The Bank of Canada is cued up for another rate hike, but how far it will go has been the subject of much speculation.
Will it be 50 basis points, 75 and even 100 as some economists argue is possible?
“Wednesday’s headline decision could go any number of ways,” writes National Bank economist Taylor Schleich.
The Bank of Canada surprised markets when it raised its key rate by a full percentage point in July, and National argues that the risk of another such hike this month is greater than many expect.
Economists are focused on Bank governor Tiff Macklem’s comments in July: “[Front-loading] argues for getting our policy rate quickly to the top end or slightly above the neutral range.”
With the rate now at 2.5%, a 50 bps hike would put it at the top end of the neutral range of 2% to 3%, while a 75 or 100 bps hike would put it over.
While National expects a 75 bps hike tomorrow, its economists also think the odds of a 100 bps hike are greater than a 50. (National puts a 70% chance on 75 bps, 20% on 100 and 10% on 50.)
The reasoning flows from developments since the July meeting. Jerome Powell’s recent stark message that the U.S. Federal Reserve would likely impose more large interest rate hikes in coming months raised the hawkish bar globally.
“It would be an understatement to say that the BoC (and other central banks) are deeply concerned with inflation. The ultra-hawkish rhetoric heard from the FOMC … reflects sentiment that is likely shared by the BoC,” wrote Schleich.
National thinks the impact of that report will be marginal because the economy is still in excess demand, inflation is still too high and the labour market is still tight. Moreover, getting inflation down trumps growth in the Bank of Canada’s priorities right now.
“We’re not sure they’ll be patting themselves on the back over the GDP report, especially when you consider that StatCan’s recent business conditions survey didn’t signal much relief on the inflation/jobs backdrop,” wrote Schleich.
National is not alone in acknowledging the risk of a percentage-point hike.
While RBC also expects a 75 bps raise tomorrow, economists Nathan Janzen and Claire Fan write: “The bank’s commitment to front loading rate hikes in the face of red-hot inflation means an even bigger 100 bps increase … can’t be ruled out.”
Oh and there’s another important issue on the agenda for observers tomorrow: guidance on the future.
But they may be disappointed there.
CIBC chief economist Avery Shenfeld says no matter what is in store, (and CIBC expects a pause) Governor Macklem will keep a poker face.
“This isn’t the time for Governor Macklem to tell anyone that his hand is looking a bit weaker in terms of the room for additional rate hikes. So if he is contemplating a pause in October, he’ll try to keep that card close to his chest, by indicating that further rate hikes might still be required,” wrote Shenfeld.
Was this newsletter forwarded to you? Sign up here to get it delivered to your inbox. _____________________________________________________________
NEW FACE AT 10 DOWNING STREET Liz Truss reacts with her husband Hugh O’Leary, at the Queen Elizabeth II Centre after it was announced on Monday that she is the new Conservative party leader. Truss, who moves from her role as Foreign Secretary, beat former finance minister Rishi Sunak in the race to succeed Boris Johnson. She will be formally appointed as Britain’s Prime Minister today. With the pound near its lowest in decades and record underperformance in U.K. stocks — not to mention soaring inflation and an economy headed for recession — the new prime minister faces more than a few challenges. Photo by Stefan Rousseau/Pool via Reuters
Gas prices spiked more than 35% yesterday on news that Russia plans to keep its main gas pipeline to Europe shut indefinitely. Russia blamed Western sanctions for the outage, saying they were “causing chaos” in maintenance work.
The supply cut means Germany is unlikely to meet its target for filling gas storage sites to 95% by the start of November, and European governments are racing to head off an energy catastrophe come winter. EU energy ministers will meet this Friday to discuss urgent measures to tackle soaring energy prices including gas price caps and emergency credit lines for energy market participants, a document seen by Reuters showed.
The building energy crisis is also hitting markets. The euro dropped to its lowest in 20 years Monday and European equities fell.
__________________________________________
Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, just predicted another 20% to 25% drop in markets. So what is the smart money doing given this gloomy outlook? Our content partner MoneyWise take a look at some of the biggest holdings at Bridgewater and how Dalio plans to weather the storm.
Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.
Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.
Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below:
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.
