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Canada's big banks to release quarterly results, potentially providing insight into economic recovery – CBC.ca

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Canada’s biggest banks will report their quarterly financial results this week, and analysts say they will be listening for hints as to how bank executives view the economic recovery from COVID-19.

John Aiken, head of research (Canada) at Barclays, says that Canadian bank leaders will likely give analysts insight on how the economy is recovering in different sectors, such as mortgage borrowing, credit card spending and small business loans.

“With the housing market doing exceptionally well, this is the one area where we are hoping to see growth. Obviously, the executives have a much better visibility in terms of what to expect moving forward,” he said in an interview.

“The flip side of the coin is, with the economy largely in lockdown, individuals are not spending on nearly as much, and we’re actually seeing credit card balances declining … The other area that I’m particularly interested in seeing is the commercial loan book. What businesses are growing and expanding? Which ones are not doing as well?”

Analysts optimistic

Scotiabank and BMO kick off bank earnings on Tuesday, while RBC and National Bank will report on Wednesday, followed by CIBC and TD Bank Group on Thursday.

Aiken expects the banks to post “solid” quarterly financial results, despite the ongoing COVID-19-related lockdowns. A potentially “buoyant” auto loans business could help banks that are active in personal loans, says Robert Colangelo, senior vice-president of the global financial institutions group at DBRS Morningstar.

Colangelo says the banks’ wealth management businesses will be something to watch in Canada as well, with the capital markets being “strong” and client portfolios potentially growing through market volatility, which could benefit banks through higher fees.

Goldman Sachs — which has more exposure to wealth management and investment banking and less exposure to consumer and business loans compared with other U.S. banks like Citigroup, JPMorgan Chase and Wells Fargo — said last month its profits more than doubled year-over-year in its latest quarter.

One key trend out of the U.S. has been banks releasing allowances for loan losses, wrote Gabriel Dechaine, National Bank of Canada Financial Markets analyst, in a research note after U.S. bank earnings last month. Last year, banks across the world set aside funds in the early stages of the pandemic, preparing for an economic downturn that could drive borrowers to default.

But Aiken says that Canadian banks are likely to take a more conservative approach than U.S. banks, in part because of different accounting regimes.

“If they are releasing the allowances, it’s a signal and an indicator that the economy is going to do better than what had originally been considered,” said Aiken.

“That would be a good sign. But also, what it means is that the allowances that were taken are going to be released back into earnings, and then will boost net income.”

‘Who can squeeze out [the] most growth?’

The Office of the Superintendent of Financial Institutions said in December that Canadian banks and insurers should not increase regular dividends, buy back shares or raise executive compensation, noting that “while conditions seem stable now, the financial impacts of the COVID-19 pandemic are yet to be fully realized.”

While it’s unlikely that investors will see much in the way of dividend hike updates, Aiken says Bay Street will be looking to see how the banks not only weather the pandemic and keep costs at bay, but create areas of new growth, such as operations in the U.S. or Latin America.

Of the big six Canadian banks, says Aiken, “who can squeeze out [the] most growth, and how repeatable is that?”

“That is my focus and I believe that is the focus that investors have, as well.”

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Oil prices climb to highest in years as COVID recovery, power generators stoke demand

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 Oil prices hit their highest in years on Monday as demand continues its recovery from the COVID-19 pandemic, boosted by more custom from power generators turning away from expensive gas and coal to fuel oil and diesel.

Brent crude oil futures rose 87 cents, or 1%, to $85.73 a barrel by 0111 GMT, the highest price since October 2018.

US West Texas Intermediate (WTI) crude futures climbed $1.12, or 1.4%, to $83.40 a barrel, highest since October 2014.

Both contracts rose by at least 3% last week.

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts from ANZ bank said in a note on Monday.

“The jet fuel market was buoyed by news that the U.S. will open its borders to vaccinated foreign travellers next month. Similar moves in Australia and across Asia followed.”

They added that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Still, supply could also increase from the United States, where energy firms last week added oil and natural gas rigs for a sixth week in a row as soaring crude prices prompted drillers to return to the wellpad.

The U.S. oil and gas rig count, an early indicator of future output, rose 10 to 543 in the week to Oct. 15, its highest since April 2020, energy services firm Baker Hughes Co said last week.

China’s economy, meanwhile, likely grew at the slowest pace in a year in the third quarter, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

The world’s second-largest oil consumer issued a new batch of oil import quotas for independent refiners for 2021 that show total annual allowances were lower than last year, a first reduction of import permits since these firms were allowed into the market in 2015.

 

(Reporting by Jessica Jaganathan; Editing by Kenneth Maxwell)

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Stop handing out free money (and other ideas for getting the economy back on track) | TheHill – The Hill

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Supply chain shortages and inflation are hurting consumers and Democratic election prospects in 2022 and 2024. The Biden administration, no doubt aware of this possibility, is taking action to address the ill-effects of scarcity and higher prices. Recently, the administration mandated that the Port of Los Angeles remain open 24 hours a day so merchandise idling in shipping containers can be delivered faster to fill empty supermarket shelves and consumer shopping carts.

But this response may be coming too late, because shortages and inflation have created uncertainty in the minds of consumers that cannot be easily reduced.

While the administration has handled the COVID-19 pandemic well, it has been much less successful in dealing with the negative effects of the ensuing adjustments, including shortages, inflation, supply chain disruptions, high demand and uncertainty.  

The widespread shortages were caused by sudden and rapid increases in consumer demand and by manufacturers and suppliers that were too slow or unable to respond swiftly.

Once supply chain disruptions are straightened out as manufacturers increase their production and distributers move their products faster, shortages are bound to ease, though some could linger.  

The U.S. economy is also experiencing a modest annual inflation rate of 5.4 percent, caused by the trillions of dollars that the Treasury gave Americans in 2020 to spend to avert a pandemic-induced depression. Flush with this cash and what they had saved while sheltering in their homes during the pandemic, consumers quickly increased demand for most products and services. They became less price sensitive and pushed inflation higher. Still, though worrisome, an annual inflation rate of 5.4 percent is hardly runaway or stagflationary.  

But the excess cash is tapering off. Without it, consumers will be forced to reduce their demand and thereby push most prices downward. As a result, future inflation won’t be as drastic or widespread, especially since the Federal Reserve Board is planning to reduce the money supply, which will dampen inflation.

But the uncertainty produced by the pandemic is likely to prevent people from getting back to normal and might foster some continued shortages and inflation.  

Americans have been feeling confused and unsure about their future. Before the pandemic, they took stable prices and product availability for granted, knew the content and location of their jobs, woke up in the mornings to feed their kids and send them to school and were fairly content with their lives. Not anymore. Their world had changed, and the new one seems unfamiliar and scary to many. As a result, 4.3 millions have left the labor force since the onset of the pandemic.

What can the White House and Congress do to alleviate shortages, inflation and uncertainty? Here are four ideas.  

1. Take measures to ease shortages. Mandating that the Port of Los Angeles work nonstop will increase some supplies, but it’s not enough. It should be followed by similar action in other ports. Likewise, factories should be instructed to increase production. Such measures are easy to take in the case of consumer staples but more difficult in the case of computer chips, as chips are part of a global industry, and increasing their production requires building large factories and investing billions of dollars.

2. Stop handing out free money to consumers. With less money to spend, demand and inflation will ease. Though Americans are no longer receiving government manna, many still have cash to spend, which will continue to exert some upward inflationary pressures. 

3. Think again about the size, timing and spending schedule of infrastructure and Build Back Better initiatives. Pumping trillions of dollars into the economy could create a new round of inflation inflammation.

4. Reduce uncertainty. Unfortunately, policymakers lack the knowledge, skills and tools to address this effectively. What is desperately needed is trusted and steady leadership to assure Americans that their lives as consumers, employees, parents and human beings will be more certain again. Unless they can be made to feel more content with their lives, the economy may continue to sputter and keep a fuller economic recovery at bay. 

Can these challenges be successfully addressed in the coming year or two? Maybe. The U.S. discovered and produced a life-saving vaccine against COVID-19 in record time and enacted policies that averted depression. Likewise, I expect shortages and inflation to subside and a sense of normalcy to rise. This, plus efforts to make consumers feel more confident, would put the country on a more prosperous path. 

Avraham Shama is the former dean of the College of Business at the University of Texas – Pan American. He is a professor emeritus at the Anderson School of Management at the University of New Mexico. His book, “The Impact of Stagflation on Consumer Psychology,” was published by Praeger publishing. 

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Shekel surplus weighs down Palestinian economy – FRANCE 24

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Issued on: 17/10/2021 – 05:06Modified: 17/10/2021 – 05:04

Ramallah (Palestinian Territories) (AFP)

Palestinian businesses flush with too much Israeli cash: it may not be the most talked about aspect of the occupation, but experts warn it is a growing concern for the Palestinian economy.

Palestinians in the West Bank use the Israeli shekel but, beyond that commonality, the two financial systems are dramatically different.

In Israel, as in many advanced economies, digital payments are rapidly growing, taking the place of transactions once done with bills and coins.

But in the West Bank, a territory under Israeli military occupation since 1967, cash is still king.

Tasir Freij, who owns a hardware store in Ramallah, told AFP he now has to pay a two percent commission to deposit paper money because his bank is reluctant to receive it.

“This is a crisis… and we are feeling its effects,” Freij told AFP.

Much of the paper money is brought in by the tens of thousands of Palestinians who work inside Israel or Jewish settlements in the West Bank, and who get their wages in cash.

Experts and business people say the buildup of hard currency risks stifling the Palestinian financial system.

Palestinian men exchange currencies in the West Bank city of Ramallah; the local  shekel surplus has seen its value fall against major global currencies
Palestinian men exchange currencies in the West Bank city of Ramallah; the local  shekel surplus has seen its value fall against major global currencies
Palestinian men exchange currencies in the West Bank city of Ramallah; the local shekel surplus has seen its value fall against major global currencies ABBAS MOMANI AFP

Freij fretted that buying goods from abroad typically requires converting shekels into foreign currencies, especially dollars or euros, but the abundance of shekels in the market has forced him to accept painfully unfavourable rates.

– ‘Dumping ground’ –

The Palestinian Monetary Authority, which functions as the central bank in the West Bank, has warned that paper shekels are building up because it has no way to return the hard currency to Israel.

PMA governor Firas Melhem told AFP that the cash buildup was “a very worrying problem,” causing headaches for banks and businesses.

“If the problem is not resolved quickly, the Palestinian market will turn into a dumping ground for the shekel,” he added.

The shekel was established as the official currency in the Palestinian territories as a result of economic protocols known as the Paris agreements that followed the Oslo Accords between Israel and the Palestinian Territories.

Much has changed since those 1994 agreements.

As they lean more on digital transactions, Israel’s banks no longer want to reabsorb paper cash that accumulates in the West Bank but does not circulate rapidly through the Israeli economy.

The Bank of Israel cited security as another reason.

“We stress that uncontrolled cash transfers could be misused, especially for money laundering and terror funding, and would not be in compliance with international standards on the prohibition of money laundering and terror funding,” the bank told AFP in a statement.

– Solutions? –

Palestinian banks have tried to encourage customers to moderate their cash deposits, but that risks limiting the capital available to banks, which would lower their ability to offer loans.

The cash surplus predicament has fuelled renewed calls from some Palestinian experts in favour of ditching the shekel, either in favour of a unique Palestinian currency or that of another nation, including the Jordanian dinar, which also circulates in the West Bank.

The Palestinian Monetary Authority is also pushing the Bank of Israel to take back more hard currency.

But Melhem stressed that Palestinians also needed to “keep up with developments in financial technologies,” and move towards more cashless payments.

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