Bank of Canada Governor Tiff Macklem listens during a news conference following an interest rate announcement on Oct. 25, 2023, in Ottawa.Adrian Wyld/The Canadian Press
The Bank of Canada is expected to remain on pause for its first interest rate decision of the year, but analysts will be watching for hints about the timing of future rate cuts as the economy stagnates.
Financial markets and Bay Street economists see the central bank holding its policy interest rate at 5 per cent on Wednesday, in what would be its fourth stand-pat decision since July. It will also publish a new set of projections for inflation and economic growth.
Governor Tiff Macklem and his team are entering 2024 in a kind of limbo. High borrowing costs have brought economic growth in Canada to a standstill, unemployment is on the rise, and businesses and consumers are feeling gloomy, according to central bank surveys published last week. Yet so far, the economy has avoided an outright recession, which many economists were predicting this time last year.
Meanwhile, the annual rate of Consumer Price Index inflation has slowed considerably since a mid-2022 peak of 8.1 per cent.
However, it ticked up to 3.4 per cent in December from 3.1 per cent the month before, and measures of core inflation, which strip out the most volatile components of the CPI to capture underlying price pressures, appear to be stuck in the 3.5-per-cent to 4-per-cent range. Average hourly wages, which the bank watches closely, continue to rise quickly across the country.
“In terms of the actual setting of monetary policy, economic developments have been soft enough to reinforce that further interest rate hikes won’t be needed, but inflation (and wage growth) have also been too sticky to push the BoC to consider starting an easing cycle yet,” Royal Bank of Canada economists Nathan Janzen and Claire Fan wrote in a note to clients.
Interest rate swap markets, which capture market expectations about monetary policy, put the odds of the first rate cut happening in April at around 60 per cent, according to Refinitiv data. Many Bay Street analysts think it will be closer to the middle of the year, at the rate decision in June or July.
Mr. Macklem said last month that he needed to be convinced that inflation was on a “sustained downward track” before cutting rates. He said inflation should be “getting close to” 2 per cent by the end of 2024, and that the bank could start cutting rates before inflation gets all the way back to target, given that monetary policy changes work with a lag.
With markets pricing a high probability of a hold on Wednesday, the big questions are around the bank’s communication: How will Mr. Macklem and senior deputy governor Carolyn Rogers talk about inflation at the press conference after the rate announcement? Will they close the rhetorical door on further rate hikes, and open it to possible rate cuts in the coming quarters?
To date, central bank officials have maintained they could raise interest rates further if inflation doesn’t co-operate. But analysts and bond traders have largely dismissed the possibility. And the meeting minutes from the bank’s December rate decision suggest that most members of the bank’s governing council now believe that borrowing costs are high enough to bring inflation back to target over time.
If Mr. Macklem and Ms. Rogers focus on the stickiness of core inflation, it could be interpreted as a hawkish signal and lead traders to dial back bets on an April cut.
By contrast, if they play up the sluggish economy or the fact that inflation excluding shelter costs is now back within the bank’s 1-per-cent to 3-per-cent control range, it would be read as dovish. Shelter inflation is being heavily influenced by a jump in year-over-year mortgage interest costs, which are tied to the bank’s past interest rate hikes.
“The narrative will determine the data and not the other way around,” Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal wrote in a note to clients. “Therefore, the tone of Governor Macklem’s press conference will become increasingly more important than any new data releases because, at the end of the day, the Bank can always find an inflation number to fit its narrative.”
Analysts are also watching for a possible change in language around the Bank of Canada’s Quantitative Tightening (QT) program.
Since 2022, the bank has been shrinking the size of its balance sheet, which ballooned during the first 1½ years of the COVID-19 pandemic as it bought hundreds of billions of dollars’ worth of federal government bonds to suppress interest rates.
It has been letting these bonds mature without replacing them, leading its holdings to shrink from a peak of $430-billion to around $270-billion. This process is pulling liquidity out of the financial system, as the money created to buy the bonds in the first place – essentially reserves at the central bank called “settlement balances” – is retired.
Bank officials have said they expect to end QT in late 2024 or early 2025. However, analysts have started questioning whether the bank may need to halt the process before then, after recent signs of strain in money markets. Earlier this month, the bank had to pump money temporarily into the financial system on an overnight basis to try to keep market-based interest rates trading near its target.
Previous experience with QT in the United States shows that financial markets can start to misfire when the central bank tries to reduce its bond holdings and withdraw liquidity from the system. In the past, that led the U.S. Federal Reserve to stop QT early.
“Tapering or ending QT isn’t an easy decision to take. It would mean that the Bank of Canada’s purchases of Government of Canada bonds were not temporary after all, opening the institution up to criticism that it had financed the federal government’s massive COVID deficits,” Royce Mendes, head of macro strategy at Desjardins, said in a note to clients.
However, if the markets department at the central bank “determines that restraining QT is necessary, they won’t hesitate to act,” he said.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
