The news set off a wave of market reactions, triggering a surge in stock markets, cryptocurrency markets and bond yields, which determine the prices of fixed mortgage rates in Canada.
For Canadian mortgage holders and home buyers, the ripple effects have been immediate, with some lenders already raising rates. But what does Trump’s victory really mean for the Canadian economy – and for those with mortgages?
Trump’s pro-growth policies and tax cut promises are fueling optimism in the United States, which is also spilling over into Canada.
“Ultimately, a healthy U.S. economy is the most important factor for Canada, regardless of who is in charge,” noted Douglas Porter, chief economist at BMO.
Mortgage expert Ryan Sims said Mortgage Trends in Canada that the Trump presidency will likely “boost” the American economy. “Growth and GDP should look to increase without the government weighing them down,” he added, suggesting that a more business-friendly climate in the United States could boost economic activity across the board. North America.
Sims pointed out the potential downsides: While Trump’s tax cuts may spur growth, they could also inflate U.S. debt, which would mean more government bonds on the market, which could depress bond prices. bonds and increase yields, putting upward pressure on fixed mortgage rates.
On Wednesday, the 10-year Treasury yield jumped more than 14 basis points to 4.43%, marking its highest level since July. The 5-year Government of Canada bond yield also jumped to a three-month high of 3.11%.
“If yields stay at this level, expect fixed rate hikes,” Sims said. “The BOC and Fed may be in taper mode, but that will likely continue to contrast sharply with fixed rates.”
Some lenders have already made modest rate hikes, adjusting them by 5 to 10 basis points (or 0.05 to 0.10 percentage points) so far.
Upcoming central bank rate decisions will be “interesting”
As markets recover following Trump’s victory, attention now turns to upcoming central bank decisions.
Although further cuts are expected, Sims expressed doubt that further cuts are necessary at this point.
“I really don’t think the Fed needs to cut, and now if they did, it would be like throwing kerosene into a raging inferno,” he said. I don’t think we need further rate cuts to liven up the party.”
The consensus on Thursday’s Federal Reserve decision was a quarter-point cut, setting the target range between 4.50% and 4.75%. Next comes the Bank of Canada’s final rate decision for the year on Dec. 11, with forecasts calling for a potential cut of 50 basis points.
Canadian banks should benefit
Canadian banks with operations in the United States are also expected to benefit from Trump’s policy changes.
The proposed corporate tax cuts and deregulation will likely improve the profitability of Canadian banks with significant U.S. operations, such as Bank of Montreal, Scotiabank and TD Bank, positioning them to benefit from a more favorable regulatory environment south of the border.
BMO has a strong presence in the United States through its subsidiary BMO Harris Bank, headquartered in Chicago, while TD Bank operates as “America’s Most Convenient Bank” with branches along the East Coast, from Maine to Florida. Scotiabank also has a notable stake in Cleveland-based KeyCorp.
Meanwhile, RBC expanded its presence in the United States with the acquisition of City National Bank, serving high-net-worth clients and businesses, and CIBC established itself with CIBC Bank USA, following its acquisition of PrivateBancorp, based in Chicago.
“Bank stocks are falling off the radar today as the DJT administration is seen as bullish on the banking sector,” Sims noted.
Porter added that a stronger U.S. economy could support more robust cross-border trade and investment flows, indirectly benefiting Canadian banks.
The bad news for Canada
Tariffs pose one of the most immediate risks to Canada following Trump’s election, with protectionist policies potentially impacting the economy.
Canada “could be one of the hardest hit countries (along with China and Mexico) by a potential trade fight,” Porter warned.
“Increased uncertainty over tariffs and the fate of the USMCA ahead of the 2026 review could depress capital flows to Canada and weaken domestic investment, likely prolonging the country’s declining productivity,” he said. he continued, adding that this could weigh on an already weak Canadian dollar.
Sims expressed additional concerns, saying Canada’s growth relied heavily on rising real estate prices rather than real productivity gains.
“If Canada does not act quickly on the economic front, it will unfortunately bear fruit, in line with my prediction of a flat decade in the years to come,” he noted, pointing to high debt, low rates high interest rates and a falling dollar. in a protectionist climate.
Porter also suggested that Canada may need to adjust corporate taxes to retain investment and could face pressure to increase NATO spending, which could increase the budget deficit.
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Last modification: November 6, 2024