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Business Briefing Investors are salivating, but the stock market could face ‘a rough ride’

Briefing highlights

  • Markets could face ‘rough ride’
  • SNC-Lavalin names interim CEO
  • Stocks, loonie, oil at a glance
  • H&R Block buys Wave Financial
  • Required Reading

‘A rough ride’

Some analysts believe that, while investors may be salivating, stock markets could face “a rough ride ahead.”

Stocks have been moving for several reasons, among them expectations that the Federal Reserve will soon cut interest rates. Some analysts expect the Bank of Canada to follow suit, though not as aggressively.

Those cuts are coming, CIBC World Markets and others believe, but perhaps not as soon as some investors expect.

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“While we see the Fed easing towards the end of 2019, the market appears to be overpricing in the chance of cuts before then,” said CIBC economist Katherine Judge and analyst Taylor Rochwerg.

“U.S. equities could therefore face a rough ride ahead, as markets recalibrate towards later and less easing than currently expected,” Ms. Judge and Ms. Rochwerg added in their report.

“The story is similar in Canada, with the BoC cut not likely in the cards until Q2 2020, also potentially limiting Canadian stocks gains in the meantime.”

CIBC, by the way, is the only major domestic bank that projects the Bank of Canada will cut its benchmark overnight rate, by one-quarter of a percentage point to 1.5 per cent.

“The good news is, however, that the insurance cuts by the Fed and BoC will prevent a more pronounced slowdown in growth, a positive for equities alongside lower interest rates in 2020,” Ms. Judge and Ms. Rochwerg said.

Fed chair Jerome Powell has signalled that he and his colleagues are prepared to cut rates if the economy demands that. This, and the United States and Mexico settling their trade-immigration concerns, continued to buoy markets Monday.

Federal Reserve chair Jerome Powell poses for photos with Fed governor Lael Brainard

ANN SAPHIR/Reuters

“The latest trade battle between the U.S. and Mexico has gone as quickly as it appeared, with Mexico appearing to give the U.S. what it wanted with respect to action against migrants,” said IG chief market analyst Chris Beauchamp.

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“However, such a move is likely to embolden the U.S. president to use the threat of tariffs as a weapon on a more regular basis, which means other key U.S. trading partners will be on notice for such a move.”

President Donald Trump again took “pot shots” at the Fed Monday, though the impact was muted “since the White House’s animosity towards the current trajectory of monetary policy is well known,” Mr. Beauchamp added.

“Investors have accustomed themselves to this standoff between the executive and the central bank, something that seemed utterly unthinkable over the past 30 years.”

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SNC names interim chief

SNC-Lavalin Group Inc. has named a new interim chief executive officer and given him a mission to quickly review the company that has been the focus of political controversy in Ottawa.

Ian Edwards, the engineering and construction company’s chief operating officer since January, takes over on an interim basis from Neil Bruce, who’s retiring and heading back to his family in the U.K., but will remain an advisor to the board of directors until the end of this year.

“The board of directors has asked Mr. Edwards to undertake a review of the strategic direction of the company on an expedited basis and to develop a plan for sustainable success that de-risks and simplifies our business model and generates consistent earnings and cash flow,” SNC said.

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“In doing so, he will also use the next 60 days to meet with key stakeholders to get their perspectives and strengthen relationships.”

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Markets at a glance

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Ticker

H&R Block buys Wave

Toronto accounting software firm Wave Financial Inc. has been purchased by tax services giant H&R Block Inc. for US$405-million. It’s the latest in a string of “exits” – takeovers or IPOs – of venture-backed Canadian firms this year that have commanded relatively large valuations by historical standards, Sean Silcoff reports.

Panel opens review

From The Associated Press: The U.S. House Judiciary Committee on Tuesday is launching its investigation into the market dominance of Silicon Valley’s biggest names, starting with a look at the impact of the tech giants’ platforms on news content, the media and the spread of misinformation online.

Canfor cuts back

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From The Canadian Press: Canfor Corp. is curtailing operations at all of its British Columbia sawmills, except its WynnWood operations, due to poor lumber markets. It said a majority of the mills will be curtailed for two weeks or the equivalent, with extended curtailments at select locations.

Ted Baker tanks

From Reuters: Ted Baker shares lost more than a quarter of their value on Tuesday after the British fashion retailer warned that underlying profit for the year would fall short of analysts’ estimates after an “extremely difficult” start to 2019.

Required Reading

Baker leads bid to take HBC private

Hudson’s Bay Co. executive chairman Richard Baker is leading a $1-billion cash proposal to take the iconic company private, a big bet on the turnaround prospects of the long-struggling retailer. Marina Strauss reports.

Cirque readies IPO

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Cirque du Soleil is making plans for a possible IPO as early as next year as the storied live-entertainment company pushes ahead with a global expansion strategy, Nicolas Van Praet writes.

High cost

Embracing LNG exports to offset carbon emissions has a high cost, Campbell Clark argues.

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