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business briefing

Briefing highlights

  • Canadians tighten up
  • Stocks, Canadian dollar, oil at a glance
  • New home sales surge in Toronto
  • Bank of England holds steady
  • Altria takes charge on Juul
  • Deutsche posts loss
  • U.S. growth at 2.1% in fourth quarter
  • What analysts are saying today
  • Required Reading

Changing habits

We aren’t quite a nation of misers, but our habits are changing.

“Consumption growth has averaged less than 2 per cent per quarter since 2018 despite relatively high confidence levels,” Krishen Rangasamy, senior economist at National Bank of Canada, said in a recent report.

“Part of the problem here, of course, is the massive amount of household debt which continues to retrain the ability of Canadians to open up their wallets, no matter how confident they are about the future,” he added.

“Recall that a record high 15 per cent of household disposable income new goes towards debt servicing."

A key measure of debt burden – household credit market debt to disposable income – stands at an elevated 175.9 per cent on a seasonally adjusted basis.

Expressed another way, Canadians owe $1.76 for each loonie of disposable income.

We have, of course, spent big on real estate, so much so that the federal bank regulator and the B.C. and Ontario governments had to bring in new rules to cool down inflated housing markets.

While mortgage borrowing has picked up along with a rebound in housing markets, growth in other consumer credit is slowing.

Indeed, said Mr. Rangasamy, the pace is now the slowest in five years.

“Amid the jobs boom, related gains in household disposable incomes, accelerating wage inflation, and sky-high confidence, you would have expected Canadian consumption spending to accelerate,” Mr. Rangasamy said.

“But … that hasn’t happened.”

The Conference Board of Canada’s most recent measure of consumer confidence, for January, indeed showed “broad-based” improvement, rising 12 points to its highest since last summer.

“The share of respondents who expect their job prospects to improve rose this month,” economist Cory Renner said in this week’s Conference Board report.

“The share fell to a three-year low last month, so a recovery in job expectations is a good sign.”

Source: The Conference Board of Canada

Here’s an interesting tidbit to go with that: While there’s been an increase in people who now think it’s a good time to make a big purchase, more people still think it’s not.

Which speaks to what Mr. Rangasamy is saying.

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Markets at a glance

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New home sales surge in Toronto area

Sales of new houses more than doubled in the Toronto region last year, and new condo sales rose 27 per cent, with robust activity in the city’s surrounding regions, The Globe and Mail’s Rachelle Younglai reports.

About 9,500 new single family homes sold last year, compared with 3,710 in the previous year, though still below the 10-year average, according to real estate data company Altus Group.

Meanwhile, nearly 27,000 new condos sold last year, compared with 21,145 in the previous year, as a slew of new multi-family projects got off the ground.

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BoE holds steady

The Bank of England held its benchmark rate steady at 0.75 per cent today, its monetary policy committee voting 7-2 to hold it there.

The central bank also said in its monetary policy report that economic growth was “modest” last year, and, indeed, was estimated at zero in the fourth quarter because of slower global growth and “elevated Brexit-related uncertainties.”

The central bank also said it expects growth to “pick up a little” early this year.

“Further ahead, and conditioned on a market path for bank rate that falls slightly over the forecast period, the recovery in U.K. growth is supported by a pickup in global activity, a further decline in Brexit uncertainties and the government’s announced spending measures.”

This was governor Mark Carney’s final meeting.

“The incoming governor will have his work cut out for him as the 11-month transition period will very likely be tumultuous as the trade talks between the U.K. and the EU and the U.S. kick off,” said Bank of Montreal senior economist Jennifer Lee.

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Stocks to watch

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Deutsche posts loss

From Reuters: Deutsche Bank plunged to a bigger-than-expected loss of €5.7-billion last year, its fifth in a row, as the cost of its latest turnaround attempt hit earnings. Misconduct scandals, a failed attempt to take on Wall Street heavyweights and, more recently, an aborted merger with Commerzbank mean Germany’s biggest bank is still in recovery mode more than a decade on from the global financial crisis. The €1.6-billion loss in the fourth quarter was larger than analysts’ mean forecast.

U.S. growth at 2.1 per cent in fourth quarter

From Reuters: The U.S. economy missed the Trump administration’s 3-per-cent growth target for a second straight year, posting its slowest annual growth in three years in 2019 as the slump in business investment deepened amid damaging trade tensions. The economy grew 2.3 per cent last year, the Commerce Department. Gross domestic product increased at a 2.1-per-cent annualized rate in the fourth quarter, matching the third-quarter pace, as lower borrowing costs encouraged purchases of motor vehicles, houses and other big-ticket items. Growth was also lifted by increased government spending. That helped to offset the drag from a slower pace of inventory accumulation.

Altria takes charge on Juul

From Reuters and The Associated Press: Altria Inc. took a US$4.1-billion charge in the fourth quarter for its investment in Juul Labs Inc. and said it was revising terms of the agreement with the embattled e-cigarette maker that includes restructuring Juul’s board. The Marlboro maker has recorded US$8.6-billion in impairment charges for the investment in 2019, reducing the value of the investment to US$4.2-billion as of Dec. 31. The company had purchased a 35-per-cent stake in Juul in December 2018 for US$12.8-billion. Altria reported a fourth-quarter loss of US$1.81-billion, after reporting a profit in the same period a year earlier. The company said it had a loss of US$1 per share. Earnings, adjusted for one-time gains and costs, were US$1.02 per share.

Shell cuts pace of buyback

From Reuters: Royal Dutch Shell is cutting the pace of its vast US$25-billion share buyback program after lower oil and natural gas prices halved its profit in the last three months of 2019, sending its shares to their lowest since July 2017. Shell is set to buy about US$1-billion of shares in the first quarter of 2020, which is down from US$2.75-billion per quarter since July 2018. Shell’s fourth-quarter headline profit halved to US$2.9-billion from US$5.7-billion in the same period of 2018, its lowest in more than three years, as weaker oil and gas prices pushed the company to take a US$1.65-billion charge on its U.S. gas fields.

Suntory to sell 55-year-old whisky

From Reuters: Japan’s Suntory Holdings unveiled a limited edition 55-year-old Yamazaki single malt whisky, which it will sell for the equivalent of US$27,347.31 a bottle, aiming to bolster its credentials as a premium whisky maker. Only 100 bottles will be sold from June 30, and buyers will be chosen by lottery, the company said. Suntory and other premium whisky makers have been faced with depleted stocks of aged whiskies after an unexpected surge in popularity of single malts in the past decade. Many have turned to blends without age statements to manage supply.

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What analysts are saying today

“Given the potential implications of the China situation, [yesterday’s] Fed meeting is very much a non-event. It is not even as exciting as the Fed statements of the past two years, let alone the immediate post-crisis period. Tweaking the wording slightly is hardly likely to fire the imagination of traders worldwide.” Chris Beauchamp, chief market analyst, IG

“The U.S. dollar’s dominance continues, and it turn it has been putting pressure on the [pound versus the U.S. dollar] as well as [the euro versus the U.S. dollar]. The impression dealers have is the Fed are content to maintain their current policy for the time being, so in turn the greenback is relatively attractive.” David Madden, analyst CMC Markets

Required Reading

Panel recommends changes

A government-appointed panel is recommending a massive overhaul of Canada’s broadcasting and telecommunications laws, including eliminating advertising on all CBC/Radio-Canada platforms over the next five years and requiring internet-streaming companies such as Netflix to invest in Canadian programming and charge sales tax. Alexandra Posadzki reports.

Don’t overstate risk

Don’t overstate the risk of the coronavirus to the Canadian economy, columnist David Parkinson writes.

New Caisse CEO

The Quebec government has named former Bank of Nova Scotia investment banker Charles Émond as chief executive of the Caisse de dépôt et placement du Québec, putting its faith in a fresh-faced deal maker amid more challenging times ahead. He replaces Michael Sabia, who is slated to leave at the end of this week after a decade-long tenure. Nicolas Van Praet and James Bradshaw report.