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morning briefing

These are stories Report on Business is following Tuesday, April 16, 2014.

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The central bank and the loonie
The Bank of Canada won't actually do much of anything this morning.

The question is more what it says, and whatever impact that could have on the Canadian dollar.

Some observers believe the central bank has attempted to talk down the loonie, as Canada's dollar coin is known. The Bank of Canada says it does no such thing and that the currency, which now stands at about 91 cents (U.S.), having recovered somewhat from even further erosion, finds its own level.

Some economists expect that the central bank under Governor Stephen Poloz will try to do that when it releases its rate decision and monetary policy report later this morning, or at least not do anything that would drive up the currency.

"While the recent run of firmer-than-expected inflation numbers suggest that the downside risks to inflation – a key underpinning to the BoC's more dovish stance – are beginning to recede, the bank is still likely to deliver a very neutral statement following this week's monetary policy decision," said chief economist David Rosenberg of Gluskin Sheff + Associates.

"Moreover, the statement will likely include a reference to the loonie's recent recovery in a manner so as to talk down the currency as policy makers look to further arrest our relative competitive erosion – an exchange rate in the range of 86-88 cents (USD) would equalize unit labour costs across the borders."

It was the combination of a dovish, or very easy going, Bank of Canada and a not-quite-as-dovish Federal Reserve that drove the loonie to its depths below 89 cents last month.

While central bank officials say there was no attempt to push the currency down, they couldn't have been anything but pleased with the lower loonie, and what that will mean for juicing Canadian exports, albeit with a lagging impact.

Bank of Nova Scotia's Derek Holt and Dov Zigler noted in a recent report that the central bank's January monetary policy report cited the depreciation of the loonie but stressed how it "remains strong," and thus how the country's export position is still challenged.

"If CAD was too strong then, and it's even stronger now, then don't look to the BoC to sound hawkish and further fan CAD strength," they said, referring to the currency by its symbol.

"One might quip that if talking down the currency has been a major implicit goal to BoC communications this year, then it has not succeeded given that the currency is stronger than was around the January MPR," they added.

"We just don't see the BoC as being interested in a policy bias that would add to CAD strength [today]."

Likewise, chief economist Avery Shenfeld of CIBC World Markets predicted Mr. Poloz and his rate-setting colleagues would do nothing today to jolt the loonie higher.

"Having engineered the currency's competitively enhancing slide, the last thing the bank likely wants is to put those benefits at risk, by adding fuel to the currency's recent, modest relief rally," he said.

Not everyone believes that the central bank is trying to tinker.

"The market reactions to the various statements was likely very welcomed by the governing council, but not the objective," said Charles St-Arnaud of Nomura Securities.

"As such, it's interesting to note that Governor Poloz is almost mute on the dollar, at least compared to [Mark] Carney who often commented on it ... As for today's statement, I think they will repeat that 'the recent depreciation of the Canadian dollar, should help to boost exports and, in turn, business confidence and investment.'"

The central bank won't change its benchmark rate from the current 1 per cent - it won't for some time yet - but some economists expect Mr. Poloz to trim his expectations for the first quarter of the year.

The central bank had forecast the economy would expand at an annual pace of 2.5 per cent in the first three months, and observers expect it will cut that estimate today, to 1.5 per cent.

"The BoC could boost its Q2 forecast somewhat to reflect some rebound, but that's not a certainty since there's already a half percentage point of uncertainty around their estimates," said senior economist Benjamin Reitzes of BMO Nesbitt Burns.

"The rest of the growth forecast will probably be little changed."

CPPIB sells unit
The investment arm of the Canada Pension Plan is selling its Air Distribution Technologies Inc. unit for about $500-million more than it paid a couple of years ago.

The Canadian Pension Plan Investment Board announced today it has struck a deal to sell the company to Johnson Controls Inc. for about $1.6-billion (U.S.), having purchased it for $1.1-billion from Tomkins in 2012, The Globe and Mail's Bertrand Marotte reports.

"We have developed a close partnership with the management team of Air Distribution," said Andre Bourbonnais, a senior vice-president at CPPIB.

"We think highly of them and continue to believe Air Distribution is a leading HVAC business with excellent brands. It was a difficult decision to sell the business and we wish the Air Distribution team continued success."

Air Distribution makes ventilation systems for both homes and non-residential buildings.

China's growth slows (a little bit)
While there's always skepticism over the official data from Beijing, today's reading of first-quarter growth in China suggests the economy is holding its own.

As The Globe and Mail's Nathan VanderKlippe reports from Beijing, the official numbers today show economic growth slowed to 7.4 per cent from 7.7 per cent in the final quarter of last year.

That was a tad better than many economists had expected.

"There is always a degree of skepticism about the accuracy of these headline figures," said Julian Evans-Pritchard, the China economist at Capital Economics.

"Our China activity proxy (CAP) suggests that the pace of growth is somewhat slower than the official figures show but points to a similar trajectory, with growth holding up relatively well last quarter."

Quarterly growth, Mr. Evans-Prichard said, appears to have been buoyed by activity in March, in particular.

"Policy makers appear comfortable with the current pace of growth," he added.

"Li Keqiang presumably already had a good idea of where Q1 growth would come in when he ruled out major stimulus last week," he said, referring to comments by the Chinese premier.

"Meanwhile, today's figures show that wage growth continues to outstrip output growth, suggesting that the labour market, now policy makers' primary concern, remains healthy. As a result, the policy response to today's numbers is likely to be muted."

Bank of America sinks to loss
Bank of America Corp. fell to a first-quarter loss, stung by hefty legal expenses.

The bank lost $276-million (U.S.) or 5 cents a share in the quarter, compared to a profit of $1.5-billion or 10 cents a year earlier.

Revenue slipped 3 per cent.

Bank of America was hit by $6-billion in legal expenses in the wake of a settlement with the U.S. Federal Housing Finance Agency, and pumped up reserves, on previously announced mortgage-related issues.

"The cost of resolving more of our mortgage issues hurt our earnings this quarter," said chief executive officer Brian Moynihan. "But the earnings power of our business and customer strategy generated solid results and we continued to return excess capital to our shareholders."

Britain's jobless rate dips below key mark
Britain's jobs market is on the mend, with unemployment down to 6.9 per cent.

Employment levels in the three-month period spanning December to February rose by 239,000 from the three-month period that ended in November, Britain's Office for National Statistics said today.

The jobless rate, meanwhile, is now down a full percentage point from a year earlier, marking the first time below 7 per cent in about five years.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:00pm EDT.

SymbolName% changeLast
BAC-N
Bank of America Corp
+1.69%36.01
BNS-N
Bank of Nova Scotia
-0.22%49.69
BNS-T
Bank of Nova Scotia
-0.24%67.28
CADUSD-FX
Canadian Dollar/U.S. Dollar
-0.03%0.73867
CM-N
Canadian Imperial Bank of Commerce
+0.73%49.6
CM-T
Canadian Imperial Bank of Commerce
+0.72%67.17
JCI-N
Johnson Controls Intl
-0.05%63.16
SBUX-Q
Starbucks Corp
+0.99%91.01
USDCAD-FX
U.S. Dollar/Canadian Dollar
+0.03%1.35384

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