Morning Market Brief: October 4, 2023

Canadian consumer confidence edges lower?

Confidence among Canadian consumers ticked lower at the end of September, contributing to a downward trend over the past five months. Economic uncertainty, high inflation and rising borrowing costs are weighing on Canadian households, bringing down economic activity in recent months. Consumer confidence remains relatively soft, suggesting spending could pull back.?

• The Bloomberg Nanos Canadian Consumer Confidence Index fell to 50.7 for the week ended September 29 from 50.9 for the week ended September 22, which is down from a 2023 peak of 53.1, reached in June.
• The strength of Canada’s economy is a significant concern for consumers. Fewer Canadians believe Canada’s economy will be more robust in six months this week versus last. The Canadian economy shrank on an annualized basis in the second quarter of 2023, while data released by Statistics Canada showed it stalled in July.
• Compared to the previous week, fewer Canadians believe the value of real estate will be higher in the next six months. Sales of existing homes have softened in recent months, partly due to waning demand with mortgage rates at high levels. While the Bank of Canada held steady at its September meeting, rates will likely persist at higher levels for longer.
• Consumer confidence is not only subsiding in Canada but in the US as well. The Conference Board recently reported US consumer confidence slipped in September, with consumers concerned about the outlook for the US economy.

It has been a challenging environment for Canadian consumers amid elevated inflation and higher borrowing costs. Still, Canadian consumers have proven relatively resilient, benefiting from a strong labour market and pent-up savings. Should confidence continue to weaken, spending could be reined in, hurting economic activity. Given the economic uncertainty and strong likelihood of rates staying higher for longer, investors are taking a risk-off approach, pushing equity markets lower in recent weeks. And fixed income markets have not been immune to the volatility. Global bond prices have fallen over that same period, with the 10-year US Treasury yield rising to its highest level since 2007 yesterday.

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