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Don't Be Fooled by Stocks. The Economy Needs More Aid. – BNN

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(Bloomberg Opinion) — The strength of the rally in equity markets the last couple of months coupled with the unexpected rebound in May jobs might make it a little too easy to conclude that the U.S. economy doesn’t need more stimulus. It’s more likely, though, that market participants assume more stimulus is coming – as it should.

The benchmark S&P 500 Index has gained 42.8% from its low on March 23, leaving it down just 1.14% for the year amid what the International Monetary Fund says will be the worst recession since the Great Depression. The foundations of the rally are straightforward. The Federal Reserve’s rapid response to the pandemic-induced shutdown of the economy effectively removed the risk of a financial crisis, while Congress pumped money into households and firms via a variety of fiscal support packages. Government data show personal incomes surged 10.5% in April even as wages and salaries fell by 8%.

Moreover, with support for the economy in place as the lockdowns ease, we will see activity quickly pick up. The May employment report showed just how fast that can happen in the initial stage of the recovery. Instead of shedding 7.5 million more jobs as forecast, employers added 2.5 million while the unemployment rate fell to 13.3% from 14.7%.

Stability in financial markets was always dependent on the ability of investors to look ahead to the other side of this crisis and they can see it with increasing clarity. Indeed, while 2020 earnings per share estimates for the S&P 500 have come down to about $125 from $175 in early January, analysts estimate a rebound to $162 in 2021, according to data compiled by Bloomberg. Even so, the rally was so unexpected and occurred so quickly that even the bulls are getting nervous. So while economic activity appears to have bottomed and has shown improvement, without faith that more federal money is coming it would difficult to justify continuing upward momentum after initial bounce in the data.

The most obvious challenge is that even though initial unemployment claims are off their peak – a turning point for the economy – they continue to run at a weekly rate of 1.88 million. This compares to the highest level of claims during the last recession of 665,000 in March 2009. Even as the economy reopens, Bloomberg Economics estimates that up to six million jobs could be eliminated in the months ahead. Many government jobs are also at risk. State and local governments let go of 571,000 employees with more to come. Without federal aid, for example, New Jersey may have to let go half of its 400,000 workers.

Also note that even though unemployment fell, the percentage of unemployed not on temporary layoff rose from 11.1% to 14.0%. This means that even as some workers are being rehired, others are still be laid off at a rapid pace into a job market with rising rates permanent unemployment. The newly unemployed will find it increasingly difficult to secure work.

Even as the economy reopens, the second and third round impacts of the initial shock will continue to weigh on gross domestic product. A continuation of fiscal support, such as extending the enhanced unemployment benefits and providing aid to state and local governments will boost the pace of recovery and more closely match the rally on Wall Street.

Luckily, the Trump administration continues to warm to the idea that more spending will be needed. At this point, they are said to be looking at keeping the size below $1 trillion. This is well below the $3.5 trillion package already passed by the House. If these represent initial bargaining positions, the actual outcome would fall somewhere in between. 

The Fed continues to play a supporting role in the recovery as well. While the central bank likely won’t bring anything new to the table this week, it will reiterate its intention to hold interest rates near zero and continue asset purchases and lending programs until the economy is well on its way to recovery. Moreover, the Fed will confirm that they stand ready to provide additional support should if needed.

It isn’t in the Republican’s interest to risk letting the economy collapse going into the November elections. Still, the near-term path will be more tumultuous for markets than the past month has been because partisan fighting may slow progress on the next spending package. A market priced for perfection is vulnerable to shifting psychology, and Congressional delay on spending could easily trigger that shift. But if Congress follows the Fed and commits to recovery, this equity rally, even extended as looks, would have more room to run.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Duy is a professor of practice and senior director of the Oregon Economic Forum at the University of Oregon and the author of Tim Duy’s Fed Watch.

©2020 Bloomberg L.P.

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A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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