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What to expect from Tories Stephen Harper's Conservatives now have a majority government that will allow them to push through an agenda observers see as business-friendly. Here's a mini-guide:
Budget deficit In their election platform, the Tories pledged a return to a surplus by fiscal 2014-15, a year earlier than they forecast in their March budget. They now project a surplus of $2.8-billion, or 0.1 per cent of gross domestic product in that fiscal year.
"While medium- to long-term government bond yields are expected to creep up over the next few years due to upcoming interest rate hikes, the relatively strong fiscal footing of Canada should keep the increases in check," said Derek Burleton, Sonya Gulati and David Tulk of Toronto-Dominion Bank. "Yesterday's election results do not give us reason to change our call for interest rates to begin their gradual increase starting in July of this year."
Not everyone, though, believes the Tory timetable is doable.
"The implications to our economic outlook for Canada are nil, as we were already operating on the assumptions outlined in the March, 2011, federal budget, said David Madani of Capital Economics. "As we have mentioned previously, however, we think eliminating the budget deficit will take somewhat longer than currently projected. If we are right, a global economic slowdown, lower commodity prices and a slump in the domestic housing market will all weigh on Canada's economic performance and consequently federal revenues, too."
Corporate taxes A corporate tax cut is scheduled to bring the rate to 15 per cent next January.
"This move will give Canada the lowest corporate tax rate in the G7 and in turn, should help position the country as tax competitive with an attractive investment environment," the TD economists said. "The economic impacts of this policy move should be felt more over the longer-term horizon. What's more, businesses, markets and investors have already priced in this policy and a reversal no longer appears in the cards."
Added chief economist Avery Shenfeld of CIBC World Markets: "The majority win ensures that previously planned cuts to corporate tax rates this year will go ahead, which is a plus for equities."
Telecom Analysts believe the government will relax ownership restrictions in the telecom sector, giving greater access to smaller players to raise capital.
"We continue to believe that relaxing restrictions for telecom operators with less than 10-per-cent market share will likely be favoured," said UBS Securities analyst Phillip Huang, who expects to see new rules before the end of the year.
"... What remains to be seen is, if there is a cabinet shuffle, whether the current industry minister will remain in place. A change could delay the process. We currently assume the government will decide on telecom foreign ownership and release the 700MHz spectrum auction rules before end of year."
Tax-Free Savings Accounts The Conservatives promised during the campaign to double the annual contribution limits for the popular TFSA to $10,000 from $5,000. That's set to happen, though, only after the budget is balanced, which is, of course, now projected to come a year earlier. The Tories see this as costing $30-million in revenue in the first year, and $300-million within five years.
Foreign investment Markets are awaiting a government decision on the proposed marriage of the operators of the Toronto and London stock exchanges, and guidance on the regime governing foreign investment in Canada.
"Harper has had a generally open for business attitude on foreign ownership, but did block the takeover of Potash Corp., and has voiced some reservations about takeovers from foreign state enterprises," said Mr. Shenfeld.
Greenhouse gas Here, it's more about what not to expect, as in don't expect more than "a cautious approach in greenhouse gas regulation that will likely mean awaiting for any U.S. action on that file."
"In addition to the benefits to the private sector of lower taxes, investors are likely to perceive other Conservative policies as being market positive," according to the TD economists.
"For instance, the NDP and the Liberal platform included more stringent environmental regulations and control policies, which raised some concerns in financial markets about increased medium-term costs facing the oil and gas sector. In particular, the NDP platform included a plan to raise $4-billion to $7-billion through a cap and trade program, which would have helped raise funds to cover other campaign pledges."
- Business largely positive about election
- What economists expect from a Tory majority
- Market Blog: About that election
- Boyd Erman: Who's afraid of the big, bad NDP? Not the deal makers
- Read our complete election coverage
Observers see support for loonie Observers believe Stephen Harper's sweep to a majority government and the near-extinction of the Bloc Québécois will benefit the Canadian dollar going forward.
The majority mandate is positive for the Canadian dollar, said senior currency strategist Sue Trinh of RBC in Hong Kong, particularly given what she called "11th hour fears" in light of the NDP's surge late in the campaign.
"The collapse of the BQ could also be perceived as an additional [Canadian dollar]positive since it pushes the sovereignty issue onto the sidelines (though this has not been an issue for some time)," she added.
"Given [the Canadian dollar]underperformed so sharply in the lead-up to the election on fears of political uncertainty, [the Canadian dollar]is set to play catch-up on many of the crosses."
The Tories are now free to chase their objectives, added Charles St-Arnaud of Nomura Securities in New York, noting that while the arrival of the New Democrats to the Opposition has raised some concerns, he doesn't expect their gains will "dramatically change" any policy.
"The election of a Conservative majority government should be positively received by financial markets for its pro-market agenda of lower taxes (it already announced lower corporate taxes in the latest budget) and a desire for fiscal balance," Mr. St-Arnaud said in a research note.
"The result also reduces uncertainty over the looming threat of elections associated with minority government, while the poor showing of the Bloc Québécois reduces the threat of another referendum on the future of Québec ... Still, many important issues need to be tackled by the next government, such as how to improve Canada's poor competitiveness and to provide better details of spending cuts used to balance the budget by 2015."
Senior economist Jennifer Lee of BMO Nesbitt Burns noted that the Tory win sets the stage for the reintroduction of the March budget, which should remain basically intact.
"The more stable government is also good news for foreign investors, particularly as balancing the budget remains high on the agenda," Ms. Lee added. "With its majority hold, the Conservatives will likely blunt the impact of the new official opposition, the NDP. And with the Bloc Québécois losing official party status, separatist issues will retreat to the back."
Still, economists Karen Cordes Woods and Derek Holt of Scotia Capital questioned just how much of an impact the election results had so far, describing any effect as "tiny and nearly impossible to discern" compared to other issues in the market.
"Theoretically, the results could be bullish by restoring certainty over corporate tax policy and the environment for foreign and domestic investment, enhancing fiscal stability compared to alternatives, and removing the Quebec separatist agenda entirely from federal parliament," they wrote today.
"Then again, markets were fine with the checks and balances of minority governments, so the theoretical impact was always in doubt. But as we noted throughout the campaign, global markets have bigger issues to think about than the fourth Canadian election in seven years that might finally buy four years of peace and take Canada out of the league of Italy and Japan in terms of political instability across developed nations. Those issues include the reduced appetite for risk on waning U.S. growth figures, how that translates into monetary policy as a symptom rather than a root cause of market turmoil, looming U.S. fiscal worries in light of each of the debt ceiling, the approaching election year and rating agency warnings, ongoing European debt concerns."
Mr. Shenfeld, the chief economist at CIBC World Markets, questioned the impact down the road.
"Fiscal restraint through contained spending growth in the next few years will be a partial substitute for more aggressive interest rate hikes, so the implications for the Canadian dollar are not as positive as it might seem on the surface," he said.
"The drop in support for the Bloc Québecois does not mark the end of the sovereignty issue in Quebec, as the pro-sovereignty PQ ... leads in polls on voting intentions for the next provincial election there ... .The majority win ensures that previously planned cuts to corporate tax rates this year will go ahead, which is a plus for equities."
Bell yanks Sun News Network Canada's newest 24-hour news channel, Sun News Network, has been yanked off the air by Bell TV in a dispute over fees, Globe and Mail media writer Susan Krashinsky reports today.
Quebecor Inc. , which owns the channel, sent a letter to BCE Inc. roughly two weeks ago demanding that the channel be removed from Bell's satellite TV service if an agreement was not reached by May 3.
Like most specialty networks, Sun News must negotiate with cable and satellite providers to determine the subscriber fee they will pay in order to carry the channel.
Suncor boosts dividend Suncor Energy Inc. is giving its shareholders an extra penny.
Canada's biggest energy producer said late yesterday it's boosting its quarterly dividend to 11 cents a share from 10 cents, an "appropriate and balanced increase that provides immediate rewards to our shareholders, while we pursue our next phase of growth and drive future rewards."
As The Globe and Mail's Nathan VanderKlippe reports today from Calgary, Suncor followed up the dividend announcement by posting a heft jump in first-quarter profit to $1.028-billion.
Operating earnings, a metric that Suncor publishes as a better window into its performance, rose to $1.5-billion, up from $370-million a year ago and $946-million in the fourth quarter of 2010. First-quarter 2011 cash flow, at $2.4-billion, was up from $2.14-billion in the preceding three months.
"We believe the company's focus on operational excellence is delivering results," said UBS Securities Canada analyst George Toriola said in a research note.
"The company has reduced its full year guidance by Libya production ... and hints that the assets may be impaired if the current situation in country remains," he added. "The book value of Libya at the end of [the first quarter of 2011]was approximately $900-million. The company reports that the current unrest in Syria has not resulted in any direct impact to the company's operations."
Berkshire Partners, OMERS in Husky deal Berkshire Partners LLC and OMERS Private Equity Inc. have teamed up to buy Husky International Ltd. from Onex Corp. for $2.1-billion, The Globe and Mail's Tara Perkins reports today.
Bolton, Ont.-based Husky makes injection molding machines that are used by the plastics industry in the production of bottles, food containers and medical devices. The company now has manufacturing plants in Canada, the U.S., Luxembourg and China.
The deal comes at the front end of what many private equity players expect to be a new wave of M&A activity, now that bank loans are easier to obtain and there is more certainty about the direction of the economy.
India hikes rates India's central bank surprised markets today, boosting its benchmark lending rate by half a percentage point, the latest in a string of rate hikes as it continues to fight stubborn inflation.
The Reserve Bank of India's repo rate is now 7.25 per cent.
"Current elevated rates of inflation pose significant risks to future growth," said central bank chief Duvvuri Subbarao.
"The statement from RBI Governor Subbarao accompanying today's decision reinforces our view that more policy tightening measures are likely," said Brian Jackson of RBC.
" The RBI expects GDP growth to moderate from 8.6 per cent in 2010-11 to around 8 per cent in 2011-12, helping to ease demand pressures to some extent, but the inflation outlook remains a serious concern. "
Greece says restructuring would be wrong The Greeks are at it again today, vowing that a restructuring of the country's debt would be a huge mistake.
Well, yes, it may be that, but many observers still believe a default is in the cards.
"A restructuring, haircuts on debt, would be a huge mistake for the country," Finance Minister George Papaconstantinou told a TV interviewer, according to Reuters.
"It would have a very big cost and we would not have the benefit, we would stay out of markets for 10 to15 years, the wealth of Greek pension funds would suffer writedowns, we would have problems in the banking system and hence in the real economy," he added.
Late in the day, Portugal said it had reached a deal with the EU, the European Central Bank and the International Monetary Fund for a bailout. Reports from Europe said the rescue would be worth about €78-billion. And according to Bloomberg News, there are now goals, tied to the package, for Portugal to reduce its deficit to 5.9 per cent of GDP this year, 4.5 per cent next year, and 3 per cent a year later.
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