The Canadian dollar is flat this morning and the market will be paying close attention to the speech by Tiff Macklem later today. The economic consequences of the pandemic have played out very differently than anyone expected at the outset. As we have pointed out previously, the first stage of the recovery has been quicker and more aggressive than most expected. Consumers are in seemingly good shape and spending at pre-pandemic levels. The corporate recovery has been more mixed as some industries (tourism, bricks and mortar retail, etc.) continue to suffer disproportionately but companies are generally doing well and stocks are at record prices. And in a uniquely Canadian sign that the economy is recovering quickly, housing is full steam ahead. Housing prices are rising fast and even condos seem to be making a modest comeback. This morning, Canadian housing starts in November came in well above expectations. All of these data points are beginning to suggest that at some point in the not-too-distant future the Bank of Canada will have to, for the first time in a long while, think and talk about tightening. It won’t happen today when Governor Macklem speaks at 2.30 but people will be reading the tea leaves very closely from now on when it comes to Bank of Canada speeches.
