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Bank of Canada move will put pressure on Ottawa for fiscal response – Financial Post

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A Bank of Canada rate cut won’t be enough to mitigate the economic fallout of the coronavirus, turning all eyes to Ottawa for measures to stabilize jittery markets and restore confidence.

A surprise move by the U.S. Federal Reserve to cut its interest rate by 50 basis points Tuesday makes a parallel move by Bank of Canada governor Stephen Poloz all but certain, analysts say. The Fed cut will see the target rate for federal funds fall to between 1 per cent and 1.25 per cent.

Poloz is widely expected to cut Canada’s current benchmark interest rate of 1.75 per cent by 25 to 50 basis points on Wednesday.

But while lower rates can ease lending and encourage consumers to spend, they cannot address supply chain disruptions or calm nerves about the spread of the virus — making a fiscal response from Ottawa all the more likely as countries scramble to keep their economies moving, analysts say.

“We are dealing with something that has nothing to do with monetary policy,” said Benjamin Tal, deputy chief economist at CIBC World Markets. “In this environment, fiscal policy is more effective so I will not be surprised if we see some changes there and a compromise on the deficit as a result.”

Those changes could take the form of accelerated capital expenditure writeoffs or direct spending on infrastructure to stimulate the economy, Tal said.

“Whatever they do they have to make sure it’s reversible, and tax cuts are hard to reverse,” he added. “So I think we’ll see direct spending. But the pressure will be on fiscal policy to carry the day until this situation stabilizes.”

That could be a tall order as Finance Minister Bill Morneau endeavours to soothe concerns about a widening budget deficit, already running higher than initial estimates. Morneau will table his budget in the upcoming weeks amid slowing domestic and global growth and now, deepening concerns about the coronavirus.

The pressure will be on fiscal policy to carry the day until this situation stabilizes

Benjamin Tal, deputy chief economist, CIBC World Markets

On Tuesday, Morneau said the government has the fiscal room to move if needed.

Morneau took part in a Group of Seven conference call call on the global health crisis in the morning, which stopped short of spelling out a specific policy response. His office later signalLed a willingness to spend more if circumstances demand it. “Our strong fiscal position continues to give us the necessary leverage to respond,” press secretary Maeva Proteau said by email.

Prime Minister Justin Trudeau, meanwhile, left the door open to targeted government aid.

“There will be impacts on Canadian businesses, on entrepreneurs, and we will always look for ways to minimize that impact and perhaps give help where help is needed,” the prime minister said in Halifax.

Beata Caranci, chief economist for TD Bank Group, said some sectors could already be suffering. “The tourism sector is an obvious one. The first point of contact for pain is in that sector.”

The Fed’s emergency cut to the U.S. benchmark borrowing rate is the first since 2008 financial crisis, when regulators moved to stabilize tanking markets following the collapse of Lehman Brothers bank.

Though Federal Reserve Chairman Jerome Powell said Tuesday’s cut was prompted by increased risks from the coronavirus to the country’s record economic expansion, the move nevertheless came as a surprise — particularly since the impacts of the virus are only starting to be felt in the U.S. economy.

There will be impacts on Canadian businesses, on entrepreneurs, and we will always look for ways to minimize that impact and perhaps give help where help is needed

Prime Minister Justin Trudeau

Regulators may have felt the need to act pre-emptively given the hefty economic toll the illness has taken elsewhere, Caranci said. China, for instance, is expected to have the first recorded economic contraction in its history in the first quarter, while Italy, the nexus of the European outbreak, will likely also see its economy continue to contract, she said.

“There’s a high degree of uncertainty but what the Fed can do is observe what’s been happening off its shores and see that it’s having quite strong impacts,” Caranci said. “They’re probably presuming if it’s happening there, why would we presume we’d be completely isolated from that?”

Whatever the reason, the Fed’s step will make it particularly difficult for the Bank of Canada to justify leaving its own rate untouched. Canada’s economic growth has been weaker than in the U.S., it has been hit by more “idiosyncratic shocks” such as rail disruptions, and the country already has the highest policy rate of any advanced economy, Caranci noted.

“To my mind, the only question is whether they cut by 25 or 50 basis points,” she said. “At this point the market has priced in higher odds that they move by 50 basis points so now they have to justify, why they won’t take that larger step. What makes Canada different?”

The answer to that question comes back to Canada’s high level of household debt, she added. Due to soaring house prices, Canadians now carry debt of $1.76 for every dollar in disposable income they have – the highest of all G7 countries. Some fear low interest rates could further fuel that ratio.

For his part, Tal expects concerns about the virus to offset a boom in housing and associated debt as a result of an interest rate cut.

“Interest rates are already low to start with and getting into the market is a big responsibility when people are concerned about the long-term impact of the virus,” he said. “I do expect more creative moves from all governments to ease those concerns.”

Meantime, the pressure will be on Ottawa to show it is taking steps to contain the crisis, Caranci said.

“The best thing they can do is telegraph to people and financial markets that they actually do have a plan and it’s not like they’re being reactive,” she said. “They have something ready to go, it’s just a matter of whether they need it or not. That takes the pressure off the central banks to address something they can only partially address.”

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Roots sees room for expansion in activewear, reports $5.2M Q2 loss and sales drop

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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.

Companies in this story: (TSX:ROOT)

The Canadian Press. All rights reserved.

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Talks on today over HandyDART strike affecting vulnerable people in Metro Vancouver

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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.

The Canadian Press. All rights reserved.

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Transat AT reports $39.9M Q3 loss compared with $57.3M profit a year earlier

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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.

Companies in this story: (TSX:TRZ)

The Canadian Press. All rights reserved.

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