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Business Briefing Bank of Canada to signal long hibernation (as bears will do)

Briefing highlights

  • What to expect from Bank of Canada
  • Stocks, loonie, oil at a glance
  • A look at buying power
  • Trump eliminates Iran sanction waivers
  • European bank results in focus
  • Boeing to report results amid woes
  • Amazon.com results in spotlight
  • Required Reading

What to expect from BoC

Expect the Bank of Canada to signal a long hibernation as it trims its economic forecast and tweaks its language this week.

Observers believe the central bank will unveil a bearish short-term view and cautious longer-term outlook when it releases its interest-rate decision and monetary policy report Wednesday.

Governor Stephen Poloz, senior deputy governor Carolyn Wilkins and their colleagues are expected to hold their key overnight rate at 1.75 per cent, and signal that's where it will stay for a long time.

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Bank of Canada senior deputy governor Carolyn Wilkins and governor Stephen Poloz

Sean Kilpatrick/The Canadian Press

Economists expect the Bank of Canada to tweak the language of its statement, removing a previous reference to future rate increases at some point down the road. At the same time, it may also try to rid the market of speculation that rates could fall.

“While a policy rate change isn’t on the table at this meeting, there’s plenty to watch for to help fine-tune the bigger picture outlook,” said Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist.

"Expect a cautious BoC with some hints of optimism in an effort to dampen any rate cut speculation."

As Laurentian Bank Securities chief economist Sébastien Lavoie put it, there's "no spring thaw or recession in store for Canada."

What there is is a lot of uncertainty, and an economic soft patch believed to be behind us.

Indeed, economists expect the central bank to trim its forecast for economic growth this year to about 1.5 per cent from its previous projection of 1.7 per cent, but with a bounce starting as early as the current quarter.

Expect the statement to again highlight the central bank's "dependence on data, with a particular focus on oil markets, household spending, and global trade policy," Royal Bank of Canada senior economists Nathan Janzen and Josh Nye said in their lookahead.

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"Given recent disappointing home sales, we wouldn’t be surprised if developments in the Canadian housing market were added to that list."

And key to all this: "Our forecast assumes the BoC will be on hold through 2020."

Some other economists also believe the Bank of Canada will hibernate through next year, or that it’s done raising rates completely.

Read more

Markets at a glance

Buying power

Would you rather earn $44,400 in Toronto, or $42,500 in Winnipeg?

The Globe and Mail’s Matt Lundy looks at how far money goes, and where.

Read more

Ticker

U.S. to end oil waivers

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From Reuters: President Donald Trump has decided to eliminate all waivers issued to eight economies allowing them to buy Iranian oil without facing U.S. sanctions, the White House said, while vowing to ensure global oil market was well supplied.

Tesla probes report

Also from Reuters: Tesla Inc. said it sent a team to investigate a video on Chinese social media that showed a parked Tesla Model S exploding, the latest in a string of fire incidents involving the electric vehicle maker’s cars.

Ghosn indicted

Also from Reuters: Japanese prosecutors indicted Carlos Ghosn on another charge of aggravated breach of trust, a Tokyo court said, the fourth charge against the former Nissan Motor Co. chairman, which his lawyers met immediately with a bail request.

Bed, Bath & Beyond refreshes board

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Also from Reuters: Bed Bath & Beyond Inc. said it appointed five new independent members to its board, replacing some directors including co-founders Warren Eisenberg and Leonard Feinstein, after facing pressure from a trio of activist investors to refresh its board.

What to watch for this week

There's a lot on tap besides the Bank of Canada decision, notably the pickup in quarterly corporate results.

Of note among the many earnings reports will be those from overseas banks, including Barclays, Royal Bank of Scotland and Deutsche Bank.

"It's set to be a big week for European banks in the wake of last week’s U.S. bank numbers, which showed that investment bank and trading revenue was falling short of expectations in Q1," said CMC Markets chief analyst Michael Hewson.

"If U.S. banks are struggling in this fashion then one can only imagine the problems facing their U.K. and European peers," he added.

"This week we’ll get good insight into how Brexit and negative European interest rates have hurt revenues at the U.K.'s biggest banks, as well as Germany’s biggest bank, Deutsche Bank."

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Here's what else to watch for:

MONDAY

This busy week actually starts off slowly, with PrairieSky Royalty Ltd. reporting results.

TUESDAY

Watch for results from Canadian Pacific Railway Ltd., Coca-Cola Co., Lockheed Martin Corp., TD Ameritrade Holding Corp., Teck Resources Ltd., Twitter Inc. and United States Steel Corp.

WEDNESDAY

Investors will be watching closely as Boeing Co. reports results amid the ongoing troubles with its 737 Max 8 program after two crashes.

“This week’s Q1 update will be instructive from Boeing in the context of how much financial damage the 737 Max 8 problems have had on the company’s revenues and forecasts,” said CMC’s Mr. Hewson.

"The company has already slowed down production of the aircraft and may well have to set aside large sums in respect of grounded aircraft, as well as compensation in respect of litigation over the coming months. The likelihood of the plane getting back in the air anytime soon has diminished in recent weeks, due to the enormous brand damage recent events have done."

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Last year, Mr. Hewson noted, Boeing delivered a record 806 commercial airplanes, and up to 900 were expected this year.

"That target looks increasingly unlikely now and given that the [737 Max] makes up to 30 per cent of the company’s profits, the ongoing lack of confidence in the aircraft is likely to see that percentage significantly reduced," he added.

"Investors now slowly appear to be waking up to this, which means a downgrade to the company forecasts could well see the shares decline sharply."

Other companies reporting include AT&T Inc., Cenovus Energy Inc., Facebook Inc., Lundin Mining Corp., Methanex Corp., Microsoft Corp., Norfolk Southern Corp.. Northrop Grumman Corp., Restaurant Brands International Inc., Tesla Inc. and Visa Inc.

THURSDAY

Earnings: Aecon Group Inc., Agnico Eagle Mines Ltd., Altria Group, American Airlines Group, Bristol-Myers Squibb Co., Comcast Corp., Ford Motor Co., Intel Corp., Newmont Mining Corp, Precision Drilling Corp., Sherritt International Corp., Starbucks Corp. and West Fraser Timber Co.,

And Amazon.com, the get-you-anything-you-want company.

"Now that Apple and Disney have decided to take on the online streaming market, Amazon Prime will have more than just Netflix to worry about, which means that Amazon’s other businesses will need to continue to deliver on its retail business, as well as cloud services," Mr. Hewson said.

On the economic front, the Bank of Japan is expected to hold steady.

FRIDAY

Economists expect statistics to show that the U.S. economy expanded at an annual pace of somewhere between 1.8 and 2.2 per cent in the first quarter.

"The U.S. economy continues to lose momentum as it approaches full employment, reinforced by higher interest rates, and slower global growth," said CIBC World Markets economist Katherine Judge, who is on the lower end and expects to see 1.8 per cent.

"A strong labour market and higher wages should drive a rebound in consumption in Q2, helping growth jump back up temporarily," she added.

"However, with higher interest rates holding back business investment, and the labour market reaching full capacity, that strength should prove short lived."

Earnings: Colgate-Palmolive Co., Exxon Mobil Corp, Husky Energy Inc. and Imperial Oil Ltd.

Required Reading

Advocacy group struggles

The primary advocacy group for Canadian investors is losing money, looking for an executive director and struggling to survive, institutional investment reporter David Milstead writes.

How AI scores

Technology reporter Sean Silcoff looks at how a Montreal analytics startup is using AI to play a role in the NHL playoffs.

McKenna’s view

Columnist Barrie McKenna’s view: Canada’s internal feud over steel imports is Trumponomics in a nutshell.

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