Bank of Canada financial stability report:

  • Debt serviceability and asset valuations are key risks to stability
  • Valuations of some financial assets appear to have become stretched, which increases risk of a sharp correction.
  • System appears resilient, over the last year financial system participants have continued to proactively adjust to higher rates.
  • Price corrections could be large and abrupt if there are significant changes to expectations around the path of rates or to the economic outlook.
  • Stretched asset valuations may not properly reflect the risks to economic outlook, thereby boosting likelihood of this orderly price correction.
  • Valuations remain under pressure in parts of commercial real estate sector, not all asset managers have fully reflected these reduced evaluations on their balance sheets.
  • Smaller mortgage lenders have seen a sharp uptick in credit arrears.
  • Signs of financial stress at risk primarily among households without a mortgage.
  • Largest entities of financial system appeared to have generally limited exposure to commercial real estate.
  • Global markets have continued to function well but uncertainty remains elevated.

From the BOCs Tiff Macklem:

  • Canada's financial system remains resilient
  • could be volatility in global markets as expectations shift about scope of timing of the rate cuts.
  • Adjustment by financial institutions to higher rates and possible shocks has some way to go, presents risks to financial stability.
  • Some indicators of financial stress have risen, valuations of some financial assets appear to have become stretched.

From BOCs Rogers:

  • Financial health of large businesses appear solid, but smaller businesses are showing more signs of financial stress.
  • Overall evidence suggests households and continue servicing debt at higher rates.
  • Increase in insolvency filings by smaller firms could be a normalization after years of below-average filings as pandemic support expire.
  • Overall credit performance of Canadian banks remain strong.

So the financial stability report does have some warnings that could shift risks to the downside for markets and financial assets.

The USDCAD is trading to new session lows.