Bank of Canada Governor Tiff Macklem takes part in a news conference in Ottawa, on Oct. 25.PATRICK DOYLE/Reuters
In the spirit of the holiday season, the Bank of Canada wrapped up Wednesday’s interest-rate announcement in a lot of bright, shiny words that suggest that relief is coming.
But at the centre of the package, it delivered no Christmas present. Only the same lump of coal that it has been doling out for months: that it is still “prepared to raise the policy rate further if needed,” despite mounting evidence that the economy is in rapid, inflation-chilling retreat.
In doing so, it has effectively pushed back the start date for rate cuts – something the financial markets hadn’t yet figured out on Wednesday afternoon.
The bank’s warning-on-repeat about further rate hikes looked pretty incongruous with many of the other key messages in its latest announcement. In holding its policy rate steady at 5 per cent for the third straight decision, the bank said global growth and inflation have slowed further, that the Canadian economy “stalled” and that the data “suggest the economy is no longer in excess demand.”
In short, it outlined ample justification to back off its policy bias toward further hikes. It chose not to.
One factor might have been the season itself. Historically, the Bank of Canada has been hesitant to shift its policy just ahead of the holidays, when a lot of financial market players, as well as central bankers, will be away from their desks. Should any unexpected shocks hit over the break, the bank will have avoided sticking its neck out.
But the bigger issue is that bond market participants have convinced themselves that the Bank of Canada’s first rate cuts are coming by spring, much earlier than most economists think – and, likely, earlier than the bank’s leadership, privately, has been contemplating. By maintaining its “hawkish hold” position (as many observers have labelled it), the bank may be trying to discourage that notion.
The markets weren’t convinced. Based on pricing of overnight index swaps – a proxy for rate expectations – bond market participants are placing more than 40-per-cent odds of a quarter-percentage-point rate cut at the central bank’s March setting. (That cut is fully priced into the market by the April decision.) Those expectations moved little in response to Wednesday’s announcement.
Even if the markets aren’t buying the Bank of Canada’s argument, they’re failing to do some simple finger-counting. Or they don’t understand how Governor Tiff Macklem operates.
Throughout his tenure, Mr. Macklem has demonstrated a preference to send a clear message to the markets and the public about a change in policy direction before he actually changes it, and to move in well-signalled steps. Assuming he remains on form, that would mean that for the bank to move from its current position to actually announcing a rate cut, the first step would be to shift from a hawkish to a neutral bias.
That would entail changing “prepared to raise the policy rate further if needed” to something more balanced, such as “prepared to raise or lower the policy rate if conditions change.” It could, conceivably, remain in this sort of balanced state for quite some time, before replacing that sort of statement with something along the lines of “prepared to lower the policy rate as inflation approaches the bank’s 2-per-cent target.”
Each of those language changes would require an interest-rate announcement. So, that’s a minimum of two more settings – January and March – before the bank could conceivably be one decision away from a rate cut. Even once there, Mr. Macklem and his team might decide that they need to telegraph a cut even more clearly, by all but declaring that they are ready to cut at the next rate decision.
By sticking with the hawkish language now, the bank has certainly delayed the earliest date for a rate cut (barring some major economic shock) by one meeting. We’re looking at maybe three, quite possibly four, rate decisions into 2024 before that first cut comes into view – and that’s if the Bank of Canada moves in a straight line, starting in January.
That probably takes us out to June, if not later. It’s very, very hard to argue, as the market pricing now implies, that a cut in March is nearly a coin toss, or that April is a slam dunk.
For the time being, the Bank of Canada can lean on two key statistics to justify continuing to keep further hikes in the conversation. Core inflation measures were around 3.5 per cent year over year in November, while annual wage growth continues to run in the 4- to-5-per-cent range. Both suggest that there’s still work to be done to return overall inflation to the 2-per-cent target and keep it near there.
But the bank can’t keep up this argument much longer. The supply-and-demand mix in the economy is already either in balance or, quite possibly, already tipped into excess supply. With output growing more slowly than capacity, that oversupply state is bound to deepen – which means we’re facing accelerating disinflationary pressures, rather than inflationary ones.
By the January rate decision, assuming the economy maintains its current course, that reality might tip the bank’s scales – regardless of how financial markets feel about it. Mr. Macklem has been saying for months that the bank doesn’t want to overdo it with tight rates. It’s getting closer to overdoing-it territory now.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
