These are stories Report on Business is following Wednesday, Dec, 4, 2013.
Poloz and the loonie
Is the Bank of Canada intentionally trying to add to the loonie’s freefall?
At least one economist suggests that possibility today in the wake of the central bank’s latest pronouncement, which was seen as more dovish by the markets.
In their policy statement this morning, Governor Stephen Poloz and his colleagues cited the low level of inflation, while not changing their economic growth forecasts despite the fact that third-quarter growth outpaced their projections.
Today’s statement “has a more dovish tilt than before, by explicitly stating that the downside risks to inflation are greater,” said chief economist Avery Shenfeld of CIBC World Markets.
“The bank is thereby adding fuel to recent weakness in the Canadian dollar, perhaps intentionally so,” he added in a research note.
“Remember that they worked with a tightening bias for a long stretch without actually raising rates, and they might now be willing to hint about risks of a shift to an easing bias without ever actually delivering a cut, with the objective of easing through the exchange rate.”
He was referring to the fact that the central had long-standing language in its rate announcements that the next move, whenever it came, would be up. But last time out, it dropped that signal, and did so again today.
Just to be clear, Mr. Shenfeld isn’t suggesting that the Bank of Canada is actively managing the level of the loonie, as the dollar coin is known in Canada.
But Mr. Poloz and his colleagues understand that a more dovish statement could further erode the currency, and “welcomes that reaction” in that it can help boost exports.
Indeed, the dollar, which fell below 94 cents U.S. this week, slipped further after the policy statement was released.
“The Bank of Canada added fuel to the fire that has been singeing the loonie’s wings of late, with its policy statement seemingly aimed at a stealth easing through the exchange rate,” Mr. Shenfeld said in a second research note.
“Poloz’s first speech as governor stressed his distaste for deliberately weakening the exchange rate; it appears a quarter or two of soft inflation data has substantially altered that view,” he added.
Given that, CIBC altered its forecast for the loonie in 2014, projecting it will weaken and then pick up again.
“In light of what looks to be an effort by Governor Poloz to let the C$ do the dirty work, we’re substantially weakening our forecast for the C$ next year,” Mr. Shenfeld said.
The central bank wouldn’t comment on the issue beyond today's statement.
As The Globe and Mail’s Barrie McKenna reports, the central bank fretted aloud about disinflation, which has sparked talk of the possibility of a rate cut, and cited the competition among retailers and a drop in gas prices as among the causes.
“Inflation has moved further below the bank’s 2-per-cent target,” the Bank of Canada said.
“Core inflation is being held down by significant excess supply and by the effects of heightened competition in the retail sector, which look to be more persistent than anticipated. In addition, total [consumer price index] inflation been pushed down by lower gasoline prices.”
All of this today helped fuel more speculation of a possible cut in interest rates somewhere down the line, though few see that happening at this point.
Said senior economist Benjamin Reitzes of BMO Nesbitt Burns: "The Bank of Canada held rates steady exactly as expected. The statement was more dovish but the bank stopped short of adopting an explicit easing bias … That would be the next step. The Canadian dollar weakened in the lead up to and following the statement, no doubt pleasing policy makers at the Bank of Canada."
- Barrie McKenna: Disinflation troubles Poloz, cites retail competition
- Why Goldman Sachs recommends shorting the Canadian dollar
- The eroding Canadian dollar: 'It's taken on a life of its own'
- David Parkinson in ROB Insight (for subscribers): Bank of Canada edges toward rate-cut precipice
- Barrie McKenna: Deflation fears look to weigh on Poloz's outlook
- Scott Barlow: Low inflation raises questions about rate cut
- Child: 'Mommy, what's inflation?' Mommy: 'Well, in the olden days ...'
- Kevin Carmichael: Despite stimulus measures, global economy faces risk of deflation
Poloz sees no housing crash
The Bank of Canada has some words of warning for those betting on a crash in Canada's housing market: Don't bet on it.
As they held their policy steady today, Mr. Poloz and his central bank colleagues said the market is certainly stronger, but that's at least partly because home buyers are taking advantage of low mortgage rates before they rise again.
"The housing sector has been stronger than expected but is consistent with updated demographic data and a pulling forward of home purchases in light of favourable financing conditions," the Bank of Canada said as it held its benchmark overnight rate at 1 per cent and again gave no signal on the path of interest rates.
"The bank continues to expect a soft landing in the housing market."
Several groups have warned that Canada's housing market is fretfully frothy, though most domestic economists agree with the Bank of Canada, at least for now.
The central bank's statement came amid new reports showing Canada's housing market still running strong, based on data from Toronto, Calgary and Vancouver.
Canadian home sales continued running strong in a number of major cities in November, with preliminary local data indicating that the country’s housing market is still rebounding, The Globe and Mail's Tara Perkins reports.
The number of homes that changed hands by way of the MLS system in greater Toronto last month came in 13.9 per cent higher than a year earlier, the Toronto Real Estate Board said today.
The average selling price for all types of homes in Greater Toronto was $538,881, up 11.3 per cent from a year earlier. The MLS Home Price Index benchmark, which seeks to account for any change in the types of homes that are selling, rose 5.7 per cent.
Meanwhile, Calgary’s local real estate board said that sales in that city came in 19 per cent higher than last November. Vancouver’s sales were up 37.7 per cent from a year earlier. But, with the city still recovering from a deep sales slump, last month’s sales were 1.2 per cent below the ten-year average. They were also 12.8 per cent below the prior month’s level.
Barrick shakes up boardroom
Barrick Gold Corp. unveiled a major boardroom shuffle today, replacing Peter Munk and three other directors and appointing a new chief operating officer.
It’s one of the biggest shakeups in the 30-year history of the world’s biggest gold miner, The Globe and Mail’s Rachelle Younglai reports.
Mr. Munk, the founder and chairman, and one of Canada’s best-known business figures, will leave his post at the 2014 annual meeting. Directors Howard Beck and Brian Mulroney, a former Canadian prime minister, are also leaving.
Replacing the four on the board are Ned Goodman, a well-known Canadian investor, and three others. Co-chairman John Thornton will be the sole chairman.
Barrick also named Jim Gowans, a veteran miner, as COO.
When all is said and done after the annual meeting, Barrick’s board will be more than two-thirds independent, the company said.
It will also propose a new executive compensation plan that will “align fully with the principle of pay-for-performance, further linking compensation with the long-term interests of shareholders.”
Barrick had stirred controversy with Mr. Thornton’s pay package.
- Rachelle Younglai's exclusive interview with Peter Munk: On 'hubris, 'stupidity' and the future of Barrick Gold
- Rachelle Younglai: Embattled Barrick Gold shakes up board, management
- Boyd Erman in Streetwise (for subscribers): Ned Goodman's a curious choice for Barrick board
- Infographic: The rise and fall of Barrick Gold shares
- In pictures: The illustrious career of Canadian business icon Peter Munk
EU regulators hit banks
European regulators have hit eight major financial institutions with fines of €1.7-billion in settlements involving key interest rate benchmarks.
Among those fined the equivalent of $2.3-billion (U.S.) are Barclays, Deutsche Bank, Royal Bank of Scotland, Société Générale, UBS, JPMorgan Chase, Citigroup and RP Martin, a brokerage.
It involves what the European Commission today called participation in “illegal cartels in markets for financial derivatives,” manipulation of key rates known as Yen Libor and Euribor.
“What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with other,” Joaquin Almunia, the EC’s competition chief, said in a statement.
“Today’s decision sends a clear message that the commission is determined to fight and sanction these cartels in the financial sector.”
JPMorgan said it settled with the EC where Yen Libor was concerned, which involved “two former traders during a one-month period in early 2007,” but that it will “defend itself fully” against allegations related to Euribor.
Canada posts trade surplus
Canada is back in the black where global trade is concerned. But trade has declined.
The country’s trade balance rebounded to a small surplus of $75-million in October, Statistics Canada said today, compared to September’s $303-million deficit.
That surplus may be small, but it’s the first in almost two years.
A 1.2-per-cent drop in imports far outpaced the 0.3-per-cent decline in exports
Canadian exports to the United States inched up 0.2 per cent, while U.S. imports climbed 1 per cent, narrowing the surplus with the country’s biggest trading partner.
As for the rest of the world, both exports and imports slipped, the former by 1.7 per cent and the latter by 5.1 per cent.
In the United States, exports in October hit a fresh high, and the trade deficit narrowed to $40.6-billion (U.S.).
National hikes dividend
National Bank of Canada’s core operations performed strongly in the fourth quarter, but one-time items dragged down the bank’s profits, The Globe and Mail's Tim Kiladze reports.
Canada’s sixth largest lender made $337-million last quarter, down from $343-milion a year prior. The bottom line was affected by charges such as severance pay and acquisition-related items like employee retention bonuses.
Excluding these items, National Bank earned $370-million, or $2.09 per share, up from $343-million. These adjusted earnings are in line with analyst estimates. Profits were higher in all three of the bank’s business lines: personal and commercial banking, wealth management and financial markets.
National Bank also hiked its dividend by 6 per cent to 92 cents per share quarterly, a move that was widely expected, and announced plans for a two-for-one stock split.
Streetwise (for subscribers)
ROB Insight (for subscribers)