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business briefing

Briefing highlights

  • Canada's 'enviable position' in bond market
  • Britain's new finance chief wins applause
  • Global markets on the rise
  • A Johnson-Dion meeting I'd love to see
  • Video: Can you protect your job from robots?

‘Enviable position’

Call it triple-eh.

According to calculations by BMO Nesbitt Burns, Canada now has bragging rights in the government debt market.

As BMO senior economist Benjamin Reitzes notes, the number of governments with triple-A-rated debt has dwindled to just 12. And six of those are under review.

One of the hallmarks of the government debt market of late, of course, has been the plunge into negative yields.

“There’s a serious shortage of high-quality assets in the world, signified by, among other things, the growing stock of negative-yielding sovereign debt,” Mr. Reitzes said in a recent research note.

As this chart shows, at least two-thirds of such debt outstanding is in the negative camp, which means “investors are paying the government for the right to lend the government money,” Mr. Reitzes said.

(The blue in the chart shows the dollar amount of government bonds with a negative yield. Red marks the total government paper outstanding.)

“That leaves Canadians in the enviable position of having the largest positive-yielding pool of triple-A-rated debt in the world,” he added.

“That will likely drive continued foreign interest in buying Canadian government debt, in turn keeping the market well supported and yields low, while boosting the loonie. Look for this phenomenon to persist with European rates unlikely to head higher any time soon.”

A Johnson-Dion meeting I'd love to see ...

“I'm guessing you wouldn't have a comb I can borrow?”

Photo illustration

BoE holds the line

The Bank of England surprised markets somewhat by holding the line on interest rates after its first post-Brexit meeting, but signalled measures are coming later this summer.

Governor Mark Carney and his colleagues held its key bank rate steady at 0.5 per cent, with just one official voting for a cut of one-quarter of a percentage point.

Many observers had expected a cut given Mr. Carney’s pledge to do what’s needed in the wake of the Brexit referendum, and his earlier comments that some stimulus will be needed.

“Committee members made initial assessments of the impact of the vote to leave the European Union on demand, supply and the exchange rate,” the central bank said.

“In the absence of a further worsening of a trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the committee expect monetary policy to be loosened in August.”

As BMO Nesbitt Burns senior economist Jennifer Lee put it, a “clearly dovish tone” will be with us for some time still until markets get a sense of where things stand between Britain and the EU.

“And that will fall on the shoulders of PM Theresa May and the inner circle that is forming,” Ms. Lee said.

“Brexiter David Davis will lead the Brexit negotiations and it is his view that a ‘brisk but measured approach’ is needed, and the formal process can begin ‘before or by the beginning of next year,’” she added.

“Boris Johnson (BoJo) is back, but as foreign minister. Philip Hammond will take over for George Osborne as Chancellor of the Exchequer. It will be interesting to hear what he proposes. His initial comments, in which he praised Governor Carney, were reassuring.”

Hammond wins applause

Markets are applauding Theresa May’s choice of a new finance chief (whatever they may think of certain of the new British prime minister’s other choices).

Ms. May has given investors assurance by appointing Mr. Hammond as Chancellor of the Exchequer, succeeding George Osborne.

Here’s what observers are saying:

“In comes Boris Johnson to the Foreign Office (and gasps from the commenting classes), and out goes George Osborne. ... Mr. Hammond has already said there won’t be an emergency budget, and he’s already praised BoE Governor Carney. ... There is an opportunity (and a need) for the U.K. to counter the post-referendum economic slowdown with a more expansionary fiscal stance, and were that to happen, it would be positive for sterling.” Kit Juckes, Société Générale

“Mrs. May’s early cabinet appointments confer stability through Philip Hammond as Chancellor of the Exchequer but also daring and an interest in reaching out to those who favoured leaving the European Union through Boris Johnson as foreign minister ... Hammond is considered a fiscal hawk and will likely be seen positively by investors who might have been concerned about Theresa May’s plan to reduce austerity and take on corporate governance rules.” Jasper Lawler, CMC Markets

“The new management at Downing Street have also provided plenty of newsflow, and while the appointment of Boris as foreign secretary occasioned more than a few raised eyebrows, Philip Hammond’s new role as Chancellor and his appearances in media this morning have assuaged fears that a major period of disruption lies ahead.” Chris Beauchamp, IG

JPMorgan profit flat

JPMorgan Chase and Co. kicked off the latest round of big U.S. bank earnings with better-than-expected results.

Second-quarter profit came in at $6.2-billion (U.S.) or $1.55 a share, compared to $6.3-billion or $1.54 a year earlier.

Revenue rose to $25.2-billion from $24.2-billion.

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