Canada’s economy at risk of tipping over; A warning sign for the US

Greg Weldon of Weldon Financial has to be one of the most colourful macro strategists in the market, his daily video briefings are high energy, and at times a little zaney. But don’t be fooled, he’s one of the most experienced and astute strategists out there, with a great track record to boot, across all asset classes. We highlight his special focus on Canada, where he argues that the Canadian economy is now at risk of tipping over. This comes in a week where the Bank of Canada revised down their outlook for 2019 and Governor Poloz said the rate normalization process would occur over time a longer period of time (Perhaps yet more evidence that global central banks are pressing the pause button). Weldon says it is clear Canada’s macro-economic growth is not only slowing, but dramatically by some measures, but it is also at risk of tipping over. He describes the housing-inflation/household debt bubble dynamic that has taken hold, which in combination  with the slowdown in Chinese domestic demand and the move to an overtly tight monetary policy by the US Fed is now feeding into the Canadian macro-data stream, and the economy is increasingly at risk of a significant downturn. For instance, exports and imports are both down significantly in the past 4-6 months, the RBC PMI is down, employment growth is slowing, retail sales growth is collapsing and at risk of an outright contraction. And there’s more. Both the Industrial Price Index and the rate of consumer price inflation are plunging. Subsequently, thanks to the decline in the CPI inflation rate, Canadian monetary just TIGHTENED, without the BOC doing anything. The broader point Weldon makes here is that he envisions that this is happening everywhere, particularly in the US, where it will become increasingly obvious that the Fed has gone too far.