Category: Market Action

Canada’s GDP fell in 25Q4, but it’s not as bad as it sounds:

Statistics Canada reported a fourth-quarter contraction in real gross domestic product Friday that economists argue conceals some promising details in underlying economic data.

Statscan said Friday that real GDP declined 0.6 per cent on an annualized basis in the fourth quarter, falling short of expectations for flat growth from the Bank of Canada and most economists.

Statscan said the main culprit was businesses drawing down their inventories – in other words, selling off goods or materials that weren’t reproduced in the quarter.
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StatCan said a rise in household spending and increased government capital spending – particularly on weapons systems – gave the economy a lift in the quarter. Business investment, meanwhile, declined thanks to weakness in residential activity.
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Last quarter’s contraction came after real GDP growth of 2.4 per cent in the third quarter, which Statscan revised down slightly from initial estimates. The economy also shrank in the second quarter as tariffs took full effect in the economy, but Statscan also revised that decline to 0.9 per cent from previous estimates of a steeper 1.8 per cent contraction.
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StatCan said real GDP rose 1.7 per cent in 2025 overall, cooling from 2-per-cent growth in each of the previous two years and marking the slowest pace of annual growth since 2016, outside the COVID-19 pandemic.

And the US PPI caused shock and consternation:

U.S. producer prices accelerated in January, with the cost of goods outside the volatile food and energy category increasing by the most in more than 3½ years as businesses passed on import tariffs and raised prices at the start of 2026.

The stronger-than-expected increase in the Producer Price Index reported by the Labour Department on Friday reinforced economists’ expectations that the Federal Reserve would not resume cutting interest rates before its June 16-17 meeting.

The PPI was boosted by a widening in margins, including for professional and commercial equipment wholesaling as well as apparel, footwear and accessories retailing.
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In the 12 months through January, the PPI increased 2.9 per cent after rising 3 per cent in December. The moderation in the year-on-year producer inflation rate reflected the dropping out of last year’s high readings from the calculation.

Core PPI rose 0.8 per cent last month after gaining 0.6 per cent in December. Core producer inflation increased 3.6 per cent on a year-over-year basis. The report was delayed by a brief shutdown of the federal government that ended early this month.

Services prices jumped 0.8 per cent in January, reflecting a 2.5 per cent increase in trade services, which measure changes in margins received by wholesalers and retailers. Margins for professional and commercial equipment wholesaling surged 14.4 per cent, indicating businesses were passing on tariffs.
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The PPI report contributed to a stock market drop on Wall Street. The dollar slipped against a basket of currencies. U.S. Treasury yields mostly fell.

For the first time in a long time, the median YTW for PerpetualDiscounts exceeds that of FixedReset Discounts!

PerpetualDiscounts now yield 5.69%, equivalent to 7.40% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.74% on 2026-2-25. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 265bp from the 260bp reported February 18

Kevin Hassett won today’s running of the sycophancy sweepstakes:

National Economic Council Director Kevin Hassett said Wednesday that researchers at the New York Federal Reserve who produced a study finding American businesses and consumers are shouldering 90% of the cost of President Donald Trump’s tariffs should be “disciplined.”

“It’s, I think, the worst paper I’ve ever seen in the history of the Federal Reserve system,” Hassett told CNBC in an interview.

“The people associated with this paper should presumably be disciplined, because what they’ve done is they’ve put out a conclusion which has created a lot of news that’s highly partisan based on analysis that wouldn’t be accepted in a first-semester econ class,” Hassett continued.

Hassett’s primary concern with the research was, in his view, that it only focused on price-related effects of tariffs and not changes in the volume of imports.

However, that’s not entirely true. In assessing the tariff burdens, the authors calculate average duty rates over various periods of time. They define that as “the total monthly tariff revenue divided by the total value of imports in the month,” meaning import volume is taken into consideration. Specifically, they looked at how “global supply chains shifted in response to the higher tariffs.”

This is spine-chilling. This clown, spoken of seriously as a contender for Fed chair, wants to discipline Fed researchers for, um, researching. This is one example of why Central Bank independence is so important; political clowns with the ability to push political ideas and discipline those who might claim the emperor has no clothes will lead to disaster in pretty short order.

Is the blog post right? Wrong? For the purposes of this argument, that’s irrelevant. If Hassett thinks it’s wrong and should be refuted, he should write a rebuttal and publish it. That’s how the scientific method works. But the Boss Thug can’t be bothered with actual coherent arguments and, therefore, neither can his bootlickers.

It’s happened elsewhere already, of course: people have been disciplined for such things as looking at climate change, DEI and vaccines with open eyes – even for being assigned to investigate Trump’s various alleged legal transgressions during the Biden interregnum. But this is both immediate and with respect to an institution that is highly important to … everybody in the world, basically.

In more civilized academic news, the Bank of Canada has released a Staff Analytical Paper by Nishaad Rao and Tao Wang titled Channels of Transmission: How Mortgage Rates Affect House Prices and Rents in Canada:

We use Canadian data to examine how monetary policy affects house prices and the consumer price index for rent (CPI-rent) through exogenous changes in the mortgage interest rates. Nationwide, tighter monetary policy lowers house prices but raises CPIrent, likely due to higher user costs for landlords or greater relative demand for rental housing. City-level analysis shows that, in response to tighter monetary policy, house prices fall most in cities where supply is inelastic, while CPI-rent tends to rise in cities with lower proportions of households moving from renting to owning.
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We find that an increase in mortgage rates of 100 basis points (as instrumented for by monetary policy shocks) causes house prices to decline by 5% (10%) over a 1-year (2-year) horizon. In contrast, CPI-rent increases by 2%–3% (5%–6%) over a 1-year (2-year) horizon, although the estimates are less significant. Consistent with the channels of the user cost or ownership choice that were previously explained, the relative prices of renting versus owning, measured as the rent-to-price ratio, increase by around 18% (28%) at a 1-year (2-year) horizon in response to an increase in mortgage rates of 100 basis points.

Our estimates of the impact of a monetary policy shock on CPI-rent are similar to Abramson, De Llanos and Han (2025), who use microdata on rent prices, but slightly higher than those of Dias and Duarte (2019). Dias and Duarte (2019) find that a monetary policy shock of 100 basis points raises CPI-rent by 0.6 percentage points over 12 months, while we estimate an increase of 1 percentage point after a monetary policy rate shock of 100 basis points (corresponding to an increase of about 50 basis points in the mortgage rate under an estimated pass-through of 0.5).
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We find evidence that the impact of monetary policy on house prices and CPI-rent operate through various channels and that these impacts vary by region.

While house prices unambiguously decline after a shock to mortgage rates induced by monetary policy, the extent to which they do depends on the elasticity of housing supply in that area. After a demand shock induced by monetary policy [tightening?], we find that a more inelastic supply implies larger price movements.

CPI-rent’s response to such shocks is more ambiguous and can go in either direction. User cost effects imply landlords want to pass on their increased mortgage costs to renters. Indeed, we find that lower expected prices lead to higher rents, maybe because landlords seek to increase rents to compensate for lower expected capital gains. Fewer rent-to-own transitions put additional upward pressure on rents. Indeed, we find that cities with the largest declines in originations for first-time homebuyers after a mortgage rate change are also cities where CPI-rent increases more. In contrast, the negative labour market impacts of tighter monetary policy may reduce household income and therefore lower demand for rental units. The overall quantitative assessment of the strength of each channel is left for future research.

PerpetualDiscounts now yield 5.64%, equivalent to 7.33% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.73% on 2026-2-18. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened significantly to 260bp from the 245bp reported February 11.

Sorry this is late!