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Briefing highlights

  • Vancouver ranked last
  • Stocks, Canadian dollar, oil at a glance
  • Bank regulator increases buffer
  • Inflation speeds up in China
  • Cenovus raises spending
  • HBC posts wider loss
  • Enbridge boosts dividend
  • WTO loses power
  • What analysts are saying today
  • Required Reading

Vancouver ranked last

Vancouver is ranked dead last in a new look at luxury property markets for 2020 as prices are forecast to decline 5 per cent.

It’s still an “improving scenario,” however, according to real estate consulting group Knight Frank.

Knight Frank’s 2020 forecast, for the top 5 per cent of a market, looks like this:

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“Despite sitting at the bottom of our rankings for 2020, Vancouver’s 5-per-cent decline in prime prices reflects an improving scenario,” Knight Frank said.

“Prime prices have been falling at a rate of 15 per cent per annum but shrinking inventories, along with a gradual adjustment to property market regulations, are seeing a slow recovery in buyer sentiment.”

International demand for such Vancouver properties is expected to stay “weak” next year, added Knight Frank partner Kate Everett-Allen, “but amongst domestic prime buyers there is a gradual improvement in sentiment, with some looking to capitalize on a 10-per-cent to 20-per-cent discount on prime prices compared to the market peak in Q3 2016.”

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Markets at a glance

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Bank regulator boosts buffer

Canada's banking regulator is compelling the country's major banks to hold more capital, citing "elevated" risks to the banking sector including high household and corporate debt, The Globe and Mail’s James Bradshaw reports.

The Office of the Superintendent of Financial Institutions has raised the "Domestic Stability Buffer," a cushion of extra capital banks must hold to help soften the blow in the event of an economic shock.

Starting April 30, the buffer will be set at 2.25 per cent of a bank’s total risk-weighted assets, up from 2 per cent currently and 1.5 per cent last year.

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Inflation speeds up in China

Inflation is speeding up in China as its economy “continues to struggle.”

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Consumer prices shot up 4.5 per cent in November from a year earlier, largely because of higher pork prices.

“The latest data from China appears to show an economy that continues to struggle despite a pickup in recent [purchasing managers index] data,” said CMC Markets chief analyst Michael Hewson.

“The latest inflation numbers showed that a 110-per-cent rise in pork prices continued to exert upwards pressure on headline [consumer price index] while factory gate prices have continued to remain under pressure, indicating a lack of internal demand, with a fall of 1.4 per cent.”

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Cenovus raises spending

From Reuters: Cenovus Energy Inc. said it would spend nearly a quarter more in 2020, after Alberta lifted some curtailments on new oil wells last month. The company said it plans to invest between $1.3-billion and $1.5-billion, nearly 22 per cent higher compared to the mid-point of 2019 forecast. The Calgary-based company said it expects total production for 2020 to be between 472,000 and 496,000 barrels of oil equivalent a day, about 7 per cent higher than its 2019 production forecast.

Barrick to sell project

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Barrick Gold Corp. has reached an agreement to sell its Massawa gold project in Senegal for US$430-million, including contingency payments, to West African gold producer Teranga Gold Corporation, Niall McGee reports. The deal is part of Barrick’s ongoing efforts to sell non-core assets acquired through the acquisition of Randgold Resources Ltd. earlier this year.

HBC posts bigger loss

From Reuters: Hudson’s Bay Co. reported a bigger third-quarter loss, hit by higher discounts at luxury chain Sakes Fifth Avenue and weak sales at its namesake stores. Hudson’s Bay has been shutting stores and divesting assets, including its Lord + Taylor department store business, to shore up finances and focus on its luxury department store chain Saks Fifth Avenue and Hudson’s Bay in Canada. The company’s net loss widened to $226-million, or $1.23 per share, in the quarter ended Nov. 2, from $161-million, or 88 cents per share, a year earlier.

Enbridge projects stronger results

From Reuters: Enbridge Inc. forecast higher core earnings for 2020 and raised its quarterly dividend by about 10 per cent. The company said it expects earnings before interest, taxes, depreciation and amortization of $13.7-billion next year. It expects 2019 EBITDA of $13-billion. Enbridge declared a quarterly dividend of 81 cents a share for 2020. The company also expects distributable cash flow per share of $4.50 to $4.80 for 2020, compared with the 2019 forecast of $4.30 to $4.60 per share.

WTO loses power

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From Reuters: U.S. disruption of the global economic order reaches a major milestone on Tuesday as the World Trade Organization loses its ability to intervene in trade wars, threatening the future of the Geneva-based body. Two years after starting to block appointments, the United States will finally paralyze the WTO’s Appellate Body, which acts as the supreme court for international trade, as two of three members exit and leave it unable to issue rulings. Major trade disputes, including the U.S. conflict with China and metal tariffs imposed by U.S. President Donald Trump, will not be resolved by the global trade arbiter. Critics say this means a return to a post-war period of inconsistent settlements, problems the WTO’s creation in 1995 was designed to fix.

French strikes escalate

From The Associated Press: French airport workers, teachers and others joined nationwide strikes Tuesday as unions cranked up pressure on the government to scrap changes to the national retirement system. Police ordered shops and restaurants closed across a swath of Paris, fearing violence on the fringes of what government opponents hope is another mass march in the afternoon. At least 800,000 people turned out for demonstrations around France when the strike movement kicked off last Thursday. Protests were also planned Tuesday in other cities, as the strike pushes on into a sixth straight day.

Non-Saudis get 23 per cent of Aramco IPO

From Reuters: Non-Saudi investors in oil giant Saudi Aramco’s initial public offering have been allocated 23.1 per cent of the institutional tranche, one of the lead banks working on the transaction said. Saudi government institutions were allocated 13.2 per cent of the institutional tranche, Samba Capital added in a statement. Saudi corporates snapped up the biggest percentage of allocations at 37.5 per cent. The final value of the overall institutional tranche was the equivalent of US$105.86 billion), it said.

German investor mood improves

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From Reuters: The mood among German investors improved far more than forecast in December, a survey showed, with an unexpected rise in October exports boosting hopes for an upturn in Europe’s biggest economy. The ZEW research institute said its monthly survey showed economic sentiment among investors increased to 10.7 from -2.1 in November. Economists had expected a rise to 0.0. A separate gauge measuring investors’ assessment of the economy’s current conditions rose to -19.9 from -24.7 in the previous month. Analysts had forecast a reading of -22.3. ZEW President Achim Wambach said the rise in sentiment “rests on the hope that German exports and private consumption will develop better than previously thought.”

Deutsche says hitting targets more ambitious

From Reuters: Deutsche Bank said that reaching its 2022 return on equity target of 8 per cent has become more ambitious due to headwinds such as low interest rates in the euro area. For its core bank, which excludes its internal bad bank, Deutsche Bank set a post-tax return on tangible equity target of above 9 per cent in 2022. It said that it expected low interest rates to primarily impact the private bank and corporate bank division in the mid-term, although revenue growth from the investment bank should partially offset this. In a statement ahead of an investor day, the bank also said that asset reduction in the capital release unit was running ahead of plan.

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What analysts are saying today

“A phase one [U.S.-China trade] deal looks even less likely as U.S. trade negotiators focus on USMCA. Lighthizer is due to fly to Mexico today for final discussions. Trump says ‘a lot of strides’ have been made on USMCA and sources suggest the House could vote on approving it by Dec. 18 … [Mexico’s peso] likes the news, with [the U.S. dollar versus the peso] grinding down 2 per cent since its late November high. [The Canadian dollar] is little changed which we think is consistent with U.S.-China trade uncertainty mattering more for Canada right now. As far as USMCA goes, the assumption is NAFTA will stay in place until USMCA is ready to replace it, so USMCA ratification doesn’t fundamentally change all that much.” Elsa Lignos, global head of foreign exchange strategy, Royal Bank of Canada

“Global event risk for the remainder of the week is a disincentive to take big risks right now. There are four trading days left for some announcement on the new U.S. tariffs to be imposed on China. It looks like if the U.S. president had to make the decision on new tariffs right now, he would implement them. For that to change before Dec. 15, according to Trump, there needs to be ‘movement’ from China.” Jasper Lawler, head of research, London Capital Group

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“With the 15 December [tariff] deadline now just five days away, the relative quiet from the White House signals a growing likeliness that the trade war drags stocks lower yet again. While many believe that we will see that deadline delayed, the default option remains another ramp-up in tariffs, and thus markets had to take it into account soon enough.” Joshua Mahony, senior market analyst, IG

“In the first few years of Paul Volcker’s term as Fed chairman, 10-year Treasury yield rose from 9 per cent to 16 per cent, and the dollar gained 50 per cent in real trade-weighted trends to a level far stronger than it is today. Inflation was defeated, the principle of central bank independence had been fiercely defended and the boom-bust cycles of the past were over. Perhaps most important of all, in his eight years in charge, U.S. real GDP growth averaged a respectable 3.5 per cent. Not bad. Not bad at all!” Kit Juckes, global fixed income strategist, Société Générale

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Required Reading

VW to plead guilty

Volkswagen AG intends to plead guilty to charges laid under the Canadian Environmental Protection Act, after a four-year federal investigation into a diesel emissions scandal that has already cost the auto maker tens of billions of dollars in other jurisdictions. Kathryn Blaze Baum reports.

Bet could backfire

The German car industry’s costly bet on electric cars could backfire as cities fight cars of any description, Eric Reguly argues.

HBC directors fire back

Hudson’s Bay Co.'s independent directors shot back at an influential proxy advisory firm on Monday, saying its recommendation that shareholders reject a $1.1-billion privatization offer from the retailer’s executive chairman is based on flawed assumptions about a previously unpublicized agreement. Jeffrey Jones reports.

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