Everything You Need to Know on Friday: Homebuyers in Canada Bet on More Rate Cuts with Adjustable Loans

Good morning mooers! Here are things you need to know about today's market:

● S&P/TSX 60 Index Standard Futures are trading at 1,289.00, down 0.54%

● Homebuyers in Canada bet on more rate cuts with adjustable loans

● Inflation, geopolitics weighing on tourism industry

● U.S. Crude oil stockpiles fall by 2.6 million barrels week-over-week, EIA reports

● Stocks to watch: Cohere

Today, the Canadian dollar is trading at 73.01 cents US, a slight decrease from Thursday.

S&P/TSX 60 Index Standard Futures are trading at 1,289.00, down 0.54% from previous close.

Canadian homebuyers are increasingly opting for variable-rate mortgages as expectations build that policymakers are about to provide further relief on borrowing costs.

The share of borrowers opting for mortgages that track the Bank of Canada’s benchmark rate rose to 12.9 per cent in the first quarter, the second consecutive increase, according to new data from the central bank. That’s up from a low of just 4.2 per cent of new mortgages in the third quarter of 2023 — though it’s still well below the levels seen in the pandemic, when such floating-rate loans briefly became the majority of the market.

The change in borrower preferences began even before the central bank cut its policy interest rate earlier this month and signaled more cuts to come.

With the benchmark rate now at 4.75 per cent, economists say that slowing economic growth and cooling inflation will prompt officials to cut it all the way to three per cent by the end of 2025, according to a Bloomberg survey. That would imply commercial bank prime lending rate of 5.2 per cent. Variable mortgage rates for bank customers with good credit are usually a little bit below the prime rate.

Canada’s tourism industry has not yet recovered after the COVID-19 pandemic, according to one economist, as the sector continues to be weighed down by inflation and geopolitics.

Claire Fan, an economist at RBC Economics, said in a report Tuesday that Canadian residents are taking more trips than before the pandemic, but there is “still a gap” regarding the number of people visiting Canada. She also noted that improving economic conditions could help to spur a rebound in tourism later in 2024 and into 2025.

The report said that rising inflation over the past few years has contributed to the industry's poor performance.

“Overall, the price of spending on tourism in Canada (hotels, restaurants, airfares, etc.) was 19 per cent above pre-pandemic 2019 levels in 2023. And despite a loftier price tag for many activities, tourists are getting less for their travel dollars,” the report said.

In an interview with BNN Bloomberg Wednesday, she said the inflation side of the issue is not unique to Canada and should improve going forward.

“But part of the story outside of inflation also is, (that) we are very specifically seeing a lag in spending out of East Asia. So that includes China, Japan and South Korea, who actually accounted for a pretty big chunk of foreign demand during the year's pre-COVID-19,” Fan said.

U.S. crude oil inventories declined by 2.6 million barrels to 457.1 million barrels in the week ended June 14, the U.S. Energy Information Administration reported Thursday.

Crude oil production rose 25,000 barrels per day (b/d) to 13.15 million b/d week-over-week, the EIA reported.

Crude oil imports also increased by 97,000 b/d to 7.30 million b/d. Meanwhile, crude oil exports fell by 78,000 b/d to 4.08 million b/d.

Total U.S. gasoline stocks shed 2.3 million barrels on the week to arrive at 231.2 million barrels, the EIA reported. Total distillate stocks also fell 1.8 million barrels to 121.6 million barrels.

At the Collision conference in Toronto this week, artificial intelligence pioneer Geoffrey Hinton warned the North American technological community that surveillance risks are one of the most urgent problems posed by AI.

This, alongside Hinton’s doomsday-like concerns for artificial intelligence including lethal autonomous weapons, corrupted elections and job losses, are not outcomes Canadian enterprise AI company Cohere feels are synonymous with growing out the technology.

In an interview with BNN Bloomberg on Wednesday, Nick Frosst, co-founder of Cohere says the science-fiction-styled doomsday scenario some fear will emerge from AI is not realistic.

“Geoffrey is a dear friend of mine. I started my work here as a researcher in his lab and I know pretty much everything I know about machine learning research from him, so we continue to debate this frequently but we have very different points of view,” Frosst says.

“At Cohere we are an enterprise-focused, large language model provider. We don’t think this technology presents a doomsday scenario. We do think there are real-world risks to using this technology and we take them very seriously,” he says, noting data privacy and security as top priorities.

“We (Hinton and Frosst) have been debating it for many years now and I think we have influenced each other a little bit, but I think over the years we’ve stayed pretty divergent on this viewpoint,” notes Frosst.