2017 6.13

Count the Bank of Canada out as an enabler.

Investors betting against the Canadian economy lost a key support Monday when the country’s central bank indicated it’s turned bullish enough to consider raising interest rates -- a surprise policy change the Bank of Montreal called a “potential watershed.’’

The comments by Carolyn Wilkins, the central bank’s second-highest-ranking official, are a rebuke to pessimists who say unprecedented household debt and record home prices will trigger a disorderly unwind of Toronto’s real estate bubble. The Bank of Canada may have contributed to the negativity. Until now, it’s been slow to acknowledge the rebound, suggesting instead the economy wasn’t healthy enough to warrant higher interest rates.

“It was a painful day for those investors holding short positions in the Canadian dollar in the hope of a short-term gain,” said Matthew Strauss, a Toronto-based portfolio manager at Signature Global Asset Management.

The loonie surged after Wilkins’s comments, ending Monday up 1.1 percent to C$1.3350 per U.S. dollar in Toronto, the steepest increase since March and the biggest advance among Group-of-10 peers. Odds of a 2017 rate increase almost doubled to 59 percent, from 30 percent on Friday. Yields on benchmark 2-year government bonds surged 11 basis points to 0.84 percent.

‘Real Problems’

Short sellers betting against Canada’s housing market have been emboldened by price gains that far exceed incomes, the recent run on deposits and share collapse at mortgage lender Home Capital Group Inc. and a downgrade of the nation’s banks by Moody’s Investors Service.

“I’m starting to believe that there could be some real problems with Canada,” Carson Block, activist investor and founder of Muddy Waters LLC, said in a May 31 interview with Bloomberg TV Canada. Canada may be “the hottest market in the world for short sellers; if not, it could be.” The investor is shorting Canadian miner Asanko Gold Inc.

Famed short seller Marc Cohodes has been betting against Home Capital since November 2014 -- when the stock was near its peak.

Net short positions in the Canadian dollar meanwhile hit an all-time high going back more than two decades.

In a speech Monday, Wilkins highlighted how the nation’s recovery is broadening across regions and sectors, giving policy makers “reason to be encouraged.” She downplayed worries about Toronto’s housing market and said policy makers need to keep their eye on the future evolution of growth, not only current economic conditions.

“As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required,” Wilkins said. “At present, there is significant monetary policy stimulus in the system.”

Market sentiment had already turned more bullish on Canada. Short-interest positions of Canada’s six-biggest lender are down, with Toronto-Dominion Bank and Royal Bank of Canada -- the two largest -- now at about 1.6 percent of the free float, according to Markit data. That compares with about 5.9 percent at Royal Bank on April 25, and 5.5 percent in early April for Toronto-Dominion Bank, the data show.

Short sellers have also been easing pressure on Home Capital. Short positions on the shares dropped to 20 percent earlier Monday, the least since July 2015, according to Markit data on Monday. The alternative lender’s stock tumbled in April after Ontario’s securities regulator accused the company of misleading investors about mortgage fraud.

Governor Stephen Poloz said last week the economy’s strength offsets vulnerabilities associated with growing household debt. The optimism is an about face from January, when he spoke about the possibility of another reduction in the bank’s benchmark lending rate, after cutting it twice in 2015 to 0.5 percent.

“This is a pretty glaring hint that policy is now biased to tighten, with the next move likely a lot sooner than many had expected,” Bank of Montreal Chief Economist Doug Porter said in a note to investors.

New words

Betting against

投注反对 打赌反对

Eg: I bet against there would not be a third World War.

Bullish

(Using in the market) characterized by rising share price

看涨

Watershed

An area of land is separated by water flowing to different rivers.

An event or period making a turning point

分水岭

Eg: Going abroad is a watershed for me.

Rebuke

Express sharp disapproval or criticism of someone because of behaviors.

训斥 责怪

Eg: Teachers always rebuke the cheat in exams.

The attitude of Jason shows a rebuke to have a party before exams.

Pessimist

A person who believes the worst things will be happen.

Optimist

A person who tend to be hopeful and confident for future

Unprecedented

Never done or known before

前所未有的

Unwind

Relax after tension or working

放松

Surge

A suddenly powerful forward or upward movement

激增 波动

Steepest

Rising or falling sharply; excessive

陡峭 险峻

Eg: The international students steepest increase from 2010 to 2017

Emboldened

Give someone courage or confident to do something

底气

Collapse

Fall down

倒下 倒塌

Mortgage

A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property

贷款

Downplay

Make sth appear less important than it really is.

Eg: She downplays fearing and encourages to others.

Sentiment

A feeling or emotion

Ease

Make less serious; relax

Eg: Ease pleasure

Offset

Diminishes or balances the effect of a contrary one

抵消

Economy—n—economy class

Economics---n                      经济学

Economic---adj---economic situation    经济相关的

Economical---adj---economical price    节省经济（力）的