Bank of Canada Governor Stephen Poloz is seen during a news conference in Ottawa on Jan. 22.
Adrian Wyld/The Canadian Press
The Bank of Canada cut its key interest rate by 50 basis points Wednesday in response to the “material negative shock” of the COVID-19 virus.
The bank lowered its target for the overnight rate to 1.25 per cent, down from 1.75 per cent. The last time the bank announced a rate cut was in 2015.
The move comes one day after G7 finance ministers and central bankers pledged coordinated action in response to the virus. Shortly after Tuesday’s G7 statement, the U.S. Federal Reserve cut its key rate by 50 basis points, to a range of 1 per cent to 1.25 per cent.
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In a news release Wednesday, Bank of Canada officials said much has changed since its last interest rate decision in January.
“Before the outbreak, the global economy was showing signs of stabilizing,” the bank said. “However, COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted.”
Economic fallout from the virus has also led to lower commodity prices and a decline in the value of the Canadian dollar.
“It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity,” the bank said.
Shortly after the decision, traders were pricing in a 75-per-cent chance the bank will cut rates again at its April 15 meeting.
As coronavirus fears have ramped up, investors have fled to safety in the bond market, pushing yields – which move opposite to prices – to historic lows. The U.S. 10-year Treasury has tumbled below 1 per cent for the first time ever, while Canada’s five-year bond yield, which influences mortgage rates, has ebbed to around 0.8 per cent, its lowest since 2016.
“The Bank of Canada didn’t wait to see the patient ailing before delivering a dose of preventative medicine, but where it goes from here is a matter of epidemiology rather than economics,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a research note. “Like the rest of us, [the Bank] will be watching for news on both the virus and the economy, but it’s reasonable to assume a further 25 [basis point] cut in April, with the rest of this year’s story being dependent on which virus scenario plays out.”
Beyond the virus, the bank listed other factors as contributing to weaker growth. The expected boost from recent resolutions to trade disputes in North America and between the U.S. and China have not materialized.
“In addition, rail line blockades, strikes by Ontario teachers, and winter storms in some regions are dampening economic activity in the first quarter,” the bank said. “In light of all these developments, the outlook is clearly weaker now than it was in January. As the situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.”
“We’ve seen central banks lay down their cards, and now we’ve got to see the government,” said Beata Caranci, chief economist at Toronto-Dominion Bank.
Ms. Caranci suggested fiscal stimulus could take the form of targeted tax breaks for hard-hit industries.
“It doesn’t need to be a blanket approach,” she added. “It needs to be really thoughtful, and most importantly, it needs to be swift. This is not something you want to be debating for months at a time.”
With world interest rates already near historic lows, central bankers have limited room to act in response to a major economic shock like COVID-19. As a result, the international response may need to rely more heavily on fiscal measures – such as tax cuts or new spending – to boost economic growth.
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Finance Minister Bill Morneau, who is preparing the Liberal government’s 2020 budget, said through a spokesperson this week that federal finances are in a position to provide extra support for the economy if necessary.
The Prime Minister’s Office announced Wednesday that a new eight-member cabinet committee focused on COVID-19 will be created and that it will be chaired by Deputy Prime Minister Chrystia Freeland. The committee has a mandate to monitor both the health and economic impacts of the virus and to consider “all possible measures” to prevent and limit its spread in Canada.
Mr. Morneau is a member of the new committee. On Wednesday morning around 11 am eastern, he hosted a conference call with his federal and provincial counterparts to discuss the economic implications of the virus.
U.S. Treasury Secretary Steve Mnuchin was more specific this week, pointing to support for small business and increased spending on infrastructure as potential fiscal measures that could be adopted in Washington if fiscal stimulus is required.
RBC senior economist Josh Nye said a rate cut was expected but markets had not fully priced in a reduction of that size.
“With today’s statement leaving the door wide open to further easing, we still think the Bank of Canada is likely to cut in April in addition to today’s larger-than-expected move,” he said in a note. “But it’s the response from other policymakers, particularly fiscal and health authorities, that could do more to cushion the blow as the coronavirus outbreak intensifies.”
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Bank of Canada Governor Stephen Poloz, whose seven-year term expires in early June, has repeatedly pointed to concerns over elevated household debt levels as a factor for resisting an interest rate cut. Bank officials did not speak publicly Wednesday, but Mr. Poloz is scheduled to deliver a speech and take questions from the media in Toronto Thursday.
Bank of Montreal Chief Economist Doug Porter noted that Wednesday’s decision coincides with signs of strength in the Canadian housing market, particularly in Toronto.
“Clearly the bank is making a big trade off here, deciding that the risks of a virus-driven slowdown are much higher than the risks of a raging housing market,” he said in a note.
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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
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