Wed, April 24, 2024 at 9:35 AM EDT
Business
Economists expect inflation to ease in September, but remain significantly higher than BoC target
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Economists expect inflation will ease for a third straight month in September, but still remain significantly higher than the Bank of Canada’s two per cent target.
The median estimate from economists tracked by Bloomberg is for a 6.8 per cent year-over-year increase to Canada’s consumer price index (CPI) during September. In August, Statistics Canada reported inflation rose seven per cent on a year-over-year basis, which was down from 7.6 per cent in July.
“We expect that a CPI to be a little changed in September, and the yearly rate to come down a couple more notches to 6.8 per cent,” said Sal Guatieri, director and senior economist at BMO Capital Markets, over the phone on Tuesday.
“So it would be moving in the right direction, and quite materially down from the four decade high of 8.1 per cent that we saw in June.”
‘THERE’S A LOT RIDING’ ON THIS REPORT
Guatieri said if core inflation data rose in September, then it “would be bad news for the Bank of Canada’s inflation outlook and the economy.”
“Essentially, that (CPI report) could make the difference between the Bank of Canada raising rates by 50 basis points on October 26, or a larger move of 75 basis points,” Guatieri said.
“So there’s a lot riding on this inflation report, and of course, the Bank of Canada has to continue to raising rates aggressively. That really puts the pushes the economy a step closer to not just a mild recession, which is what we anticipate, but something more standard as far as economic downturns go.”
EXPECTING A DROP IN SHELTER COSTS
Craig Alexander, chief economist and executive advisor at Deloitte Canada, said he thinks shelter costs fell in September, adding that it could help Canadian inflation ease faster than the U.S.
“The fact that we’re having a housing correction is going to bring down that component (shelter costs),” Alexander said over the phone on Tuesday.
“So while mortgage interest costs are rising, and that will be upward pressure on inflation, the homeowner replacement costs will actually be coming down.”
Alexander added that this is “something different about the way Canada measures inflation than in the United States.”
“It’s one of the reasons why Canadian inflation might come down a bit faster than in the United States, it’s the fact that the correction in Canadian housing will actually show up in inflation data.”
RISING FOOD COSTS
Many consumers will be paying close attention to food inflation data in the CPI report.
In August, Statistics Canada reported food prices rose at its fastest pace since 1981.
But Guatieri said Canadians shouldn’t expect food inflation to ease too much from the 10.9 per cent high that was reported in August.
He said the recent weakness of the loonie against the U.S. dollar, and droughts in the U.S. Midwest will place some upward pressure on food prices.
“I would not expect a whole lot of relief just yet,” Guatieri said.
“I think over time we will see food cost inflation moderate, especially if the economy weakens further as we anticipate over the next three or four quarters, but I would not expect a big move in September.”
POLICY HIKE ALREADY DECIDED
Alexander said regardless of CPI data release on Wednesday, he thinks the next Bank of Canada’s interest rate announcement has “already been largely decided.”
“The real question is beyond October 26, how much more does the Bank of Canada have to do? If inflation surprises on the downside, then the Bank of Canada and financial markets will start to think that maybe the peak in the tightening cycle will be lower,” Alexander said.
“Whereas if inflation surprises on the upside, and it’s proving stickier then the central bank had hoped, then there’s a risk that the Bank of Canada is going to continue tightening in the months ahead. But, the Bank of Canada has been very clear that it isn’t done raising interest rates just yet.”
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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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