Everything You Need to Know on Tuesday: Quebec Pension Fund Says It's Ready to Back Couche-Tard in 7-Eleven Quest

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

●S&P/TSX 60 Index Standard Futures are trading at 1,444.60, down 0.16% from previous close

● Former Bank of Canada official Paul Beaudry sees jumbo rate cut in October

● David Rosenberg: Housing numbers signal Bank of Canada is still way behind the curve

● Blockbuster $8.8-billion Chevron deal further consolidates Canadian control over oilsands

● Quebec Pension Fund Says It's Ready to Back Couche-Tard in 7-Eleven Quest

Today, the Canadian dollar is trading at 73.3 US cents, a slight decrease from the previous close.

An ex-member of the Bank of Canada’s governing body said officials should cut borrowing costs by half a percentage point later this month.

There are “good reasons” to move interest rates “back to as close to neutral as quickly as possible,” former Deputy Governor Paul Beaudry said, including boosting household and business optimism.

Now that policymakers are more sure that wage growth, expectations and corporate pricing are going in the right direction, Beaudry sees borrowing costs moving lower faster as the bank eyes a sustainable return to 2% inflation.

“The preconditions were there to kind of start moving down; you want to move that down quickly,” Beaudry said in an interview on the Canadian Imperial Bank of Commerce podcast Curve Your Enthusiasm that aired Monday.

“I would really bet on 50 basis points,” he said, referring to the bank’s Oct. 23 meeting. Giving some monetary stimulus back amid the slowness in Canada’s economy would also help in “getting that message across” to consumers and firms.

There was an expanding narrative of how the Bank of Canada was going to unleash a fresh wave of housing inflation when it began to cut rates four months ago. The exact opposite has happened.

The September data for the dominant Greater Toronto Area showed a huge 9.8 per cent surge in the number of new listings hitting the market (supply), which tripled the 3.3 per cent increase in resale activity (demand). This gap caused a 0.5 per cent month-over-month slide in average home prices (to a still-inflated $1.08 million) and is down five per cent now on a year-over-year basis.

And look at what is happening out on the once-hot West Coast, where new listing volumes in Vancouver skyrocketed 50 per cent month over month in September at the same time that sales slipped 2.7 per cent. That combination brought the average home price down 1.4 per cent month over month and by 1.8 per cent on a year-over-year basis (and still a whole lot of air under this thing as average home prices still sit at a bubbly $1.18 million).

This is all very important to the Bank of Canada, since headline inflation is already down to two per cent year over year despite shelter inflation still running hot at 5.3 per cent (though off the boil). Imagine what will happen once the housing numbers in the consumer price index begin to match what is happening in the residential real estate market in real time, because the ex-shelter inflation rate is running at 0.5 per cent year over year (from 3.2 per cent a year ago).

If you take into account the “convergence” theme and then consider that the historical norm is for the policy rate to command a 50- to 100-basis-point premium over the inflation rate, the prospect is that we close this easing cycle in Canada closer to one per cent or 1.5 per cent (from 4.25 per cent now).

That trend continued on Monday, with CNRL shares climbing more than 4% after the deal with Chevron raised its stake in a key oil sands mine and a connected upgrading facility, while also adding natural gas assets in the Duvernay formation.

“These assets build on the robustness of Canadian Natural’s assets,” said CNRL President Scott Stauth said on a conference call Monday. The deal boosts CNRL’s stake in the Athabasca oil sands project, which it first bought from Shell in 2017, to 90% from 70%.

The acquisition was largely expected and boosts CNRL’s oil and gas output by roughly 9%, adding the equivalent of 122,500 barrels of oil production per day.

“Couche-Tard knows that we will always accompany them in these endeavors if necessary,” Vincent Delisle, head of liquid markets at Caisse de Depot et Placement du Quebec, said in an interview.

But the terms of any potential deal are still very unclear, he added. “We lack so many numbers.”

Couche-Tard, the Canadian company that owns Circle K and other convenience store and gas station brands, made an approach to Seven & i that valued it at about $39 billion. The Japanese retailer turned it down, saying the proposal wasn’t good enough to “engage in substantive discussions.”

Bloomberg News reported on Sept. 11 that Couche-Tard is considering improving its offer, but publicly it has made no movement. In the meantime, Seven & i has approached potential buyers for its Ito-Yokado stores and supermarkets as it seeks to restructure, according to people familiar with the matter.