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Briefing highlights

  • Hoser losers: The TSX and loonie
  • An OPEC scene I’d love to see
  • Bank of Canada holds key rate
  • Loonie tumbles below 75 cents
  • Canadian Natural cuts budget
  • Toronto home sales slide
  • National Bank raises dividend
  • HBC loss widens

Hoser losers

Everyone’s picking on the Toronto stock market and Canadian dollar these days.

It’s true that everyone’s got the jitters – witness what happened yesterday – but analysts sure are talking down Canada’s stocks and currency.

Well, at least Citigroup puts us among the best of the bad where the benchmark S&P/TSX Composite Index is concerned.

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In its latest “attractiveness score” this week, Citi ranks Canada well down the list, just below Austria among the decliners.

Most attractive are the United States, Italy – Italy! – South Korea, Hong Kong and Spain. Least attractive are the Netherlands, Brazil, Switzerland, Malaysia and, at the very bottom, Mexico, our partner in the United States-Mexico-Canada Agreement (USMCA).

Bank of Montreal chief economist Douglas Porter noted this week that the TSX, down more than 3.5 per cent in the first 11 months of 2019, has lagged the S&P 500, which is up 5.1 per cent with December left to go, for a very long time.

Looking at total returns, Mr. Porter pointed out that the TSX’s better dividend yield “has closed the gap a bit from a straight comparison of the index changes.”

It doesn’t look quite as bad, either, if you take a longer-term view.

“Going back to the 1990s, the 25-year total returns show a closer race between the two indexes, with the S&P 500 churning out an annualized total return of 9.54 per cent versus 7.82-per-cent for the TSX,” Mr. Porter said.

“If we subtract domestic [consumer price index] inflation from both, we get real returns of 7.31 per cent for the S&P 500 and 6.02 per cent for the TSX (both very, very solid).”

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Mr. Porter’s glass-half-full view: “The TSX has actually not been that far behind the S&P over the long term, and has churned out solid real gains.”

Glass-half-empty: “The TSX has indeed underperformed the S&P over almost any reasonable timeframe.”

Then there’s the loonie, which can’t seem to crack 76 US cents even with a pickup in oil prices. And it’s not expected to go on a roll any time soon.”

“Like the economy, the Canadian dollar can’t win for trying,” said Mr. Porter’s colleague, BMO senior economist Sal Guatieri.

“The ink was barely dry on the USMCA nine weeks ago when world and domestic oil prices made like Icarus” and plummeted, he added.

“And, any positive vibes businesses were feeling from the accelerated depreciation allowance were quickly snuffed out by GM’s dour news, especially in Ontario.”

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He was referring to the tax measures federal Finance Minister Bill Morneau outlined in his fiscal update and the announcement by General Motors Co. that it’s closing its Oshawa assembly plant.

Then there’s an issue that, along with oil prices, affects the currency, the difference in policy between the U.S. Federal Reserve and Bank of Canada.

“The loonie cowered to below 75 cents US ($1.33) for the first time since June, even as expectations of Fed tightening faded almost as fast as for the Bank of Canada,” Mr. Guatieri said.

“The currency saw little bounce after the official signing of the USMCA by the three leaders on Friday. It’s trade-weighted value is no higher today than two years ago, with or without the greenback, and it is even little changed since the end of the recession.”

Okay, here’s one nice thought: BMO hasn’t yet “thrown in the towel” on the currency’s outlook.

But a lot has to go right: OPEC and its oil allies have to agree to production cuts when they meet Thursday and Friday, the U.S. Congress has to ratify the new trade deal, and the U.S. economy has to stay solid, allowing the Bank of Canada to continue raising rates.

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If all that happens, then “the currency should flutter to 78 cents … by late 2019,” Mr. Guatieri said.

“Of course, if one of these things doesn’t happen, all bets are off,” he said.

JPMorgan Chase also weighed in on the loonie this week, with global foreign exchange strategist Daniel Hui noting “we are bearish” on the currency in the near term.

JPMorgan forecasts a loonie at just above 75 US cents in the first quarter of next year. And when you factor in everything from trade issues to uncertainty in the oil market, the Bank of Canada should “reinforce this near-term bearish bias” today, Mr. Hui said.

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An OPEC scene I’d love to see

Photo illustration


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BoC holds, loonie tumbles

The Bank of Canada held its key rate steady, while pointing to uncertainty in the oil market, sending the loonie tumbling below 75 US cents in the process.

“Oil prices have fallen sharply since the October monetary policy report (MPR), reflecting a combination of geopolitical developments, uncertainty about global growth prospects, and expansion of U.S. shale oil production,” the central bank said.

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“Benchmarks for western Canadian oil – both heavy and, more recently, light – have been pulled down even further by transportation constraints and a buildup of inventories. In light of these developments and associated cutbacks in production, activity in Canada’s energy sector will likely be materially weaker than expected.”

Those production cuts refer to Alberta Premier Rachel Notley’s decision to order a supply reduction of 325,000 barrels a day beginning next year, which has, since the weekend, driven up the price of western Canadian oil.

The currency fell as the central bank gave no hints as to when the next rate hike will come.

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

Adrian Wyld/The Canadian Press

“The appropriate pace of rate increases will depend on a number of factors,” Governor Stephen Poloz, senior deputy governor Carolyn Wilkins and their colleagues said as they held the overnight rate at 1.75 per cent.

“These include the effect of higher interest rates on consumption and housing, and global trade policy developments. The persistence of the oil price shock, the evolution of business investment, and the bank’s assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy.”

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Canadian Natural cuts budget

Canadian Natural Resources Ltd. is cutting its 2019 spending amid what it complains is a “dysfunctional” pipeline approval system.

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The company said today its budget calls for spending of $3.7-billion, or about $1-billion below normal.

“Currently, the lack of market access and a dysfunctional pipeline nomination process are creating industry challenges,” it said.

The company added that it’s monitoring Ms. Notley’s supply cuts, and developments connected to two key pipeline projects.

“The curtailment program recently announced by the government of Alberta has resulted in the January index prices for crude oil to strengthen significantly,” it said.

“Canadian Natural will monitor the impact over time of curtailment on prices as well as the progress of the two export pipelines (Keystone XL and Trans Mountain Expansion) in the final stages of approval. Dependent on the outcome of these two factors, Canadian Natural has the capability to adjust our 2019 capital spending budget closer to normalized levels.”

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Toronto home sales slip

Toronto area home sales fell sharply in November as new listings plunged, leaving dwindling inventory and growing competition in hot neighbourhoods, The Globe and Mail’s Janet McFarland reports.

The Toronto Real Estate Board said the number of homes sold in the Greater Toronto Area fell 14.7 per cent in November compared with the same month last year.

The decline in inventory helped push home prices up 3.5 per cent in November on a year-over-year basis to an average of $788,345 for all types of homes, TREB said.

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