNDERSTANDING AS A MARKET WATCHER ON THE PATH AHEAD FOR CANADA. YES, SO I THINK I'D LIKE TO SEE. >> AND THE GOVERNOR ANSWERED A QUESTION OF THAT. WHAT? WHAT PROMPTED THEM TO ACT TODAY AS OPPOSED TO JULY AND WHAT CONDITIONS DO THE NEED TO SEE TO GO BACK TO NEUTRAL BECAUSE EVENTUALLY DID AS WARNER SAYING THEY WANT TO GO BACK TO NEUTRAL. I MR. WOLFF WAS MOVING TO THE SAME THING 2 IN THREE QUARTERS, 3%. THAT'S PRETTY NEUTRAL IS ADDICTED NEUTRALS HIGHER. NOW, WHAT'S THE GLIDE BACK TO NEUTRAL? ABSENT A MORE DRASTIC ECONOMIC WANT. WHAT ABOUT YOU? >> YEAH, WELL, I THINK EXACTLY AT 10 POINT SAYS FORWARD GUIDANCE. I KNEW, RIGHT. SO YOU'VE INITIATED, YOU'VE PIVOTED, RIGHT? AS WE'VE SAID, YOU'VE STARTED SOMETHING. I THINK WHAT EVERYONE WANTS TO KNOW, MARKET WATCHERS GENERALLY WANT TO KNOW IS THIS IS THE START OF SOMETHING YOU DON'T DO ONE RATE CUT IN ISOLATION. PRESUMABLY THEY HAVE A SERIES OF CUTS IN MIND. WHAT IS THE SEQUENCING THAT THE THE VELOCITY OF THAT INTEREST RATE RELIEF? I THINK THAT'S REALLY WHERE YOU'LL SEE A LOT OF QUESTIONS AND DISCUSSION, NOT GIVE IT TO, YOU KNOW, I THINK AS WELL, CHRISTINE, LIKE THE STOCK MARKET HAS BEEN GENERALLY AT ALL-TIME HIGHS IN NUMBER OF FACTORS BEHIND THAT. MAYBE IT'S SOME OF THAT STIMULUS FROM THE U.S. GOVERNMENT YOU ARE TALKING ABOUT AS WELL. >> BUT I GUESS IF YOU DO THE QUICK MATH, IT'S TAKEN ONLY ABOUT 11 MONTHS FOR THE CENTRAL BANK TO GO FROM HIKES TO CUTS MOVE. SO WE DO HAVE A UNIQUE I THINK IT'S FAIR TO SAY THAT HAS BEEN EMERGING HERE FOR THE MARKETS TO GET THEIR HEADS AROUND BY MARKETS. I MEAN, NOT JUST PEOPLE WHO BUY AND SELL STOCKS OR BONDS, BUT PEOPLE WHO ARE IN THE HOUSING MARKET, ABSOLUTELY DEALING WITH ANY INTEREST RATE REALITIES RIGHT NOW. IT IS A UNIQUE MARKET CYCLE. >> IT IS VERY UNIQUE AND I THINK ALSO A CHALLENGE FOR FOR HOUSEHOLDS AND THE TEAMS THAT ARE REFERRED TO THIS CANADIANS ARE AT A STILL AT A RECORD HIGH DSR DEBT-SERVICING RATIO LEVEL AND PROPORTION OF HOUSING AS PART OF THAT HAS GROWN OVER THE LAST 2 YEARS. NOT SURPRISINGLY, GIVEN WHERE RATES HAVE BEEN. SO THE FUNDAMENTAL CONSUMERS STILL VERY WEAK. IT'S A MATTER WHETHER A FEW INTEREST RATE CUTS WILL REALLY CHANGE THE DIRECTION OF THE ECONOMY THAT SIGNIFICANTLY. SO THAT'S SOMETHING THAT WE'RE WATCHING COMMITTEE, A QUESTION OF WHAT WE WANT TO KNOW FROM THE BANK OF CANADA IN THEIR PRESS RELEASE AS PM'S, WE ALWAYS THINK ABOUT WHAT COULD GO WRONG. SO I THINK IF WE COULD ASK A QUESTION AND BE LIKE, WHAT'S WHAT I WANTED TO DATA POINTS THAT YOU'RE WATCHING, THAT COULD CHANGE THE WAY THAT YOU THINK TODAY OR THAT THIS KIND OF DETAIL RISK, IF YOU WILL, BECAUSE IT IS A BIT OF A SURPRISE TO SOME THAT THEY ARE CUTTING TODAY INSTEAD JULY. SO WHAT COULD CHANGE THEIR MIND AT ONE POINT IT WAS GOING TO SEE, ALMOST HOPE KEEP US GUESSING. YEAH, TOO MUCH FOR GUIDANCE. IS IS NOT A GOOD IN PARTS OF LEVEL CERTAINTY. 2 THINGS ARE INHERENTLY UNCERTAIN >> AND I THINK KEEPING THE MARKET GUESSING IS A GOOD THING. SURPRISING MARKETS EVERY SO IS, IS NOT A BAD THING FOR CENTRAL BANKS TOO MUCH CERTAINTY LEADS TO COMPLACENCY AND AND THEN I YOU, YOU'RE GONNA THEY DID IN THE CORNER, YOU CAN'T, YOU CAN'T MOVE FROM THERE IT ONCE ONCE YOU'VE ESTABLISHED VERY STRONG FOR GUIDANCE IF YOU'RE A BIG BANK IN THIS HEDGE YOUR BETS, SET ASIDE MONEY THAT YOU MIGHT NEED ON A RAINY DAY. YOU WERE TALKING ABOUT HOW THEY DID THAT WITH THEIR LATEST QUARTERLY RESULTS. WARNING GUESTS. >> NOW THAT THAT UNCERTAINTY HAS BEEN. BUT RIGHT NEXT TO YOU KNOW, YOUR BRIEFCASE. IS THERE A POSSIBILITY THAT AS MUCH AS WE TALKED ABOUT STRESS THAT COMES FROM THESE HIGHER BORROWING COSTS THAT ULTIMATELY WERE NAVIGATING RELATIVELY WELL. NO, WE'RE ACTUALLY EMERGING THROUGH A PERIOD HERE. TALKED A LOT ABOUT STRESSED OUT A LOT ABOUT ACTUALLY GETS US INTO A A REASONABLE OVERALL FOR THE LONG TERM. YEAH, SO I THINK HAS A GOOD QUESTION THAT I THINK IF WE'RE ALL HONEST ABOUT IT, WE'D SAY, OKAY, LOOK, THE THE CANADIAN ECONOMY'S ABILITY TO WITHSTAND AND SURVIVE 5%. >> POLICY INTEREST RATES IS REALLY BEEN QUITE SURPRISING. THE RESILIENCE THAT WE'VE TALKED ABOUT IN A NORTH AMERICAN CONTEXT WITH SUCH HIGH INTEREST RATES REALLY BEEN QUITE IMPRESSIVE. SO I THINK REALLY IF WE'RE BEING HONEST, WE'D SAY, LOOK, WE'VE EMERGED FROM THIS RESTRICTIVE POLICY INTEREST RATE ENVIRONMENT IN RELATIVELY GOOD SHAPE. THANKFULLY NOW WE'RE GETTING THE PROGRESS ON INFLATION TO GET US TO LESS RESTRICTIVE TERRITORY. THE KEY QUESTION AND THAT BIG UNCERTAINTY THAT YOU TALK TO A PARK NEXT TO THE BRIEF CASES, WHERE IS THAT NEUTRAL INTEREST RATE AND HOW QUICKLY MIGHT WE GET THERE? I THINK THERE'S STILL A TREMENDOUS AMOUNT OF UNCERTAINTY AROUND THAT GLIDE PATH. AND THEN CHRISTINE, FOR INVESTORS, WHAT'S WHAT YOU'RE THINKING RIGHT NOW LIKE ARE YOU BULLISH ON THE NORTH AMERICAN STOCK MARKET IN AN ENVIRONMENT LIKE THIS ARE, IT'S GOING TO SOUND STRANGE TO SAY IT IS AND WE TALKED ABOUT THIS BEFORE, BUT YEAR TO DATE AS INTEREST RATES HAVE ACTUALLY CREPT EQUITY MARKETS HAVE BEEN SURPRISING RESUMED TO USE OUR WARNS TERM. >> AND WE THINK IT'S BECAUSE EARNINGS HAS BEEN QUITE GOOD. MARGINS HAVE BEEN QUITE RESILIENT. AND AS LONG AS THAT PICTURE, HOLES AWARE, FOCUS OUR MATCHES, A FOCUS ON THE FUNDAMENTALS, TRYING TO REALLY STILL A LITTLE BIT ABOVE THE SHORT-TERM NOISE AROUND RATES RECOGNISING, OBVIOUSLY THAT RATES TO HAVE AN IMPACT ALLEGATIONS. CLEARLY. MEAN, IT IS WORTH POINTING OUT THAT HE AND THE COMING INTO THIS YEAR. CERTAINLY SOME PEOPLE WERE POINTING TO A WORST-CASE SCENARIO FOR THE CANADIAN ECONOMY. LOTS OF RATE CUTS COMING. THE MARKETS SEEM TO BE PRICING IN. >> LOTS OF RATE CUTS BY THE U.S. FEDERAL RESERVE AS MUCH AS 6 AND HERE WE ARE NOW WONDERING IF THAT'S GOING TO HAPPEN AT ALL. AS WE TAKE A LIVE LOOK AT OTTAWA'S, THE BANK OF CANADA GOVERNOR GETS READY FOR THE PRESS CONFERENCE, BUT WE'RE ALL JUST KIND OF REACTING IN REAL TIME HERE. BUT 6 MONTHS AGO, THE CONVERSATION DID FEEL A LOT DIFFERENT THAN WHERE IT IS TODAY. I THINK THAT. >> WE'VE ENOUGH WATER UNDER THE BRIDGE, A LOT OF IMPROVEMENT ON STILL WITH QUITE RESILIENT APRIL GDP NUMBER NUMBER IN CANADA WAS SO 0.3% MONTH OVER MONTH, QUITE STRONG. SO I THINK. AND THERE'S GOOD REASON WHY WE'RE, WE'RE, WE'RE AT NOW. >> WE ONLY THE BET A MINUTE OR SO. WE ARE WAITING FOR TIFF MACKLEM TO SURFACE WILL GO LIVE AT WARREN, JUST YOUR YOUR, YOUR PREDICTIONS ON THE REST OF THE YEAR. NO PRESSURE ON YOU, BUT LOT OF PRESSURE ON THE CENTRAL BANKERS. SO I WILL PUT PRESSURE ON WHAT DO YOU THINK HAPPENS WITH INTEREST RATES IN THIS COUNTRY FROM HERE? I THINK WE'VE GOT A COUPLE MARKETS, WE GET WE GET THE OVERNIGHT POLICY RATE RIGHT FOR 75 TODAY DOWN TO FOR A QUARTER, PERHAPS BY THE END OF THE YEAR, A LITTLE BIT MORE RELIEF AS EXTENDED TO 2025. AND AS WE GET A APPROACH THAT NEUTRAL RATE, WHICH MAYBE IS A LITTLE BIT ABOVE 3% IN OUR OPINION, A K A 10 AND YEAH, I THINK I AGREE WITH WARREN, JUST TAKE IT ON, DON'T PUSH THINGS TOO FAST UNLESS WE HAVE MAKING A VERY LARGE SOFTENING AS THE >> LABOUR THERE'S NO NE
