Canada’s economy continues to defy expectations for a pullback.
What every Canadian investor needs to know today – The Globe and Mail
Canada’s main stock index opened down Tuesday with financial stocks under pressure as bank earnings roll in. On Wall Street, key indexes were also in the red in early trading amid expectations interest rates will continue rising.
At 9:36 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 97.89 points, or 0.48 per cent, at 20,162.24.
The Dow Jones Industrial Average fell 15.62 points, or 0.05 per cent, at the open to 32,873.47. The S&P 500 opened lower by 5.05 points, or 0.13 per cent, at 3,977.19, while the Nasdaq Composite dropped 15.93 points, or 0.14 per cent, to 11,451.05 at the opening bell.
In Canada, Bank of Montreal and Bank of Nova Scotia both reported results before the start of trading.
On an adjusted basis, Bank of Montreal reported a net income of $2.27-billion, or $3.22 per share, for the three months ended Jan. 31, compared with $2.58-billion, or $3.89 per share, a year earlier. By that measure, analysts had been forecasting earnings per share of $3.18 in the most recent quarter. Provisions for credit losses came in at $217-million for the quarter, compared with a recovery of PCLs of $99-million a year earlier. BMO’s shares fell more than 1 per cent in early trading.
Scotiabank’s net income, excluding one-off items, came in at $2.37-billion, or $1.85 a share, in the three months ended Jan. 31, compared with $2.76-billion, or $2.15 a share, a year earlier. Analysts had been looking for adjusted earnings per share of $2.02 in the latest quarter. Shares were down about 6 per cent shortly after the opening bell in Toronto.
Royal Bank of Canada and National Bank of Canada are scheduled to report their results on Wednesday and TD Bank Group is expected to release its results on Thursday. CIBC reported last week. That bank topped analysts forecasts in the latest quarter but posted a slightly lower profit compared with las year as loan growth cooled and more money was set aside for loan-loss provisions.
On the economic side, Canadians got a weaker-than-expected reading on growth in the broader economy at year’s end. Statistics Canada says growth contracted by 0.1 per cent in December from a month earlier. Economists had been expecting a flat reading. The agency also said growth for the the fourth quarter was essentially unchanged. Economists had been expecting growth at an annual rate of 1.5 per cent in the quarter.
Statscan also offered an early look at January growth, suggesting GDP advanced by 0.3 per cent that month. That number is subject to revisions.
“Although the BoC probably feels vindicated in its policy rate pause given today’s weak topline print, it will still be closely watching the evolution of incoming data, which have surprised higher to start 2023,” TD senior economist James Orlando said in a note.
South of the border, Target Corp posted a surprise rise in holiday-quarter sales helped by increased traffic in stores, although it also warned on earnings for the year, citing an uncertain economy. Target forecast full-year earnings of US$7.75 to US$8.75 per share, below analysts’ estimates of US$9.23, according to Refinitiv data. Shares were up in premarket trading. Shares rose about 3 per cent Tuesday morning in New York.
Overseas, the pan-European STOXX 600 was up 0.09 per cent by midday after starting the session in the red.
Britain’s FTSE 100 fell 0.45 per cent. Germany’s DAX and France’s CAC 40 were up 0.18 per cent and 0.12 per cent, respectively.
In Asia, Japan’s Nikkei closed up 0.08 per cent. Hong Kong’s Hang Seng slid 0.79 per cent.
Crude prices advanced, helped by continued optimism over demand growth in China, offset somewhat by concerns about the future direction of interest rates.
The day range on Brent was US$82.19 to US$83.20 in the early premarket period. The range on West Texas Intermediate was US$75.55 to US$76.65. Both benchmarks are on track for monthly declines. Brent is off more than 2 per cent in February so far while WTI is down more than 3 per cent.
“Oil prices remain very choppy with gains today largely offsetting losses at the start of the week,” OANDA’s Craig Erlam said.
“We may have to wait for more hard-hitting economic data next week before we see the upper or lower ranges tested as the uncertainty appears to be preventing a serious move in either direction.”
Prices have been supported by expectations of demand growth after China eased its strict COVID-19 policies.
“China’s economic recovery will drive its demand for commodities higher with oil positioned to benefit the most,” JPMorgan analysts said in a note.
However, continued concern about rising interest rates and the impact on the global economy has offered a counterbalance. Fed funds futures show traders are pricing in a third 25-basis-point hike this year and see U.S. rates peaking at 5.4 per cent by September.
Later in the session, traders will get weekly U.S. inventory figures from the American Petroleum Institute. More official government numbers follow on Wednesday morning.
A preliminary Reuters poll showed analysts expect crude stocks grew by 400,000 barrels in the week to Feb. 24.
In other commodities, spot gold was down 0.3 per cent at US$1,812.20 by early Tuesday morning, having earlier hit its lowest since late December at US$1,804.20. U.S. gold futures slipped 0.4 per cent to US$1,817.70.
The Canadian dollar was down while its U.S. counterpart held steady and looked set for its first monthly gain since September.
The day range on the loonie was 73.49 US cents to 73.71 US cents in the early premarket period. The Canadian dollar tumbled immediately after the release of the latest GDP report. The loonie is down more than 2 per cent for the month.
Meanwhile, the U.S. dollar index, which measures the currency against a basket of peers, was flat at 104.64, but was still set for a February gain of 2.6 per cent, its first monthly increase since September, according to figures from Reuters.
Elsewhere, Britain’s pound added to the previous session’s advance, rising 0.2 per cent to US$1.2082. The pound jumped 1 per cent on Monday after Britain and the European Union announced a new deal for post-Brexit trading arrangements for Northern Ireland.
The euro was flat at US$1.0611, having risen 0.6% in the previous session.
In bonds, the yield on the U.S. 10-year note was up slightly at 3.941 per cent in the predawn period.
More company news
Calgary-based Baytex Energy Corp said on Tuesday that it would buy U.S. peer Ranger Oil Corp for US$2.5-billion including debt, as the Canadian company looks to boost its presence in South Texas’ Eagle Ford shale basin. The Eagle Ford has seen rising deal activity in recent months. Its proximity to other major energy hubs, including the U.S. Gulf coast, makes it an attractive location. The basin is home to a number of smaller producers, which makes it easier for them to be absorbed by strategic players. –Reuters
Laurentian Bank of Canada reported its first-quarter profit fell compared with a year ago as its provisions for credit losses ticked higher. The Montreal-based bank says it earned $51.9-million or $1.09 per diluted share for the quarter ended Jan. 31 compared with a profit of $55.5-million or $1.17 per diluted share a year earlier. Revenue totalled $260.1-million for bank’s latest quarter, up from $257.5-million in the same quarter last year. Laurentian says its provision for credit losses for its first quarter was $15.4-million, up from $9.4-million a year earlier. –The Canadian Press
(8:30 a.m. ET) Canadian real GDP for Q4.
(8:30 a.m. ET) Canada’s monthly GDP for December.
(8:30 a.m. ET) U.S. goods trade deficit for January.
(8:30 a.m. ET) U.S. wholesale and retail inventories for January.
(9 a.m. ET) U.S. S&P CoreLogic Case-Shiller Home Price Index (20 city) for December.
(9 a.m. ET) U.S. FHFA House Price Index for December.
(9:45 a.m. ET) U.S. Chicago PMI for February.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for February.
Also: Alberta and B.C. budgets and Canada’s Capital Expenditures Survey for 2023.
With Reuters and The Canadian Press
Canada’s carbon pricing is going up again. What it means for your wallet
Canadians in some provinces and territories will soon be paying a little bit more at the gas station as a federal carbon price is set to go up starting Saturday.
The fuel charge is rising by 30 per cent from $50 per tonne of emissions to $65 on April 1. This will translate to an increase of roughly three cents per litre for gas, reaching a total of 14 cents per litre.
The scheduled increase will apply in Ontario, Manitoba, Saskatchewan, Alberta, Yukon and Nunavut.
Meanwhile, the carbon price jump will go into effect in Newfoundland and Labrador, Nova Scotia, and Prince Edward Island on July 1.
Canada began pricing carbon pollution in 2019.
The move is part of Ottawa’s commitment to tackle climate change with a goal to reach net-zero carbon emissions by 2050.
While Canadians will see an increase at the pumps, the carbon price increase is not expected to have a huge impact on their gas expenses, said Hadrian Mertins-Kirkwood, a senior researcher with the Canadian Centre for Policy Alternatives.
“It’s an incremental increase, but it’s not actually going to be a huge change year-over-year that people will notice ,” he told Global News.
For individuals, it could mean a $1 jump per tank depending on how big the vehicle is, Mertins-Kirkwood estimated. For businesses too, it’s “not a major expense,” he said.
Mertins-Kirkwood said things like oil market fluctuations and gas taxes have a much bigger impact on energy costs.
“Those swings are way bigger than the carbon price.”
What else is changing?
The carbon price increase comes amid some temporary relief for Canadians with lower gas prices reported in February after record-high costs last year. Gas prices in Canada surpassed $2 per litre for the first time ever last year.
On a monthly basis, Canadian drivers paid one per cent less for gas in February, Statistics Canada said in its latest report released on March 21. Overall, gas prices dropped by 4.7 per cent in February – which was the first yearly decline since Jan 2021, StatCan reported.
The agency said the year-over-year decline is partially attributed to the significant jump in prices seen in February 2022 amid Russia’s invasion of Ukraine.
The Canadian national average for gas prices stood at 150.8 cents per litre on Friday morning, according to GasBuddy. The CAA’s estimate for Friday was 149 cents per litre.
The carbon tax will not only raise gas prices, but could make its way into Canadian pocketbooks in other ways too.
For instance, aviation gasoline in the four provinces is also going up by roughly 3.5 cents a litre to a total of almost 16 cents per litre, which could potentially mean higher airfares down the line.
However, the rates for aviation gasoline and aviation turbo fuel will remain unchanged in the territories due to the “high reliance” on air transportation, the federal government says.
Light fuel oil, which is used in household equipment, is increasing to 17 cents per litre – an increment of nearly four cents.
Carbon pricing can have also ripple effects on food prices, other grocery items and shipped goods experts say, as Canada’s truck-based transportation industry will be spending more money to fill up the tank.
“It’s possible it could have an impact on things like shipping, but it’s a relatively minor impact,” said Mertins-Kirkwood.
Will rebates make a difference?
Ottawa has claimed that eight out of 10 Canadian families will get more money back than they pay under the federal carbon pricing plan because of the Climate Action Incentive.
Canadians can claim CAI payments by filing annual federal taxes.
Mertins-Kirkwood said most households, except those earning a high income, are “better off” from the carbon pricing due to the government rebate which recycles revenue back to families.
However, the Parliamentary Budget Officer (PBO), an independent watchdog, said in a report last year that a bulk of Canadian households over the long term will see a “net loss” from the federal carbon pricing by 2030-31.
The PBO said that Albertans in the top income quintile would pay the largest net cost from the carbon tax, while the lowest-income quintile households in Saskatchewan stand to see the largest net gain via the rebate.
— With files from Global News’ Craig Lord
What economists are saying about the latest GDP numbers
Statistics Canada released data on March 31 that showed the economy grew 0.5 per cent month over month in January, a remarkable reversal from December when GDP contracted 0.1 per cent. January’s reading also beat Bay Street analysts estimate for growth of 0.4 per cent.
While the report showed an economy healthier than many expected, economists now think the GDP surprise could make the Bank of Canada‘s job tougher as it seeks to cool inflation by raising interest rates to tamp down demand.
Here’s what some of them are saying about the GDP numbers and what it means for the Bank of Canada and interest rates.
Charles St-Arnaud, Alberta Central
“Today’s release of the monthly GDP suggests that the Canadian economy started the year strong. As such, the strength in January and February is pointing to growth in the first quarter of 2023 at around three per cent quarter over quarter annual rate, far from a contraction. This follows a period of weakness in the last quarter of 2022, as higher interest rates took a toll on rate-sensitive sectors.
“The Bank of Canada is likely at a crucial juncture and facing a significant dilemma. The central bank may have to choose between fighting inflation and hiking interest rates again or focusing on financial stability and keeping rates on hold.”
Stephen Brown, Capital Economics
“The strength of GDP growth in January, and probably February too, suggests the Bank of Canada will use its April meeting to reiterate that, despite the recent banking turmoil, it is still prepared to raise interest rates again if needed.
“The big surprise is that, despite the early estimates showing falls in manufacturing, wholesale and retail sales in February, the preliminary estimate points to another 0.3 per cent month-over-month gain in GDP last month. That gain implies the economy is heading for growth of about 2.5 per cent annualized this quarter, slightly higher than the two per cent gain we have pencilled in.
“A 2.5 per cent expansion would also be stronger than the bank’s forecast of a 0.5 per cent rise, but recall that the stagnation in GDP last quarter was weaker than the bank’s estimate of a 1.3 per cent gain. Moreover, we know that the rebound in activity is helping to lower prices rather than contributing to inflationary pressures. For example, the CPI passenger vehicle price index fell by 2.5 per cent over the first two months of the year. So while the bank will stick to its hawkish messaging, we doubt recent developments will cause it resume rate hikes.”
Douglas Porter, BMO Economics
“There were many indications that the economy got off to a solid start in 2023, but today’s double-barrelled blast of strength is well above even the most optimistic views. Even if growth stalls in March, it now looks like Q1 will post growth of 2.5 per cent, up from a flat read in Q4. While we continue to look for a notable cool-down in the next two quarters, we are bumping up our GDP growth estimate for all of 2023 by three ticks to one per cent. Suffice it to say that if the strength seen in the opening months of the year persists, the Bank of Canada is going to find itself in a tough spot.”
Randall Barlett, Desjardins Economics
“Today’s outsized move in January real GDP and continued momentum through February leaves little room to equivocate. The Canadian economy started the year on a very strong footing. We are now tracking real GDP growth approaching three per cent annualized in Q1, well above the bank’s 0.5 per cent tracking in the January 2023 monetary policy report.
Tony Stillo, Oxford Economics
Matthieu Arseneau and Alexandra Ducharme, National Bank of Canada Economics
“Despite the continued rebound of the Canadian economy in Q1 after a sluggish quarter, we still believe that the Bank of Canada should maintain its pause in monetary tightening. The rate hikes have been very aggressive and will continue to weigh on the economy given the lag in their pass-through.
“In addition, the outcome of the ongoing turmoil in the global banking sector and its impact on credit conditions in the coming months remains uncertain. We expect to see ups and downs in output in later quarters that will leave GDP essentially flat over the next year. This is an argument for patience. All the more so given the encouraging developments in inflation that are now emerging.”
Jay Zhao-Murray, currency market analyst, Monex Canada
“While the Bank of Canada is currently on a conditional pause as it awaits more data, the strength in the real economy, as measured by upward revisions from last month’s preliminary figure (for GDP) and another probable above-potential reading in February, could tilt the central bank in a more hawkish direction.
“While it is still too early to call for another rate hike, the odds are shifting in that direction: BoC officials stated they are mostly worried about upside risks to inflation and have shown little panic about recent global banking troubles. Stronger growth means the costs to another hike are falling, and it also puts upward pressure on inflation. Markets largely agree with our assessment, as they are now pricing only 35 basis points of rate cuts by year end, the fewest in nearly three weeks, and a far cry from the 90 basis points of cuts priced just a week ago.”
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Reactions to Rogers-Shaw deal mixed in Alberta
Reaction to the $26 billion Rogers-Shaw merger in Alberta was mixed on the day it was announced.
Bob Schulz, a professor at the University of Calgary’s Haskayne School of Business, called the merger a “win-win.”
“It’s a blockbuster deal for Canada, but it could be the rising (rural telecommunications) star for the world in the developing countries that we actually test here,” Schulz said Friday.
He noted Canada’s spread out pockets of population presents a unique operating environment for telecommunications companies, and faces competition from emerging companies like Elon Musk’s Starlink.
Shaw executive chair and CEO Brad Shaw said the deal was an “exciting new chapter” for connectivity in the country.
“In today’s telecommunications industry, we recognize that companies need even greater scale to compete and make ongoing investments for future technology,” Shaw said in a statement. “This merger will provide the scale necessary for the future success and competitiveness of the wireline business that Shaw has built over the past five decades.”
Schulz was quick to point out that while the merger would reduce two telcos into one, the stipulation that Shaw’s Freedom Mobile be sold to Quebecor-owned Videotron will help with competition in the mobile phone market.
“Consumers may think it’s a bad idea by having the two go together, but if Videotron comes in because they have lower prices, it may force the Rogers-Shaw combination to move down.”
The U of C professor said the conditions of the merger is likely to put added pressure on existing telcos.
“If Videotron decides that they’re going to expand, then Bell would have to do something a little different in order to compete or decide they’re going to compete less of the west and more of the east,” Schulz said. “And it’s also going to be interesting to see what happens with Telus, because now Telus will have a stronger competitor to compete with in the west.”
Alberta promises to hold merger to terms
Minister of Technology and Innovation Nate Glubish said the Alberta government will be “unwavering” in holding the merged companies “accountable to conditions of this deal and the commitments they have made to Alberta jobs, consumers and communities.”
More on Canada
“We will closely monitor the requirement for Rogers to create about 3,000 jobs in Western Canada and invest a further $1 billion to connect rural, remote and Indigenous communities to high-speed internet,” Glubish said, noting the investment aligns with the province’s broadband strategy.
He welcomed the entry of the low-cost mobile offering from Videotron, which is to include rates 20 per cent lower than current offerings and invest $150 million into their network.
“While the telecommunications industry is under the exclusive jurisdiction of the federal government, we will hold Rogers and Shaw to their commitments outlined in this deal and protect Albertans’ interests going forward.”
The Opposition’s municipal affairs critic called the merger a “loss of an iconic Alberta company.”
“(Shaw has) deep roots in the province that go back almost 60 years, employing hundreds of people in their headquarters in Calgary and thousands across Western Canada,” Calgary-Buffalo MLA Joe Ceci said in a statement.
Ceci said a deal of this size will change the telco landscape in the country and could jeopardize jobs, increase customer costs and reduce access to services.
One of the 21 stipulations made by the federal government was for Rogers to establish a western headquarters in Calgary.
“I am encouraged to see these conditions included in the deal and we will be watching closely to ensure they are implemented,” Ceci said in a statement. “However, it is concerning that the Danielle Smith government failed to advocate for Alberta. They sought intervenor status in the deal, but did not take a position.”
Albertans balk at ‘less choice’
Calgary student Ashmal Dawoodani endorses the government encouraging competition and called the Rogers-Shaw deal “only beneficial to the larger corporations.”
“Just selling off the mobile assets to another company is sort of like a short term solution. It’s not really looking too long-term,” Dawoodani said. “I think we do have some of the highest phone bills across the world and I don’t think that’ll change from such a small move like that.”
Nicole Flemming said the merger could limit options for customers like her.
“I like to have more choice with my cell phone providers and Internet providers so I don’t really like that idea (of the merger),” Fleming told Global News “It gives me less choice as a consumer – I like to shop around.”
Shaw Communications and Corus Entertainment, the parent company of Global News, are owned by the Shaw family based in Calgary.
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