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Briefing highlights

  • What analysts say about election pledges
  • Stocks, loonie, oil at a glance
  • Nissan said to choose CEO
  • Takeover bid for LSE scrapped
  • Housing starts slip
  • What analysts are saying today
  • What to watch for today
  • Required Reading

Hey big spender

Spend a little time with me

— Cy Coleman and Dorothy Fields, as performed by Shirley Bassey in 1967, and others

Analysts are giving clients the lowdown on Liberal and Tory fiscal plans in the runup to the Oct. 21 federal election.

“The Liberals would loosen fiscal policy by more than the Conservatives if they won October’s election, but neither party’s plans would seriously transform the economic outlook,” said Stephen Brown, senior Canada economist at Capital Economics.

Financial observers have largely been discussing the fiscal plans of just the Liberals and Conservatives, rather than the other political parties.

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Here’s a sampling:

Eric Lascelles, chief economist, RBC Global Asset Management

“Both the Liberals and Conservatives are making a push for middle class votes, proposing modest tax cuts for the group. Both are also planning niche programs that capture votes at the expense of ever more complicated income tax filings. Neither can be said to truly favour ‘small government,’ though the Liberal vision is certainly of a larger government than is the Conservative position.

“From a debt standpoint, the Liberals plan larger deficits while the Conservatives pledge to balance the budget over several years. That said, even the Liberal plan would allow the federal debt-to-GDP ratio to decline over time – a key measure of fiscal sustainability. Of course, the occasional recession has a nasty habit of blowing even the best-laid fiscal plan well off course – it would be better if Canada was running a modest surplus with an unemployment rate at the lowest in more than a generation.”

Ian Pollick, head of North American rates strategy, CIBC World Markets

“While the debt-to-GDP ratio [under the Liberals] is still forecast to remain on a downward trend (stable around 31 per cent), the implication for Canada’s bond market is the amount of spending not accounted for by new revenues. A cursory examination of the proposed (incumbent) government plans would have the federal deficit remaining close to 1 per cent of GDP from 2021 to 2024; this is a very small number when considering the U.S. is running close to 5 per cent.

“For the Bank of Canada, the potential fiscal easing at the federal level would be welcomed, particularly given that Canada’s starting point is one of considerable fiscal space. However, the Bank of Canada – as a rule – will not incorporate any fiscal spending into its projections until said spending is signed into law. From a timing perspective then, it means that the BoC would not adjust forecasts as a result until after the next federal budget, usually released in late calendar Q1. And, of course, this also assumes that the current government remains in power.”

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Agathe Demarais, global forecasting direct, The Economist Intelligence Unit

“The Conservatives are focusing their campaign on the sense of unease among ordinary Canadians that it is getting tougher to make ends meet and that the benefits of a growing economy are not being equally shared. This approach gathers concerns about the cost of living, taxes and house prices under the umbrella of ‘affordability.’ The Conservative campaign slogan, ‘It's time for you to get ahead,’ hammers this point home. The party hopes that the broad appeal of this message will give it an edge in what continues to be a close race.”

Veronica Clark, associate, U.S. economics, Citigroup

“In a slight departure from the party platform in 2015, which saw increased spending but maintained a promise to balance budgets, the Liberal party platform in 2019 shows more willingness for deficit spending in order to support economic growth, climate initiatives, and support for the middle class. … Based on the 2019 budget, we have been expecting roughly 0.3-0.4 of a percentage point annual boost to GDP from fiscal measures over the medium term. As most of the increase in new spending is projected to occur initially in 2020, this raises our previous forecast by around a 0.2-percentage-point boost. With our current forecast of 2.1-per-cent average real GDP growth in 2020, this would imply closer to 2.3 per cent. The boost to GDP in subsequent years is only slightly higher than our baseline estimate, as the initial jump in spending would come sooner rather than later.”

George Davis, technical strategist, RBC Dominion Securities

“The upcoming federal election on Oct. 21 is not expected to have a material near-term impact on [the Canadian dollar] .… Both election policy platforms point to more fiscal stimulus and higher deficits ahead. However, the projected deficits do not represent a major departure from the 1 per cent of nominal GDP anticipated in the next few years.”

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Mr. Brown of Capital Economics

“The rise in the deficit under the Conservatives would be mainly due to tax cuts, while under the Liberals there would be a greater focus on increased spending .… If the winner fails to secure a majority, they may have to offer fiscal concessions to one of the smaller parties in order to pass legislation. As there are a few smaller parties that might compete for these concessions, we doubt that there would be much more of a fiscal impact.

“Given our view that GDP growth will slow by more over the next 12 months than the [Parliamentary Budget Officer] expects, we suspect that fiscal deficit will be a higher than the parties assume and that the federal debt-to-GDP ratio will rise rather than fall. The increase from 28.2 per cent of GDP in 2018 to 29 per cent in 2021 is unlikely to cause investors concern, however.”

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Markets at a glance

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Ticker

Nissan chooses new chief

From Reuters: The board of Nissan Motor Co. has picked senior vice president Makoto Uchida as its next chief executive officer and Ashwani Gupta as its chief operating officer, two sources said, following a board meeting of the scandal-hit auto maker.

Bid for LSE scrapped

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From Reuters: Hong Kong’s bourse scrapped its unsolicited US$39-billion approach for London Stock Exchange Group after failing to convince LSE management to back a move that could have transformed both global financial services giants. Last month’s surprise cash-and-shares approach threatened to upend the LSE’s US$27-billion plan to buy data and analytics firm Refinitiv. The Hong Kong exchange had said the LSE would have to ditch the Refinitiv purchase for its offer to go ahead.

Housing starts decline

From Reuters: Canada Mortgage and Housing Corp. says the pace of housing starts in September slowed compared with August. The agency says the seasonally adjusted annual rate fell 2.5 per cent to 221,202 units in September compared with 226,871 in August.

Britain publishes temporary tariff regime

From Reuters: Britain published a revised temporary tariff regime to come into force if it leaves the European Union without a deal, saying that 88 per cent of total imports by value would be eligible for tariff-free access. The revised plan, which lowers tariffs on trucks and applies tariffs to additional bioethanol and some clothing products, will last for up to 12 months and is designed to keep prices down for consumers while protecting the fortunes of domestic producers.

German industrial output rises

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From Reuters: German industrial output rose unexpectedly in August but analysts said the small pickup did not signal the end of a months-long manufacturing contraction that risks tipping Europe’s biggest economy into recession. Industrial output rose 0.3 per cent on the month, Statistics Office figures showed, against expectations of a 0.1-per-cent drop.

EasyJet says strikes to help

From Reuters: British budget airline easyJet said full-year profit would be towards the upper end of expectations, with revenue boosted by pilot strikes at rivals British Airways and Ryanair.

Also ...

What analysts are saying today

“London Stock Exchange shares dropped 6 per cent at the open after rival Hong Kong Exchanges and Clearing scrapped its takeover bid. Another year, another failed bid for the LSE. Still, we look forward to next year’s attempt. Of course there is always the issue of valuation, but we think the HK bid failed for much the same reason the previous effort from Deutsche Borse did. A clear unwillingness to sell from LSE management and most shareholders.” Jasper Lawler, head of research, London Capital Group

“While the U.S. government decided on targeted sanctions on some Chinese companies following a Republican backlash on Syria, the trade talks themselves should go well. The Chinese have been buying soybean and the U.S. president needs a success both politically and economically. The Chinese have let it be known that they want to restrict the scope of the talks, which is generally meant to accelerate their speed. The U.S. administration has voiced its displeasure but given the lack of follow-through, it mostly was a fig leaf. What is remarkable is the lack of posturing currently, which is generally good news.” Sébastien Galy, senior macro strategist, Nordea Asset Management

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“The market activity tells that investors don’t seem to be too worried about the latest news. If Chinese officials head to Washington, there is hope. The inability to reach a trade deal will again dishearten global investors, but it won’t be a shocker for the market. Investors will instead turn to the Federal Reserve (Fed) to drown their sorrow in heightened hopes of another rate cut by the end of this month.” Ipek Ozkardeskaya, senior market analyst, London Capital Group

“Gold is ready to rip higher as China increases their gold holdings ahead of this week’s high-level trade talks. Gold could rally further as odds for a major de-escalation or even a mini-deal have gone down following the recent political posturing from both the Chinese and Americans. Gold is also seeing some added support that markets believe the Fed will deliver more rate cuts as they try to avoid triggering a market disruption.” Edward Moya, senior market analyst, Oanda

What to watch for today

As a child of the sixties, I have to mention Levi Strauss releases quarterly results today.

“When Levi Strauss IPO’d earlier this year it was one of those rare beasts, namely a new issue that was profitable, with a tried and trusted business model,” said CMC Markets chief analyst Michael Hewson.

“Despite this, its share price performance has been underwhelming, with the shares currently just about above their IPO price.”

Required Reading

GM strike could have dire consequences

The General Motors strike in the U.S. could start to cast a longer shadow on the already darkening data for North America’s manufacturing sector, David Parkinson writes.

Repaying exchange users

The widow of Gerald Cotten, the late founder of QuadrigaCX, has reached a settlement to transfer “nearly all" of her assets to the trustee overseeing the cryptocurrency exchange’s bankruptcy. Alexandra Posadzki and Joe Castaldo report.

More retirement money

More money in your pocket? Personal finance columnist Rob Carrick looks at a poll that suggests people would rather have money in their retirement fund.

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