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Briefing highlights

  • Economists warn on manufacturing
  • Stocks, loonie, oil at a glance
  • What analysts are saying today
  • Deep divisions at ECB
  • Required Reading

Economists warn on manufacturing

Katherine Judge has a warning for Canadian manufacturers: “There could be more widespread pain ahead.”

The CIBC World Markets economist was commenting on last week’s look at manufacturing sales by Statistics Canada, which showed shipments fell 1.3 per cent in July, hot on the heels of a similar drop a month earlier.

“While Canadian exports have always relied disproportionately on the U.S. market for demand, growth in sales of Canadian durable manufactured goods has become even more inextricably linked to that measure for the U.S. since 2010,” Ms. Judge said in a recent report.

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“That’s likely a reflection of increasingly integrated supply chains between the U.S. and Canada,” she added.

“But, judging from elevated inventories in the U.S. and limited upside for durable goods, Canadian manufacturers might be in for a slow ride ahead.”

Source: CIBC World Markets

Toronto-Dominion Bank economist Sri Thanabalasingam agrees that “forward-looking indicators also pointed to weaker activity in the months to come.”

The state of the industry around the world has been a concern, and “the global manufacturing slowdown may finally be seeping its way through to the Canadian manufacturing sector,” Mr. Thanabalasingam said in his report.

“With trade tensions and the accompanying uncertainty not going away anytime soon, things are not looking up for Canadian manufacturing,” he added.

TD believes this could play into the Bank of Canada deciding to cut its benchmark overnight rate later this year. It now stands at 1.75 per cent, and economists generally expect the central bank to trim it by one-quarter of a percentage point this year or next.

“Indeed, the weakness in manufacturing will present a case for monetary easing to the BoC,” Mr. Thanabalasingam said.

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“Clearly, Canada is not immune to the global manufacturing slowdown and some insurance may help offset the negative impacts.”

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Markets at a glance

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Deep divisions at ECB

From Reuters: Sabine Lautenschlaeger’s shock resignation from the European Central Bank illustrates the deep divisions that Christine Lagarde will have to heal when she takes over next month, with some policy makers in open revolt over a new stimulus package. Ms. Lautenschlaeger, Germany’s appointee to the board of the ECB, said Wednesday she would step down Oct. 31, a day before Ms. Lagarde replaces Mario Draghi as ECB president.

Imperial cuts outlook amid vaping backlash

From Reuters: British tobacco company Imperial Brands PLC cut its revenue and profit outlook for the full year in the face of a regulatory backlash against vaping in the United States that could reshape the industry.

Jaguar Land Rover to stop British production for a week

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From Reuters: Britain’s biggest car maker, Jaguar Land Rover, will halt production at its British factories for a week in November, its boss said, joining BMW and Toyota in plans to help mitigate any immediate disruption from a no-deal Brexit.

Norway says it won’t block Huawei

From Reuters: Norway does not plan to block China’s Huawei Technologies from building the country’s 5G telecoms network, cabinet minister Nikolai Astrup told Reuters, a decision that puts it at odds with NATO ally the United States.

China says it’s working on details of trade talks

From Reuters: China and the United States are still discussing details about upcoming trade talks in October, making preparations to ensure “positive progress” is made during the negotiations, the Chinese commerce ministry said.

VW says it’s on course

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From Reuters: Volkswagen’s VW brand said it had increased productivity, cut costs and was on course to achieving carbon cutting targets at the German carmaker’s factories.

What analysts are saying today

“Nothing seems able to dent the U.S. dollar at present, and hints of trade talk progress have given the greenback a further lift this morning. If, somehow, the U.S. and China do agree a deal, then the [Federal Reserve] will have much less reason to think about cutting rates, further boosting the dollar’s attractiveness. Of course, [Fed chair Jerome] Powell and Co. will have to avoid giving this impression to the White House, since the president is still very keen on seeing the Fed cut rates further.” Chris Beauchamp, chief market analyst, IG

“USMCA is back in the news, with some suggestions that the Trump impeachment inquiry could distract the Democrats from the agreement, though Democrat spokesperson on consumer affairs [Jan] Schakowsky said she did not think that would be the case. Mexican President AMLO yesterday said ‘we don’t know’ the impact of the impeachment on USMCA, but that it would be better if USMCA were resolved ahead of the U.S. election. In practical terms, the implications are not that great as trade continues on NAFTA terms in the interim, even if USMCA is unresolved by the 2020 U.S. election.” Adam Cole, chief currency strategist, Royal Bank of Canada

“It is unsure how the ongoing impeachment inquiry would impact Trump’s mood in October trade negotiations, but we believe that he may concentrate his efforts in sealing a much-desired trade deal with China to divert the market’s attention from his impeachment inquiry and get the stock markets racing higher. There is no such thing as a market rally to brush off the impeachment talks and to regain Americans’ appreciation into the 2020 presidential election year.” Ipek Ozkardeskaya, senior market analyst, London Capital Group

“Yesterday, President Trump claimed that a trade deal with China might be struck ‘sooner than you think.’ We have heard this sort of commentary before, and it hasn’t always worked out, but the mood is upbeat, nonetheless. President Trump has a habit of changing his tune when it comes to China, so some traders might remain skeptical of the remarks. China’s ministry of commerce said companies have made significant purchases of U.S. soybeans as well as pork, and this added to the bullish move.” David Madden, analyst, CMC Markets

“Since making a 6 1/2-year high earlier in the month, gold has traded in a wide range that shows the longer-term bullish rally continues to show some exhaustion. The weakening global economic data and political risks should keep stimulus strong from the [Federal Reserve, European Central Bank and People’s Bank of China] and once this consolidation period ends, we could see gold target the US$1,600 level.” Edward Moya, senior market analyst, Oanda

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Required Reading

Top Canadian executives leave WeWork

WeWork’s top two Canadian executives have left the company, adding uncertainty to its expansion plans amid the upheaval surrounding its failed initial public offering and the demotion of its co-founder. Rachelle Younglai reports.

Where are the policy plans?

We’ve seen in the past two weeks that the main contenders in the Oct. 21 federal election have no shortage of ideas on how to bribe us with our own money. But behind the stampede of tax giveaways that the Liberals and Conservatives have rolled out, there’s a disheartening lack of policy substance, columnist David Parkinson writes.

Martinrea to make new cuts

As the U.S. strike at General Motors Co. drags on, Ontario-based auto-parts supplier Martinrea International Inc. is set to make new cuts to scale back production. Eric Atkins reports.

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