Wed, April 24, 2024 at 9:35 AM EDT
Business
3 reasons the Bank of Canada may be set to pause interest rate hikes – CBC News
It’s been almost exactly one year since the Bank of Canada began aggressively raising its key overnight lending rate. Since then, Canadian households have struggled with ever-increasing debt payments. Borrowing costs are up a stunning 425 basis points in the last 12 months.
But the days of relentless rate hikes may be about to draw to a close. On Wednesday, the Bank of Canada unveils its latest interest rate policy. Many expect it to make good on a promise to hit the pause button.
“The bank will almost certainly hold the key overnight rate at 4.50 per cent on March 8,” said James Laird, CEO of Ratehub.ca and president of mortgage lender CanWise Financial.
In January, the central bank raised its key interest rate to 4.5 per cent, but it also indicated it was ready to end its year-long series of rate hikes.
“If economic developments evolve broadly in line with the MPR [Monetary Policy Report] outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases,” the Bank of Canada wrote in its official statement.
That’s a pretty significant caveat.
Since the bank’s last decision on Jan. 25, we have seen job numbers, GDP data, home sales statistics and, of course, inflation numbers.
Inflation is way down from last summer’s peak
The consumer price index spent most of the last several decades lumbering along between one and two per cent. As the effects of the COVID-19 pandemic began to take hold, inflation began to climb.
At first it was dismissed by many as merely “transitory.” But prices never got the memo and just kept climbing. The year-over-year rate eventually peaked at 8.1 per cent last June.
By then, central banks everywhere were aggressively boosting interest rates. Global supply chain issues were coming under control, and the worldwide price of oil had begun to come down off the heights it reached after Russia invaded Ukraine one year ago.
By last week, the CPI had decelerated to 5.9 per cent annualized. The shorter trends were slowing even more.
Food prices are still way too high, but the overall trend was seen as a clear positive by economists like TD’s Leslie Preston.
“This was another step in the right direction and in inflation starting to come down, so I was relieved to see it move in the right direction,” Preston told CBC News.
More recently, we’ve seen Canada’s economic growth data come in weaker than expected.
Weak GDP bolsters case for pause in rate hikes
GDP growth ground to a halt through the fourth quarter of last year. Economic growth flat-lined to end the year, coming in at precisely zero per cent.
December’s monthly numbers actually showed a contraction. That means businesses didn’t sell as much and consumers scaled back.
Counterintuitive though it may seem, that bad economic news may be the good news that variable rate mortgage holders have been waiting for.
“[This] mostly soft report won’t be a disappointment to policy-makers, as the Bank of Canada is openly attempting to take some steam out of the economy,” wrote BMO’s chief economist Doug Porter. “And zero-point-zero growth is about as little steam as one could ask for.”
So, he said, the GDP numbers simply “reaffirm” that the Bank of Canada won’t increase rates when it announces its rate decision on Wednesday.
“And if growth remains below potential — as we expect — they will likely stay on the sidelines,” he wrote in a note to clients.
WATCH | As Canadians face high food prices, Loblaw profits up 12%:
Profits are up again for Canada’s largest food retailer. The Loblaw parent company says it earned nearly 12 per cent more last quarter compared to the same time a year ago, which is raising eyebrows for Canadians struggling with high food prices.
RBC’s senior economist Claire Fan agrees that the bank is all but assured to go ahead with its expected pause next week.
Going forward, she said, the jobs market will be one of the things to watch.
Red-hot jobs market too hot for Bank of Canada
Canadian employers added 150,000 jobs in January. That was about 10 times what economists had been expecting.
A consensus of economists believe another 5,000 jobs will be added when February’s numbers are released on Friday.
Fan said the real issue isn’t just the raw number of jobs being added; it’s whether wage growth continues to moderate.
Wages never rose as much as prices did. So workers have actually lost purchasing power over the last two years. Statistics Canada found wage growth peaked last November at 5.6 per cent.
WATCH | Canada’s economy is slowing, new data suggests:
There are signs the Bank of Canada’s plan to slow the economy is working as the gross domestic product has stalled, with a small dip in December, according to new data from Statistics Canada. That could mean a break from rising interest rates for struggling consumers.
Wages have now stabilized at about 4.5 per cent or so.
Fan said the central bank will look for that to moderate further. “If it’s still coming down, that’s probably enough to keep the Bank of Canada at its current position,” she told CBC News.
So GDP is slowing, inflation is decelerating and wage growth is moderating.
None of that is particularly good news for workers. But economists agree it should be enough to convince the Bank of Canada to make good on its pause and finally give a bit of a break to households struggling with rising debt payments and looming mortgage renewals.
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Oil companies planning to ship crude on the expanded Trans Mountain pipeline in Canada are concerned that the project may not begin full service on May 1 but they would be nevertheless obligated to pay tolls from that date.
In a letter to the Canada Energy Regulator (CER), Suncor Energy and other shippers including BP and Marathon Petroleum have expressed doubts that Trans Mountain will start full service on May 1, as previously communicated, Reuters reports.
Trans Mountain Corporation, the government-owned entity that completed the pipeline construction, told Reuters in an email that line fill on the expanded pipeline would be completed in early May.
After a series of delays, cost overruns, and legal challenges, the expanded Trans Mountain oil pipeline will open for business on May 1, the company said early this month.
“The Commencement Date for commercial operation of the expanded system will be May 1, 2024. Trans Mountain anticipates providing service for all contracted volumes in the month of May,” Trans Mountain Corporation said in early April.
The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast.
The Federal Government of Canada bought the Trans Mountain Pipeline Expansion (TMX) from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $23 billion (C$30.9 billion).
The expansion project has faced continuous delays over the years. In one of the latest roadblocks in December, the Canadian regulator denied a variance request from the project developer to move a small section of the pipeline due to challenging drilling conditions.
The company asked the regulator to reconsider its decision, and received on January 12 a conditional approval, avoiding what could have been another two-year delay to start-up.
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Tesla profits slump by more than a half
Tesla has announced its profits fell sharply in the first three months of the year to $1.13bn (£910m), compared with $2.51bn in 2023.
It caps a difficult period for the electric vehicle (EV) maker, which – faced with falling sales – has announced thousands of job cuts.
Boss Elon Musk remains bullish about its prospects, telling investors the launch of new models would be brought forward.
Its share price has risen but analysts say it continues to face significant challenges, including from lower-cost rivals.
The company has suffered from falling demand and competition from cheaper Chinese imports which has led its stock price to collapse by 43% over 2024.
Figures for the first quarter of 2024 revealed revenues of $21.3bn, down on analysts’ predictions of just over $22bn.
But the decision by Tesla to bring forward the launch of new models from the second half of 2025 boosted its shares by nearly 12.5% in after-hours trading.
It did not reveal pricing details for the new vehicles.
However Mr Musk made clear he also grander ambitions, touting Tesla’s AI credentials and plans for self-driving vehicles – even going as far as to say considering it to be just a car company was the “wrong framework.”
“If somebody doesn’t believe Tesla is going to solve autonomy I think they should not be an investor,” he said.
Such sentiments have been questioned by analysts though, with Deutsche Bank saying driverless cars face “technological, regulatory and operational challenges.”
Some investors have called for the company to instead focus on releasing a lower price, mass-market EV.
However, Tesla has already been on a charm offensive, trying to win over new customers by dropping its prices in a series of markets in the face of falling sales.
It also said its situation was not unique.
“Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs,” it said.
Despite plans to bring forward new models originally planned for next year the firm is cutting its workforce.
Tesla said it would lose 3,332 jobs in California and 2,688 positions in Texas, starting mid-June.
The cuts in Texas represent 12% of Tesla’s total workforce of almost 23,000 in the area where its gigafactory and headquarters are located.
However, Mr Musk sought to downplay the move.
“Tesla has now created over 30,000 manufacturing jobs in California!” he said in a post on his social media platform X, formerly Twitter, on Tuesday.
Another 285 jobs will be lost in New York.
Tesla’s total workforce stood at more than 140,000 late last year, up from around 100,000 at the end of 2021, according to the company’s filings with US regulators.
Musk’s salary
The car firm is also facing other issues, with a struggle over Mr Musk’s compensation still raging on.
On Wednesday, Tesla asked shareholders to vote for a proposal to accept Mr Musk’s compensation package – once valued at $56bn – which had been rejected by a Delaware judge.
The judge found Tesla’s directors had breached their fiduciary duty to the firm by awarding Mr Musk the pay-out.
Due to the fall in Tesla’s stock value, the compensation package is now estimated to be around $10bn less – but still greater than the GDP of many countries.
In addition, Tesla wants its shareholders to agree to the firm being moved from Delaware to Texas – which Mr Musk called for after the judge rejected his payday.
Business
Stock market today: Nasdaq futures pop, Tesla surges after earnings with more heavyweights on deck
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Tech stocks rose on Wednesday, outstripping the broader market as investors welcomed Tesla’s (TSLA) cheaper car pledge and waited for the next rush of corporate earnings.
The Nasdaq Composite (^IXIC) rose roughly 0.6%, coming off a sharp closing gain. The S&P 500 (^GSPC) was up 0.2%, continuing a rebound from its longest losing streak of 2024, while the Dow Jones Industrial Average (^DJI) fell 0.1%.
Tesla shares jumped nearly 12% after the EV maker’s vow to speed up the launch of more affordable models eclipsed its quarterly earnings and revenue miss. That cheered up investors worried about growth amid a strategy shift to robotaxis and the planned cancellation of a cheaper model.
The results from the first “Magnificent Seven” to report have intensified the already high hopes for Big Tech earnings, that the megacaps can revive the rally in stocks they powered. The spotlight is now on Meta’s (META) report due after the market close, as the Facebook owner’s shares rose after the Senate voted for a potential ban on rival TikTok. Microsoft (MSFT) and Alphabet (GOOG) next up on Thursday.
Meanwhile, Boeing (BA) reported better than expected first quarter results before the opening bell with a loss per share of $1.13, narrower than the $1.72 estimated by Wall Street. Shares rose about 2% in morning trade.
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