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Bank of Canada set to make rate announcement, release economic outlook – CP24 Toronto's Breaking News
Jordan Press, The Canadian Press
Published Wednesday, July 15, 2020 8:48AM EDT
Last Updated Wednesday, July 15, 2020 11:08AM EDT
OTTAWA – The Bank of Canada is holding its key interest rate at 0.25 per cent in response to what it calls the “extremely uncertain” economic outlook from the COVID-19 pandemic, and plans to keep it there until the picture improves.
In its updated outlook, the bank said Wednesday it expects the economy to contract by 7.8 per cent this year, driven downward by a year-over-year contraction of 14.6 per cent in the second quarter.
The report pegs the annual inflation rate at 0.6 per cent this year, rising to 1.2 per cent in 2021 and 1.7 per cent in 2022.
Its inflation target is 2 per cent, and the bank said in its policy statement it will maintain the current rate until that target is achieved.
The rate will have to stay low to provide “extraordinary monetary policy support” to help recuperate from the economic impact of COVID-19, it said.
The forecasts included in the Bank of Canada’s monetary policy report also come with a caution that the numbers could be thrown off.
The bank’s outlook is based on the assumption that there won’t be a broad-based second wave of the pandemic, that lockdowns will be gradually lifted, and the pandemic will have run its course by mid-2022 thanks to a vaccine or effective treatment.
The monetary policy report said there isn’t enough information to forecast how deep the economic scarring will be from business closures or widespread job losses.
It’s also unclear how quickly consumer demand will recover through changes in spending habits, work patterns and social behaviour, the report said.
Still, the central bank said it appears the country has avoided a worst-case scenario envisioned by the bank in its last report in April.
The central bank’s key interest rate has been at 0.25 per cent since March when it was rapidly dropped in response to the economic fallout from COVID-19.
Governor Tiff Macklem has seemingly ruled out any further drops and has said that the central bank doesn’t plan to raise the rate until well into an economic recovery.
The Bank of Canada’s June interest rate announcement came on Macklem’s first day on the job as the country’s top central banker. Though he was only observer during the June round of deliberations by the bank’s governing council, he endorsed the decision to keep the rate on hold.
The report Wednesday said growth will pick up beginning in this quarter, the third of the year, with the country recouping about 40 per cent of the drop in output from the first half of 2020.
Much of that will be driven by the reopening of businesses and partial rebound in spending, the bank says.
But after an initial, quick bounceback, Canada will enter what the bank calls a “recuperation phase” where the pace of recovery will slow.
“As reopening progresses, many people will probably continue to fear contracting the virus, and uncertainty about job security is likely to persist,” the report said.
“Both consumer and business confidence are therefore expected to remain subdued, restraining spending and employment, particularly in activities that involve in-person interaction.”
The bank said the pandemic will continue to affect consumer and business confidence during this phase amid widespread changes in the economy, including the energy sector where low prices and reduced demand have put production well below its pre-pandemic path.
As well, the shock facing the oil sector has “renewed questions about the likelihood of pipelines being developed,” the report said.
Some lower-income workers, disproportionately affected by job losses or cuts in earnings, “will face prolonged income losses” and push more households to the financial brink, the bank warns.
While higher income households may have excess savings to spend during this phase, some households will prioritize paying down debts, or padding rainy-day funds due to the uncertain economic environment, the report said.
Heavy discounts on unwanted inventory and smaller-than-planned price increases for firms will also act as a drag on inflation, which the bank expects to remain weak before gradually getting back to its two per cent target.
Housing activity is also expected to slow over the next few years with the ripple effects of the downturn, and lower immigration, the report said.
The central bank said it will provide a more detailed analysis of its long-run assumptions for the domestic economy when it updates it outlook in October.
This report by The Canadian Press was first published July 15, 2020.
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Business
Oil Firms Doubtful Trans Mountain Pipeline Will Start Full Service by May 1st
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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.
Business
Tesla profits cut in half as demand falls
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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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