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Briefing highlights

  • Luxury auto sales suffer
  • Alberta to lift certain production limits
  • Canada loses jobs in October
  • Unemployment rate at 5.5 per cent
  • Stocks, Canadian dollar, oil at a glance
  • CIBC sells big chunk of FirstCaribbean
  • Magna sinks to loss, cuts outlook
  • Housing starts slip in Canada
  • Enbridge swings to quarterly profit
  • Japan plans stimulus measures
  • What analysts are saying today
  • Required Reading

Strictly speaking, it’s incorrect to talk about a ‘beamer car’ (or ‘beemer car’). The correct term for a BMW automobile is ‘bimmer’ - ‘beemer’ and ‘beamer’ actually only refer to a BMW motorcycle


I have no skin in this game since I drive an entry-level, though much-loved, Jeep, but I found a study on the luxury auto market engaging because, among other things, of how it linked a sales drop to declining home prices.

The recent report by Bank of Nova Scotia also warned against a special tax on luxury autos, the prospect of which has cast a shadow over the market.

First, despite a recent sales pickup, the luxury auto market has been having a tough go, according to Rebekah Young, the bank’s director of fiscal and provincial economics, and her colleague, senior research analyst Raffi Ghazarian.

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“Luxury auto brands in Canada have suffered a prolonged retrenchment in sales spanning more than a year,” Ms. Young and Mr. Ghazarian said.

“An exceptional surge earlier in the decade came to an abrupt halt in 2018 as financing costs and falling home values eroded wealth and affordability despite a relatively benign economic growth environment.”

Housing markets suffered as policy makers cooled inflated prices with tax and other measures, including a new federal mortgage-qualification stress test.

The Vancouver and Toronto areas were specific targets, given their frothy nature, and, in turn, “luxury auto sales took a hit with Ontario and British Columbia accounting for about two-thirds of the market.”

Plus, we pulled back on our use of home equity lines of credit.

Prices, of course, also played a role.

Lower interest rates and a rebound in the housing market helped buoy sales in the summer. But “a durable recovery remains fragile in light of the threat of new luxury taxes in Canada.”

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They were referring to a federal Liberal pledge to hit personal autos, boats and planes worth at least $100,000 with a tax of 10 per cent.

The “economic argument” for such a levy is “dubious,” a tax would be “punitive,” and there are better ways to bring in money, such as raising consumption taxes, such as the goods and service tax (GST), Ms. Young and Mr. Ghazarian argued.

“Most economists would agree that such a luxury tax is economically inefficient,” they said.

“It creates an artificial distortion in purchase decisions, leading to ‘deadweight losses’ that reduce societal welfare.” An increase in broad-based consumption taxes, in turn, could “support a more significant redistribution of wealth according to societal preferences.”

One could also make the argument that such a luxury tax is effectively a “tariff barrier” because of how it would hit imports.

“These vehicles are not inherently a sin purchase, nor do they create negative externalities that would warrant government intervention to curb purchases.”

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Of course, what the government is saying is that, if you can afford one, you can afford to give a little extra.

What Ms. Young and Mr. Ghazarian are saying is that, if you can afford one, you’re already giving extra.

First there are goods and services taxes, harmonized or otherwise.

“British Columbia’s luxury auto surtax adds upwards of another 20 per cent on the sticker price,” Ms. Young and Mr. Ghazarian added.

“Moreover, purchases are made with after-tax income. High-income earners across Canada already face significantly higher marginal personal income tax rates that kick in at substantially lower levels relative to peers.”

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Alberta will allow operators to drill new conventional wells unrestricted by production limits, signaling the government’s first steps towards easing oil curtailment, The Globe and Mail’s Emma Graney reports.

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Existing producing wells will remain under curtailment, but Energy Minister Sonya Savage said the change would help drive investment and job creation in the patch, and economic growth in the province.

Alberta producers have been under curtailment since January, when the former NDP government imposed production limits to drain the glut of oil in storage and help ease a crippling price differential on Canadian oil.

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Canada loses jobs

Canada lost 1,800 jobs in October, while unemployment held at a low 5.5 per cent.

The economy shed 16,100 full-time jobs and gained 14,300 part-time positions, Statistics Canada said.

Economists had expected to see an increase, particularly given election-related hiring last month.

Employment in Canada is now up 2.4 per cent, or about 445,000 positions, since October of 2018, “driven by gains in full-time work,” the federal agency said.

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“Employment is still up 2.4 per cent, year over year, but that's come in contrast to much softer GDP and hours worked data,” CIBC World Markets senior economist Royce Mendes said of the report.

“We continue to see a convergence coming from a further slowdown in employment, eventually leading the Bank of Canada to trim rates, and today’s data could be the first step in that direction.”

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Markets at a glance

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CIBC sells chunk of stake

Canadian Imperial Bank of Commerce has struck a deal to sell a big chunk of its majority stake in CIBC FirstCaribbean.

GNB Financial Group will get 66.73 per cent of of FirstCaribbean stock for US$797-million, the bank said.

CIBC will still hold 24.9 per cent of the unit.

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Magna sinks to loss

Magna International Inc. slumped to a third-quarter loss, while the auto parts giant also cut its outlook because of the now-ended strike against General Motors Co.

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The loss attributable to Magna came in at US$233-million, or 75 US cents a share, diluted, compared to a profit of US$554-million or US$1.62 a year earlier.

Adjusted, earnings per share fell to US$1.41 from US$1.56.

Revenue slipped to US$9.32-billion from US$9.62-billion, as sales were hurt by the strike.

Magna trimmed its sales outlook for the year, now projecting a range of US$38.7-billion to US$39.8-billion. It now forecasts profit of US$1.8-billion to US$1.9-billion, down from an earlier projection of US$1.9-billion to US$2.1-billion.

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Housing starts slip

Residential real estate construction slipped in October, with housing starts down 8.7 per cent to an annual pace of 201,973 units.

That was because of a 12-per-cent drop in multiple starts, such as condos, in cities, while construction of single-detached homes in urban areas rose 2.4 per cent.

“After a couple of solid months of homebuilding activity, the pace of housing starts subsided modestly in October,” said CIBC World Markets economist Katherine Judge.

“The disappointment was concentrated in the volatile multiples category that contributes less to GDP on a per-unit basis,” she added.

“Single-family starts were little changed from the prior month, with the pace of building still higher than that seen in the first half of the year. Overall, a little disappointing, but this shouldn’t impact markets or GDP forecasts given that the weakness was contained to multiples.”

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Enbridge swings to profit

From Reuters: Enbridge Inc. beat estimates for quarterly profit, as the largest pipeline operator in Canada moved more oil. Net income attributable to common shareholders was $949-million, or 47 cents a share, compared with a loss of $90-million or 5 cents a year earlier. On an adjusted basis, the company earned 56 cents a share. Analysts had expected 52 cents, according to IBES data from Refinitiv.

Abe plans stimulus measures

From Reuters: Japanese Prime Minister Shinzo Abe asked his cabinet to compile a package of stimulus measures to support the economy and build infrastructure to cope with large natural disasters, the government’s top spokesman said. Chief Cabinet Secretary Yoshihide Suga told reporters that the package will include steps to promote investment for growth through aggressive use of fiscal investment and loan programs. The government will compile the package as soon as possible, although the size of spending will depend on proposals to be made by various ministries, Economy Minister Yasutoshi Nishimura told a news conference after a regular cabinet meeting.

Honda cuts outlook

From Reuters: Honda Motor Co. slashed its annual profit and global sales outlook to a four-year low, citing a firmer yen and bleak business in both India and its main market of North America. The dour outlook comes at a time when Honda is struggling to shore up its automobile operations, with its profitability down more than half in the past two years due to a series of quality-related issues constraining its financial firepower to invest in new vehicle technologies. Japan’s third-largest auto maker now expects an operating income of ¥690-billion yen for the year to March.

China trade better than expected

From Reuters: China’s exports and imports contracted less than expected in October, providing some relief for the economy as Beijing tries to reach a partial trade deal with Washington. October exports fell for the third straight month, down 0.9 per cent from a year earlier, customs data showed. Imports shrank for the sixth consecutive month, though the 6.4-per-cent drop was smaller than expected.

German exports climb

From Reuters: German exports posted their biggest rise in almost two years in September, data showed, providing some relief amid widespread concerns that Europe’s largest economy will dip into recession in the third quarter. The Federal Statistics Office said seasonally adjusted exports increased by 1.5 per cent on the month. “While there is no doubt that industry is in recession, the entire German economy could have avoided another contraction - and hence a technical recession - at the very last minute,” said ING economist Carsten Brzeski.

Alibaba plots Hong Kong listing

From Reuters: Alibaba Group Holding Ltd. plans to launch a Hong Kong share offering to raise US$10-billion to US$15-billion in the final week of November, two people with direct knowledge of the matter told Reuters. The U.S.-listed Chinese e-commerce giant is due to seek approval from Hong Kong’s listing committee … for a deal that Dealogic data showed will be the world’s biggest-ever cross-border secondary listing.

Also ...

What analysts are saying today

The merry-go-round of cheers and fears persists, reflecting the headline ping pong of the trade wars.

— Mark McCormick, global head of foreign exchange strategy, TD Securities

“It's (almost) 30 years since the Berlin wall came down on 9 November 1989, an event that helped drag 10-year Bund yields from 7 per cent to 9 per cent as we worried about the cost of reunification. In today's money, [the euro versus the U.S. dollar] dropped to 1.12 in the immediate, nervous aftermath but ended 1989 10 figures higher. Those were the days!” Kit Juckes, global fixed income strategist, Société Générale

“Investors appear to be coming to the conclusion that we could be seeing the start of a thaw in U.S., China trade relations, if this week’s price action in equity and bond markets is any guide. A sharp rise in bond yields, as bonds sell off, and further record highs for US. Markets, along with the fifth successive week of gains for equity markets here in Europe, appears to have prompted optimism that we could well see the suspension of tariffs in December, as well as the prospect of a rollback of existing tariffs by year end ... A note of caution, needs to be exercised here, as we have been here before, only to find that both sides have stepped back due to concerns that they may be perceived as having given too much away.” Michael Hewson, chief analyst, CMC Markets

“Equities have been rallying on hopes of a phase one deal between the United States and China and excessively bearish earnings expectations on the back of a recession meme. Looking ahead, a few spanners could hit the wheel, though the odds are that we can still cruise into December before a phase of consolidation. Broadly speaking we still believe that we are in a sideways market with a mild positive drift … We continue to prefer well diversified and resilient portfolios.” Sébastien Galy, senior macro strategist, Nordea Asset Management

“As we mentioned earlier this week, the remarkable 32-per-cent drop in Indian gold demand between July and September has built a solid basis for the sharp price action [in gold] we saw yesterday. What was holding gold near the US$1490 level was the safe haven demand. Waning risk-off positions pulled the rug out from buyers’ feet. The positive shift in sovereign yields should limit the recovery near the 100-day moving average at US$1476.” Ipek Ozkardeskaya, senior market analyst, London Capital Group

“Moody’s decision to cut its outlook on India’s sovereign rating is based in part on the government’s struggle to rein in the fiscal deficit. This is justifiable, if a little behind the curve. But the ratings agency’s decision is also based on its assessment that India is unlikely to sustain real GDP growth of 8 per cent. This is setting an extremely high bar given that only the very best performing economies at India’s stage of development have achieved this over the past few decades.” Shilan Shah, senior India economist, Capital Economics

Required Reading

Semafo suspends work

Montreal-based gold miner Semafo Inc. has halted operations at its Boungou gold mine in eastern Burkina Faso as the fallout widens from one of the worst-ever terrorist attacks on employees of a Canadian company. Nicolas Van Praet, Geoffrey York and Niall McGee report.

Canadian Tire cuts costs

Canadian Tire Corp. Ltd. is cutting costs with the goal of reaching more than $200-million in annualized savings by 2022. The retailer will seek to trim expenses across its portfolio of stores, which include Canadian Tire, SportChek, Mark’s and now Party City after the closing of that acquisition on Oct. 1. Susan Krashinsky Robertson reports.

CNRL non-committal

One of Canada’s biggest oil producers is non-committal about signing onto the crude-by-rail contracts that the Alberta government is trying to offload to the private sector. Canadian Natural Resources Ltd. president Tim McKay told Emma Graney in an interview that only the first part of shipping oil by rail is covered in the contracts. Missing is the crucial final step of where – and to whom – the crude will go.

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