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Briefing highlights

  • Broke and stressed
  • Stocks, loonie, oil at a glance
  • Cenovus raises dividend, cuts budget
  • Flutter to buy Stars Group
  • News ticker
  • What analysts are saying today
  • ‘More like a mini-recession’
  • Required Reading: TD, BlackBerry

Rising costs of living, stagnate incomes and growing debt loads have left Canadians feeling financially stuck, focused on making ends meet and unable to save for days ahead

— BDO Canada

Here’s the state of play for many Canadians: Broke, stressed and in no mood to spend more.

That’s the picture that you get from a handful of reports released over the past several days. It’s not the prettiest picture, but at least it comes amid low unemployment, though also as economic growth slows and global uncertainty runs high.

Here’s how it breaks down:

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Stressed

The Conference Board of Canada’s latest measure of consumer confidence showed it slipping five points in September to its lowest since January.

“The decline was largely the result of deteriorating views on household finances,” Conference Board economist Cory Renner said in his report.

“The balance of opinion among respondents on how their finances have changed in the last six months and how they expect them to change over the next six months declined for both questions”

Source: The Conference Board of Canada

Breaking it down by region, the confidence index rose in Ontario, though is still “well below” its June peak.

Quebec saw “a major step back,” while the Alberta index declined for the fourth month in a row. British Columbia also marked its fourth straight month of decline.

Atlantic Canada also declined, while the index for Saskatchewan-Manitoba rose modestly.

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“The key takeaway from the recent survey is that a large share of households believe that their finances are getting worse,” Mr. Renner said.

“This fits with data suggesting that Canadians continue to carry worrisome levels of household debt.”

Broke

Which brings us to why so many Canadians are in so much trouble when it comes to finances.

This, of course, is nothing new. Concerns over swollen debt levels in Canada have been running high for years, with the latest reading showing the ratio of household debt to disposable income at 177.1 per cent. That’s down from previous readings but still elevated.

And Canadians are concerned, according to BDO Canada’s report on its affordability index.

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This showed that 53 per cent of Canadians are living paycheque to paycheque, BDO said, and that debt is “overwhelming” for 25 per cent.

What’s more, 27 per cent can’t meet their needs, while 42 per cent can’t have what they want.

“Affordability and debt challenges continue to weigh on Canadians, and what this year’s affordability index reveals is that, over time, the cumulative effects are having a significant and increasingly negative impact on financial goals,” president Doug Jones said in the BDO Canada report.

The Conference Board of Canada found something similar when it asked consumers about their finances.

Source: The Conference Board of Canada

Source: The Conference Board of Canada

Canadians are keen to pay down their debts, BDO found, and 43 per cent are “slowly” doing that, but three in 10 have put off paying their credit card balances because they can’t.

“It’s clear from the 2019 Index findings that not all Canadians are equally affected by debt and affordability challenges,” the BDO report said.

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“Women, Gen-Xers (35-54), families and Canadians with lower incomes (less than $50,000) are especially vulnerable and their struggles have increased in the past year.”

Over all, 15 per cent have delayed buying essentials, food and health-care products, 13 per cent have put off essential utilities and things like phones, 8 per cent have delayed having kids, 28 per cent have put off buying a car, and 51 per cent haven’t had a vacation.

“Putting off a vacation or the purchase of a new vehicle may be necessary sacrifies for avoiding debt,” BDO said. “But delaying basic needs is a clear sign of financial distress.”

One last thing here: Almost 70 per cent of Canadians believe they won’t have enough to retire.

In no mood to spend more

As we saw in Statistics Canada’s latest report on retail sales, Canadians aren’t upping their game when it comes to shopping.

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And Toronto-Dominion Bank, for one, expects the pace of our spending to slow down.

TD senior economist Brian DePratto sees three reasons for this:

“The first is the impact of macroprudential housing policies that slowed activity in this sector markedly in recent years,” Mr. DePratto said.

“The second: The end of a long uptrend in per-capita auto sales that appears to have left demand satiated,” he added.

“And third, still-challenged household balance sheets.”

The latter is improving, to be sure.

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But “the impact of this change in direction on consumption is intuitive: Spending more of your income on keeping your debts current leaves less money for other priorities,” Mr. DePratto said.

The debt service ratio is also high, but should fall, he added.

“But, even with these more positive dynamics, there will be a hangover of sorts from the recent uptick in servicing costs,” Mr. DePratto said.

“All else equal, this effect should hold back spending over the remainder of this year and into 2020 by about 0.2 [of a percentage point] – hardly a gigantic impact, but still another item on the ‘slow consumption’ checklist.”

The Conference Board of Canada also cited the impact on spending.

Source: The Conference Board of Canada

“There was an uptick in the share of respondents who said that now is a good time to make a major purchase,” Mr. Renner said.

“This could be related to increased expectations that interest rates will be cut later this year, lowering the cost of financing,” he added.

“Still, the share of respondents who said it is a bad time to make a major purchase remains higher than the share of those who said they think it is a good time to do so.”

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Markets at a glance

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Cenovus raises dividend

Cenovus Energy Inc. is raising its dividend and cutting its planned spending.

The Canadian energy giant said today it would increase the quarterly dividend by 25 per cent to 6.25 cents for the fourth quarter.

“The company believes it will have capacity for further dividend increases at a potential growth rate of 5 per cent to 10 per cent annually, even in a [West Texas intermediate] price environment of US$45 a barrel,” the company added.

“Declaration of dividends is at the sole discretion of the Board and will continue to be evaluated on a quarterly basis.”

Cenovus also said it cut projections for this year’s spending to between $1.1-billion and $1.2-billion, down by $150-million from its earlier forecast.

It’s five-year business plan “allows for disciplined production growth at Cenovus’s best-in-class oil sands assets, subject to improved market access, and provides potential for cumulative free funds flow of approximately $11-billion at mid-cycle West Texas Intermediate (WTI) prices averaging between US$57 and US$60 per barrel,” it added.

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Flutter, um, gambles on Stars

Ireland’s Flutter Entertainment PLC has a struck a deal for Toronto-listed The Stars Group Inc., a takeover they say will “create a global leader in sports betting and gaming.”

Stars shareholders would get 0.2253 of what the companies said would be New Flutter stock for each Stars share. The deal would be worth US$6-billion, Reuters said.

Flutter owns Paddy Power Betfair, and Stars holds Poker Stars, both big names.

“The combined group will have a diverse portfolio of leading brands and complementary best-in-class products with a broad geographic reach,” they said.

“It will benefit from an enhanced global platform and improved local market reach. On a proforma basis, the combined group’s annual revenue would have been £3.8-billion in 2018, making it the largest online betting and gaming operator globally.”

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Ticker

German growth forecasts cut

From Reuters: Germany’s leading economic institutes slashed their growth forecasts in Europe’s biggest economy for this year and next, blaming weaker global demand for manufacturing goods and increased business uncertainty amid trade disputes. The revisions, which feed into the government’s own output projections, reflect growing concerns that a slowdown in Germany driven by a recession in the export-dependent manufacturing sector could hamper the broader euro zone economy. The institutes said they now expect the German economy to grow by 0.5 per cent this year and 1.1 per cent in 2020.

Samsung ends phone production in China

From Reuters: Samsung Electronics Co. has ended mobile telephone production in China, it said today, hurt by intensifying competition from domestic rivals in the world’s biggest smartphone market. The shutdown of Samsung’s last China phone factory comes after it cut production at the plant in the southern city of Huizhou in June and suspended another factory late last year, underscoring stiff competition in the country.

Greek workers launch 24-hour strike

From Reuters: Greek private sector workers walked off the job on Wednesday in a 24-hour strike, the second such walkout nationwide within a week, to protest against labour reforms planned by the conservative government. Ships stayed docked in port, trains pulled out of service and bank services were disrupted.

Norway SWF to divest oil and gas exploration firms

From Reuters: Norway’s US$1.1-trillion sovereign fund will divest companies solely dedicated to oil and gas exploration and production in a bid to shield itself from a long-term fall in oil prices, the finance ministry said. The move will partly shift the world’s largest sovereign wealth fund away from oil and gas, as called for by the central bank, which had originally sought to remove all petroleum producers to protect the country if oil prices fell. The fund will continue to maintain stakes in refiners and other downstream firms.

Also ....

What analysts are saying today

The current environment is more like a mini-recession

— Edward Moya

“There have been plenty of ‘false-positive' sub-50 manufacturing [Institute for Supply Management] readings which haven't led to recessions in the last 25 years … We'll ned to wait for tomorrow's mon-manufacturing index for a broader view of how fast the economy over all is losing momentum, and we'll have to go on waiting if we want cast-iron evidence that recession, like winter, is coming. However, I think we can reasonably draw a couple of conclusions. Firstly, the global manufacturing recession is global, in that it includes the U.S..Some of it comes from China … and while Germany is suffering worse than anyone else, even the U.S. is feeling it. Secondly, if the [Federal Reserve] is aware of downside economic risks and standing by to act if needed, the chance that they act sooner rather than later has increased.” Kit Juckes, global fixed income strategist, Société Générale

“The pound has come under pressure as pessimism grows about the nature of any new U.K. proposals to deal with the issue of the Irish border. The proposals are expected to put forward the idea that Northern Ireland would remain in parts of the EU single market until 2025, with other regulatory checks to be carried out at points of origin or destination. There appears to be rising scepticism, judging by the mood music coming out of Brussels that any deal is likely to be agreed in the days ahead, however this is entirely normal when it comes to all matters Europe. Deadlines always have a habit of getting pushed to the wire.” Michael Hewson, chief analyst, CMC Markets.

“Right on cue, German GDP forecasts have been downgraded. Following the theme, it is clear that a tough outlook for Germany makes things even worse for southern Europe’s moribund economies, with or without another half-hearted dose of[quantitative easing] from the [European Central Bank]. We are rapidly moving away from the realms of what central banks can do, but governments refuse to pick up the slack. How long equities can remain immune in such an environment remains to be seen.” Chris Beauchamp, chief market analyst, IG

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Required Reading

Co-working space quadruples

The amount of office space dedicated to co-working in Canada has quadrupled in the past five years, although it’s still a small slice of the market, and the high-profile troubles at WeWork could slow the pace of expansion, Rachelle Younglai writes.

Schwab’s fee move weighs on TD

Concerns over slowing economic growth, falling interest rates and a trade war between the United States and China have been weighing on Canadian bank stocks for more than a year. Now, investors have something else to consider: tumbling U.S. brokerage fees. David Berman reports.

BlackBerry shares under pressure

BlackBerry Ltd. stock hit a 16-year low on Tuesday, closing down for the sixth straight trading session amid concerns about the smartphone pioneer’s ability to deliver on a new strategy for growth. Sean Silcoff reports.

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