CANADA: Freeland Appears To Accept Higher Fiscal Deficit Tracking
- Speaking to reporters in Ottawa, FM Freeland has said the government will meet its debt-to-GDP projection for FY 23-24 and will reduce the ratio over the medium term as it looks to maintain one of its fiscal anchors.
- Tellingly, our reporter writes that she declined to answer several questions about whether she’d honour a pledge to limit deficits to C$40bn after the 2024 Budget showed a C$40bn deficit in FY23-24 before C$39.8bn in FY24-25 and then declining.
- “A declining debt to GDP ratio is the guarantee, the numerical statement, of Canada’s fiscal sustainability,” Freeland said.
- This comes ahead of the government’s long-awaited Fall Economic Statement due Monday (Dec 16).
- Recall that the Parliamentary Budget Office in its Economic and Fiscal Update back in October projected a federal deficit of C$46.8bn for FY 24-25 and C$46.4bn for the current fiscal year so this is only really confirming existing tracking.
- That estimate was prior to the government announcing a two-month GST/HST break which the PBO has costed at C$1.5bn in FY 24-25 (and potentially a further C$1.3bn on top of that) plus circa C$4.5bn for a debated $250 rebate to as many as 19 million Canadians in April.
- Despite a likelihood of larger than previously budgeted deficits, a pledge to maintain a downward trajectory in the debt-to-GDP ratio looks to have modestly supported GoCs relative to Treasuries. Can-US yield differentials saw a step lower for the 2Y to new fresh multi-decade lows of -125bps whilst the 10Y differential remained at joint lows of -118bps. Monday's details will clearly be more important (plus any leaks between now and then) and of course the BoC decision tomorrow.
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Historical bullets
JGB TECHS: (Z4) Bounce Reverses
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 146.53 - High Aug 6
- PRICE: 143.70 @ 16:14 GMT Nov 08
- SUP 1: 143.39 - Low Nov 07
- SUP 2: 142.23 - Low Jul 02
- SUP 3: 140.21 - 1.236 proj of Mar 22 - Nov 1 ‘23 - Jan 15 price swing
Prices fell further Thursday, extending the recent pullback. The return lower at the start of this week has culminated in a break of 143.57, marking both the Jul 17 high on the continuation contract as well as the Oct 22 low. For now, the 50-dma tops out at 144.32, and marks first resistance. A continuation higher would open 146.53, the Aug 6 high (cont) and a bull trigger.
US TSY FUTURES: BLOCK: Late 2Y/10Y Ultra-Bond Flattener
- Flattener crossed late Friday at 1645:30ET, DV01 $322,000
- -8,900 TUZ4 102-23.88, sell through 102-24.38 post time bid vs.
- +3,700 UXYZ4 113-16, post time offer
USDCAD TECHS: Trend Needle Points North
- RES 4: 1.4179 2.0% 10-dma envelope
- RES 3: 1.4000 Round number resistance
- RES 2: 1.3977 High Oct 13 and a key M/T resistance
- RES 1: 1.3959 High Nov 1 / 6
- PRICE: 1.3910 @ 16:29 GMT Nov 8
- SUP 1: 1.3836/22 20-day EMA and a key S/T support / Low Nov 6
- SUP 2: 1.3744 50-day EMA
- SUP 3: 1.3611 Low Oct 8
- SUP 4: 1.3567 Low Oct 7
USDCAD reversed course Wednesday and recovered from Tuesday's low. The trend outlook is unchanged, it remains bullish. Attention is the key resistance at 1.3946, the Aug 5 high. This hurdle has been pierced, a clear break would strengthen the uptrend and open 1.3977, the Oct 13 high and a key medium-term resistance point. Initial firm support to watch lies at 1.3836, the 20-day EMA.
