Everything You Need to Know on Wednesday: Statistics Canada to Release May GDP Figures and Q2 Estimate Today

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

● S&P/TSX 60 Index Standard Futures are trading at 1,381.90, up 0.90% from previous close

● Statistics Canada to release May GDP figures, Q2 estimate today

● 'Inflation going to zero' if BoC too slow to bring rates down: David Rosenberg

● BMO downgraded, price target cut at RBC on U.S. credit concerns

● Canadian real estate, utility sectors ride rate cuts to market-beating gains

Today, the Canadian dollar is trading at 72.30 cents US, a slight increase from previous close.

S&P/TSX 60 Index Standard Futures are trading at 1,381.90, up 0.90% from previous close.

Statistics Canada will release its May gross domestic product report this morning.

A preliminary estimate last month suggested the economy grew 0.1 per cent in May.

The federal agency will also publish an estimate for economic growth in the second quarter today.

RBC says it expects the data to show a weakening economy in the second quarter.

High interest rates have slowed economic activity in the country as consumers and businesses pull back on spending.

The Bank of Canada cut interest rates for a second time in a row earlier this month, in part due to weakening economic conditions.

One veteran Bay Street economist predicts the Bank of Canada will need to bring borrowing costs down to pre-pandemic levels to avoid a deflationary scenario.

David Rosenberg, the founder and president of Rosenberg Research, said that the two most recent rate cuts by the Bank of Canada have been “just an appetizer for the meal. ” He added that the two cuts worked to “basically offset policy missteps” the central bank took a year earlier by raising borrowing costs amid an “excess supply backdrop that they're now lamenting.”

If the Bank of Canada doesn’t bring interest rates down fast enough, Rosenberg said he thinks the Canadian economy could face a “deeper recession.”

“It’s undeniable that we’ve had the unemployment rate go up 160 basis points from the cycle low,” he said.

According to Rosenberg, the increase in unemployment is a clear recession indicator.

“If they don’t move quickly, then we’ll be talking in the next two years of inflation going to zero,” he said.

Bank of Montreal has posted two quarters of disappointing financial results as it set aside more money for potentially bad loans than analysts had forecast and signalled that provisions for credit losses could remain high for the rest of the year. The lender acquired San Francisco-based Bank of the West last year, significantly increasing its U.S. footprint — as well as its exposure to credit losses south of the border.

“We have seen enough evidence that BMO’s credit is not as strong as we once thought and hence a lower valuation is warranted,” Mihelic wrote in a report published Tuesday. “We believe that as the credit cycle progresses, BMO’s risk premium will move higher, as BMO’s U.S. credit result appears to be an outlier among its U.S. peer group,” he said, adding that the bank’s second-quarter credit results were worse than its Canadian rivals.

The real estate and utilities sectors of the Toronto Stock Exchange have been enjoying a rebound with the onset of some interest rate relief, recently outperforming not only the TSX Composite Index itself but also the S&P 500.

“Rate-sensitive sectors of the equity market have been under assault since the tightening cycle began in early 2022,” BMO Capital Markets economist Robert Kavcic wrote in a note on Tuesday. “Since January of that year (the Bank of Canada began to raise rates in March), TSX real estate is down roughly 20 per cent, while utilities are off more than 10 per cent.”

Over the same period, the TSX has gone up around 10 per cent. The Bank of Canada has made two 25-basis-point cuts in that time, bringing its overnight rate down to 4.5 per cent.

“As mature sectors comprising companies with historically higher leverage or debt loads, utilities and real estate have tended to trend in the opposite direction of interest rates, similar to bonds,” Colin Cieszynski, a portfolio manager and chief market strategist at SIA Wealth Management, wrote in a note .