Briefing highlights
- Six steps to protect your business
- Don't take ‘too much comfort’ on trade
- Markets mixed, with little action
- Loonie just shy of 74.5 cents
- What to watch for on housing, debt
- Fed expected to raise rates this week
- What else to watch for in next few days
Shelter your business
A Canadian law firm is urging business clients to protect themselves rather than take “too much comfort” in Donald Trump’s soothing words on trade.
Fasken Martineau has issued a six-point guide amid vague and uncertain American trade policy in the Trump era.
The firm’s note to clients, from trade lawyer and partner Peter Kirby, comes as the Trump administration prepares to send the official notice to renegotiate the North American free-trade agreement.
“It would be a mistake for Canadian businesses to take too much comfort from Trump’s declaration that he only wanted to ’tweak’ U.S. trade relations with Canada,” Mr. Kirby warned in the recent bulletin.
“NAFTA is a tripartite deal that has resulted in deep economic integration among the three parties,” he added.
“What happens to one party will have a profound effect on the other two parties. The notion that the U.S. can tweak its relationship with Canada while bulldozing its relationship with Mexico ignores the economic reality of North American integration.”
Changes to the pact appear certain. And any change to either of the Canadian or Mexican trade regime with the U.S. will impact all three countries, the law firm said.
Mr. Kirby outlined six measures Canadian companies should take:
Put people in charge
They should gather and analyze information, followed by recommendations.
“This is advice that belongs on the first page of a Management 101 textbook, but it’s good advice,” Mr. Kirby said.
“If you want your organization to focus on how changes in trade policy will impact the business, you need to make someone responsible for doing that. So appoint an individual or individuals within the organization with responsibility for leading the effort to prepare for whatever is to come.”
Analyze the supply chain
There will probably be disruption here, which means companies should learn the vulnerabilities now and find other options.
“If Mexico is forced out of NAFTA, or if NAFTA rules of origin become more onerous, can you still produce Canadian goods that qualify for preferential treatment in the U.S.?” Mr. Kirby said.
“If you are currently using Mexican parts to make finished products you sell in the U.S., are there alternative parts suppliers and how much will it cost to change suppliers?”
Find new markets
Yes, we’ve heard this often but it’s clear there’s added importance now, given the heavy reliance on U.S. sales for many companies.
“Canadian companies should be looking at the opportunities presented by CETA, Canada’s new trade agreement with Europe, or by China’s Belt and Road initiative, the largest infrastructure project on the planet,” Mr. Kirby said.
“In addition, while the Trump administration may have killed the Trans-Pacific Partnership, Canada already has free-trade agreements in place with seven of the 12 TPP partners. Not counting NAFTA, Canada has 10 free-trade agreements in force, together, they allow Canadian goods duty-free access to 13 countries.”
Analyze exposure to potential trade measures
Mr. Kirby cited the long-running fight over Canadian softwood lumber as an example of the toll of a trade battle. Companies should expect more such fights and “punishing” levies, he warned.
“Is your business at risk? If it is, you can take action today to lessen your exposure to any investigation and, if there is an investigation, to lower any eventual duty rates.”
Tell Trudeau what you think
“Your company should identify its interests in the outcome of any renegotiations – be they offensive or defensive interests – and make them known to Canada’s negotiators,” Mr. Kirby said.
Assemble or join Canadian and cross-border lobbies
“In the context of trade negotiations, cross-border industry coalitions are among the most powerful voices. So consider organizing or becoming a part of a coalition to press for your particular interests … When industry speaks with a single voice, governments listen.”
Markets mixed
Global markets are mixed so far ahead of what’s going to be an exceptionally busy, and important, week.
Tokyo’s Nikkei gained 0.2 per cent, Hong Kong’s Hang Seng 1.1 per cent, and the Shanghai composite 0.8 per cent.
In Europe, the Paris CAC 40 was up marginally by about 5:45 a.m. ET, while London’s FTSE 100 and Germany’s DAX were up 0.1 per cent.
New York futures were mixed and little changed, and the Canadian dollar was just shy of 74.5 cents U.S.
Among everything playing into the market is the pending decision by the Federal Reserve, which is expected to raise its key rate midweek.
“Anyone wondering why the market is so quiet this morning will have to look no further further than the Fed meeting for a reason,” said IG chief market analyst Chris Beauchamp.
“Another rate hike could be just days away.”
What to watch for this week
From debt and housing to manufacturing and interest rates, the next few days are jam-packed.
We get two readings on the housing front, the first on Tuesday with the monthly reading of the Teranet-National Bank home price index, and the second on Wednesday when the Canadian Real Estate Association releases its monthly sales and price report.
We already have a good sense of what the latter will show, given the monthly reports already released by several local real estate boards.
So: Big February gains in the Greater Toronto Area and a big sales slump in Vancouver.
“It looks as though the new mortgage rules, which took effect in the second half of October, didn’t make a dent,” Bank of Montreal senior economist Benjamin Reitzes said of Toronto.
“Meantime, Vancouver has gone the other way, with sales collapsing about 40 per cent year over year, and price gains slowing sharply.”
Across Canada, Mr. Reitzes expects the CREA report to show sales down 2 per cent in February from a year earlier, with average prices up 2 per cent. The MLS home price index, a better measure, is expected to show a rise of 14.5 per cent.
Of course, you can’t talk about housing in Canada without talking about record household debts, and the multitude of warnings about those swollen debts.
Expect to see a fresh record when Statistics Canada releases its quarterly report on debt and wealth in the fourth quarter, also Wednesday.
“The gain is expected to be quite modest, though, as historically Q4 sees smaller increases or outright declines as in each of the past four years,” Mr. Reitzes said.
“The persistent strength in housing in the GTA, a comeback in the Prairies, and buoyancy outside of Vancouver have kept mortgage growth solid around 6 per cent year over year, while consumer credit is running about half that pace.”
And remember the warning about the Ides of March?
Not only will we probably learn we still have record debts. Janet Yellen’s Federal Reserve is widely expected to raise its benchmark rate by one-quarter of a percentage point the same day.
“Yellen all but announced a hike as long as there were no adverse data surprises, and there haven’t been,” said CIBC World Markets chief economist Avery Shenfeld.
The Bank of England and Bank of Japan also have meetings over the next few days, and finance ministers and central bankers from the G20 countries meeting at the end of the week in Germany.
Just before the Fed decision, markets also get the latest readings on U.S. retail sales and inflation.
Economists generally expect to see that retail sales inched up by 0.1 per cent in February, and that annual inflation edged up to 2.7 per cent.
Wait, not done yet.
Statistics Canada closes out the week with what’s expected to be a sour report on manufacturing sales. Toronto-Dominion Bank believes shipments fell 1 per cent in January.