The Canadian Investor
Canadian Banks Set More Aside for Bad loans
Aug 29, 2024
Recent CPI data sparks a discussion on inflation risks and the Fed’s pivot to labor market concerns. Algonquin Power's $2.5 billion sale of its renewable arm raises questions about its financial strategy amid rising interest rates. Canadian banks are under scrutiny as BMO and others report disappointing earnings and increase provisions for credit losses. The risks of dividend cuts for investors are highlighted, particularly in the context of troubled investments and regulatory challenges facing the banking sector.
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Quick takeaways
- The Canadian Consumer Price Index (CPI) shows signs of rising inflation risks, highlighted by a recent shift in focus by the Fed toward labor market concerns.
- BMO's significant earnings drop is attributed to elevated provisions for credit losses, reflecting potential challenges within its loan portfolio amidst broader bank stabilization.
Deep dives
Canadian CPI and Inflation Insights
Recent data shows the Canadian Consumer Price Index (CPI) at 2.5% over the past year, with a month-on-month increase of 0.4%. This month-over-month rise poses concerns as annualizing it indicates a significantly higher inflation rate. Energy prices have stabilized in the low single digits, but this could exacerbate inflation if they start to rise again. Notably, shelter costs decreased slightly from 6.2% in June to 5.7% in July, hinting at some easing in inflationary pressures.
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