Buy loonie, Nomura advises
A big global bank is advising investors to buy the loonie now, projecting a rebound in the Canadian economy that will help drive the currency higher.
Indeed, Charles St-Arnaud of Nomura Securities, part of the Japan-based financial group, expects the Canadian dollar to top 78 cents (U.S.) in the coming weeks, not only because of a stronger outlook, but also because he expects the Bank of Canada to hold interest rates steady for quite some time, while some others believe the central bank could cut again.
Mr. St-Arnaud's suggestion is something of a shift for the loonie, whose fortunes have been grim amid a weaker economic backdrop and the divergence between the Bank of Canada and the Federal Reserve, which is heading toward its first rate hike.
Buy now, he said in a report, before general sentiment shifts.
"Such a reversal in growth is likely to take some investors by surprise because of the amount of negativity already priced into Canadian assets," he said, projecting the economy will rebound in the third quarter by more than 2 per cent, annualized, and possibly by up to 2.5 per cent.
That's well above the central bank's forecast, though other economists are also calling for a hefty rebound, which would follow contractions in the first and second quarters.
Citing the latest export numbers and stimulus from the government's recent child benefits program, Mr. St-Arnaud said economic growth is"rebounding fast," at a greater pace than most investors expect.
At this point, the net short position against the loonie, as reported by the U.S. Commodity Futures Trading Commission, stands at $3.6-billion, so the sentiment is clear.
But as markets come to decide against a further rate cut, that will change.
Having said that, Mr. St-Arnaud expects the loonie to come under further pressure when the Fed does hike, which he expects to happen in December.
Volkswagen tumbles
Volkswagen AG shares plunged today amid a brewing scandal over emissions findings.
The tumble in the auto maker’s stock price followed accusations from the U.S. Environmental Protection Agency that the German company fibbed by using software that misled regulators on emissions.
It also followed an apology issued by Volkswagen chief executive officer Martin Winterkorn, who pledged to co-operate with regulators and launched a probe into what happened.
“We at Volkswagen will do everything that must be done in order to re-establish the trust that so many people have placed in us, and we will do everything necessary in order to reverse the damage this has caused,” he said in a statement.
Sales of the models in question have been stopped.
“CEO Martin Winterkorn’s attempts to get out in fron of the allegations appears to be an attempt to mitigate any long-term reputational and finance damage as the company looks at potential fines of $18-billion,” said Michael Hewson, the chief analyst at CMC Markets in London.
“This morning’s news has sent the shares down below its 2014 lows, and down another 16 per cent in a scandal that is likely to pose some awkward questions for senior management, at a time when sales are falling in both its key markets in the U.S. and China.”
Quote of the day
“I personally am deeply sorry that we have broken the trust of our customers and the public.”
Martin Winterkorn
Punch buggy! No punch back.
What to watch for this week
Bank of Canada Governor Stephen Poloz kicks off the week with a speech today on commodities and the economy.
"The governor will likely highlight the 'complex adjustment' under way in Canada, but that a weaker Canadian dollar is helping to support growth," said Emanuella Enenajor, North America economist at Bank of America Merrill Lynch.
Further evidence of the economic bounce should come on Wednesday when Statistics Canada reports on how Canadians shopped in July.
The report is expected to show a gain in retail sales of 0.7 per cent or 0.8 per cent, driven by the auto industry.
That, noted Bank of Montreal senior economist Benjamin Reitzes, would mark the fifth increase in the past half-year and"highlight that the Canadian consumer remains in generally good spirits despite an apparent 'technical' recession, brewing political uncertainty, and a record debt burden."
On the corporate front, BlackBerry Ltd. closes out the week with its latest quarterly report.