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Investment

Ahead of Canada’s election, investors eye signs of fiscal turning point

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Investors are looking for signs that Canada‘s next government could dial back historic levels of fiscal spending to support the economy during the coronavirus crisis, with activity already on track to make a full recovery.

Political parties tend to use election campaigns to roll out new spending priorities. But additional measures at this time could concern the bond market and credit rating agencies, particularly if they do not boost economic growth. They could also add to inflation pressures.

Canadian Prime Minister Justin Trudeau is planning to call a snap election for Sept. 20, Reuters reported on Thursday.

Polls show the governing Liberal Party well ahead of the official opposition, the Conservatives.

“From an economic perspective we’d say we don’t need more spending right now in the Canadian economy,” said Rebekah Young, director, fiscal and provincial economics at Scotiabank.

“Markets will probably be looking for some sign of restraint; that an incoming government recognizes there is a lot already in the pipeline.”

Canadian government bond yields were little changed on Thursday but the loonie and Canada‘s main stock index edged lower as commodity prices fell, with stocks retreating from a record high on Wednesday.

“Elections cause a lot of uncertainty,” said Greg Taylor, portfolio manager at Purpose Investments. “More uncertainty could be something that would be a bit of a headwind to the market and may dampen future returns.”

In April, the government projected a C$155 billion ($124 billion) deficit for the current fiscal year, about 8% of GDP, and outlined a C$101 billion plan over three years to boost economic recovery.

The economy is also expected to benefit from record levels of household savings and a high vaccination rate.

Ontario, Canada‘s most populous province, on Thursday raised its growth forecast for 2021 to 5% from 4% as it cut its deficit projection for the current fiscal year, in a sign that stimulus is already working.

Canadian employment has rebounded to 1.3% below its pre-pandemic level and inflation has climbed above the top of the Bank of Canada‘s target range of 1% to 3%.

The central bank has helped lower borrowing costs during the pandemic by buying government bonds. In addition, Canada has been one of a number of major countries, including the United States, to borrow heavily during the pandemic, so that investors have not discriminated against its debt.

But that could change, analysts say.

“I think once you get past the pandemic, you’ll have some countries not running big deficits,” said Darcy Briggs, a portfolio manager at Franklin Templeton Canada. “And if you are running big deficits, that could pose a problem to bond markets.”

Fitch Ratings has already stripped Canada of one of its coveted triple-A credit ratings, but S&P Global Ratings and Moody’s Investors Service still give Canadian debt the highest rating.

The worry is that rating agencies could take action if programs are added that make deficits more structural in nature rather than cyclical. Examples could include a national pharmacare program and universal basic income, favored by grassroots Liberals.

Meanwhile, Conservative leader Erin O’Toole has promised to balance the budget over the next decade.

That is a path that may not differ much from the Liberals, while the gap on climate change policy has narrowed since the last election, Avery Shenfeld, chief economist at CIBC Capital Markets, said in a note.

Measures that Shenfeld says the Conservative Party could add to its platform include increasing foreign competition in the telecom market and tax initiatives to spur capital expenditure.

Still, sweeping new revenue measures are not expected from the major parties, such as raising the sales tax. Instead, analysts expect targeted measures, such as a luxury vehicles tax proposed by the Liberals.

“When we look at those measures, we have to be a bit skeptical as to how much they would bring in at the end of the day in terms of revenue,” Young said.

(Reporting by Fergal Smith; editing by Jonathan Oatis and Marguerita Choy)

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Economy

S&P/TSX gains almost 100 points, U.S. markets also higher ahead of rate decision

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TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.

“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.

Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.

But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.

Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.

“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.

“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.

A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.

It would also be “counter to what they’ve signaled,” he said.

More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.

“That’s going to be more important than the size of the cut itself,” he said.

In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.

“Here, the labour situation is worse than what we see in the United States,” he said.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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