Bank of Canada underappreciates downside risks to demand, says Citi economist

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Bank of Canada underestimating risks

Citi economist Veronica Clark thinks the Bank of Canada is too hawkish after Wednesday’s rate cut,

“The Bank of Canada cut policy rates by 25bp as expected to the lower bound of the estimated neutral range at 2.25 per cent but signaled that the current level of policy rates would be appropriate if forecasts evolve as expected. Unfortunately, we think the Bank continues to underappreciate downside risks to demand. Final domestic demand is forecasted to be the same in 2026 as in the January MPR, despite escalating tariffs and trade disputes, slowing population, lower oil prices, uncertainty weighing on investment, and a softening labor market in the US. In the near term, limited data means that further slowing in growth and inflation may not be clear before the December BoC decision, and we now expect rates on hold through the end of the year, but we continue to expect policy rates to fall at least 50bp more to 1.75 per cent”

U.S./China trade tensions de-escalate

TD macro strategist Alex Loo assessed the market effects of recent U.S./China trade negotiations,

“Trump rated today’s talks with President Xi as a 12 out of 10, and the biggest winner were U.S. soybean farmers, while Chinese exporters will benefit from a 10-per-cent reduction in tariff rates, effective immediately. Key announcements confirmed by both sides include: 1) a delay in exports controls; 2) China’s purchase of soybeans; and, 3) Trump will visit China in April 2026. Assuming good relations continue, we expect trade officials to rush to finalize a US-China trade deal for a signing by both leaders in April next year, given the optics of Trump’s first China visit in his second term. Markets probably didn’t interpret the announcements as substantive and viewed today’s talks as a de-escalation, as we had flagged earlier. Most Asian equity indices were negative or traded close to flat towards Asia close. AUD was also little changed and the USDCNY was just a smudge lower following the flurry of trade announcements from both sides”

Canadian tech stocks get new price targets

CIBC analyst Stephanie Price made a raft of changes to the domestic technology stocks she covers,

“Where We Differ From Consensus: We are 6 per cent below the consensus EBITDA estimate for TIXT given the revisions noted above. We are 2.5 per cent below Street EBITDA for CGY given ongoing weakness in the ITCS business, and we are 2.5 per cent below Street EBITDA for ENGH given industry headwinds. Rolling Our Models To 2027: We have not made any ratings changes with this report, but we raise our price targets on CGY to $62 (prior $59), Open Text to $40 (prior $34), Kinaxis to $201 (prior $198) and Constellation to $5,480 (prior $5,450) as we roll our valuation year to 2027. We have reduced our price targets on CGI to $149 (prior $180), DSGX to US$126 (prior US$127), TRI to US$198 (prior US$201), CMG to $6.50 (prior $7.50), and DCBO to US$36 (prior US$37) as we adjust our multiples and forecasts to reflect the current environment”

Bluesky post of the day

Diversion

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