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Briefing highlights

  • Many Canadians broke and blue
  • Stocks, Canadian dollar, oil at a glance
  • China gains trade traction
  • JPMorgan profit climbs
  • Aphria cuts outlook, posts loss
  • Citigroup beats estimates
  • Wells Fargo profit slumps
  • U.S. inflation ticks up
  • What analysts are saying today
  • Required Reading

Broke and blue

Recent economic reports underscore the fact that many Canadians are broke and blue, but we still plan to spend more.

On the blue side, The Conference Board of Canada said its consumer confidence index now sits at a three-year low.

Source: The Conference Board of Canada

December showed a “marked decline in both the share of respondents who said they expect more jobs in six months and the share who said that now is a good time to make a major purchase,” the group said.

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“Views about current and future finances also weakened this month, though not as severely as for the questions about job prospects and the timing of making a large purchase,” it added.

Regionally, Quebec was the only province to show confidence on the rise.

“The increase was due to Quebecers feeling more positive about how their finances have developed over the past six months.”

This overall “lack of optimism” heading into this year “suggests consumers are starting the year on a wobbly footing amid high household debt” and a slowing labour market, Bank of Montreal economist Priscilla Thiagamoorthy said in a research note about how consumers are “feeling the blues.”

Then there’s being broke. While the number of Canadians filing for insolvency eased in November from October, the numbers are still well up there.

Insolvencies come in two forms: One is traditional bankruptcy, the other a “proposal” under which credit terms are restructured.

According to the latest numbers from the Office of the Superintendent of Bankruptcy Canada, the number of consumers filing for insolvency fell 10.4 per cent in November from October, to 11,821, but rose 4.4 per cent from a year earlier.

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October, remember, marked a decade high for insolvencies.

Looked at another way, almost 136,000 consumers declared insolvency in the 12-month period ending in November. That was up 8.9 per cent from the same 12-month period a year earlier, with bankruptcies down 1.9 per cent and proposals up 17.4 per cent.

“Most people wait until they have reached their breaking point before seeking help,” André Bolduc of the Canadian Association of Insolvency and Restructuring Professionals said of the latest numbers.

“By that point, it’s much harder to dig your way out.”

Defaults on debt, by the way, are low.

“The increase in consumer insolvencies during 2019 does not obviously square with still-modest rates of delinquencies on credit cards and mortgages,” Bank of Nova Scotia deputy chief economist Brett House and senior research analyst Alena Bystrova said in a report.

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“Both default rates remain near five-year lows.”

While the Conference Board of Canada found reluctance among consumers to make major purchases, the Bank of Canada nonetheless found we’re likely to spend at least a bit more and that we appear relatively confident.

In its first survey of consumer expectations, released Monday, the central bank said “expectations for spending growth edged up in 2019 and continued to surpass expectations for income growth, suggesting that consumers may reduce saving or increase debt.”

That survey, said Royal Bank of Canada senior economist Nathan Janzen, “won't do much to ease concerns at the Bank of Canada that household debt growth, and the financial market vulnerabilities that go along with it, are starting to pick up again.”

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Markets at a glance

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China gains trade traction

China is gaining traction on the trade front.

On two fronts, actually.

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First, the U.S. is removing the “currency manipulator” label from China as part of an initial trade deal to be signed Wednesday.

“For their part, China has agreed to buy US$80-billion in extra manufacturing goods and US$50-billion more energy supplies from the U.S. over the next two-years as part of the phase-one deal,” said Jasper Lawler, head of research at London Capital Group.

“Services and agricultural goods will also get multibillion-dollar boosts. The purchases represent a direct increase in economic activity and a thawing of the U.S.-China tensions, which it is hoped will open up international trade more generally.”

Then there are actual trade numbers, which overnight showed exports climbing 7,6 per cent in December and imports rising 16.3 per cent, expressed in U.S. dollars.

“Looking ahead, a gradual recovery in GDP growth among China’s trading partners should help to put a floor beneath exports this year,” said Julian Evans-Pritchard, senior China economist at Capital Economics, and his colleague, China economist Martin Rasmussen.

“The ‘phase one’ U.S.-China trade deal due to be signed this week will also help at the margin,” they added in a report.

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“Import growth may not rise much further, however, given the continued headwinds to domestic demand. Instead, any step up in imports from the U.S. as a result of the trade deal will probably come at the expense of imports from elsewhere.”

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Endeavour drops pursuit of Centamin

Endeavour Mining Corp. has dropped its pursuit of Centamin PLC after the two miners failed to reach agreement on terms of a takeover deal, The Globe and Mail’s Niall McGee reports.

Endeavour, which trades on the Toronto Stock Exchange, operates four mines in West Africa. Jersey-based Centamin operates a single gold mine in Egypt.

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Ticker

JPMorgan profit climbs

From Reuters: JPMorgan Chase & Co., the largest U.S. bank, posted a 21-per-cent rise in quarterly profit, driven by strength in its trading business and higher underwriting fees. The bank’s net income rose to US$8.52-billion, or US$2.57 per share, in the quarter ended Dec. 31, from US$7.07-billion, or US$1.98, a year earlier. Analysts on average had expected the bank to earn US$2.35 per share, according to Refinitiv data.

Aphria cuts outlook

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From The Canadian Press: Cannabis company Aphria Inc. cut its outlook as it reported a loss in its latest quarter. Aphria said it now expects net revenue for its 2020 financial year between $575-million and $625-million and adjusted earnings before interest, taxes, depreciation and amortization between $35-million and $42-million. The revised forecast came as Aphria reported a net loss of $7.9-million or 3 cents per share for the quarter ended Nov. 30, compared with a profit of $54.8-million or 22 cents a year earlier.

Citigroup beats estimates

From Reuters: Citigroup Inc. beat analysts’ estimates for fourth-quarter profit, boosted by growth in its credit card business and a jump in trading revenue. Citi has been leveraging its robust card business to help grow deposits by pitching checking and savings accounts to card holders. Net income applicable to common shareholders rose to US$4.98-billion, or US$2.15 per share, in the three months ended Dec. 31, from US$4.31-billion, or US$1.64, a year earlier. Excluding the impact of a tax benefit, the bank earned US$1.90 per share.

Wells Fargo slumps

From Reuters: Wells Fargo & Co. reported a 55-per-cent slump in fourth-quarter profit, as the fallout from a sales scandal that erupted in 2016 drove the bank to set aside another US$1.5-billion toward legal expenses. Net income applicable to common stock fell to US$2.55-billion, or 60 US cents per share, in the fourth quarter ended Dec. 31, from US$5.71-billion, or US$1.21, a year earlier. Analysts had expected a profit of US$1.12 per share, according to Refinitiv data.

U.S. inflation on the rise

From Reuters: U.S. consumer prices rose slightly in December and monthly underlying inflation pressures retreated, which could allow the Federal Reserve to keep interest rates unchanged at least through this year. The Labor Department said its consumer price index increased 0.2 per cent last month. In the 12 months through December, the CPI rose 2.3 per cent after gaining 2.1 per cent in the 12 months through November.

Crescent Point to spend less

From Reuters: Canadian oil and gas producer Crescent Point Energy Corp. said it would spend less in 2020 and keep production roughly flat amid increased pressure for better returns from investors. Crescent said 2020 annual production was likely to be in the range of 140,000 to 144,000 barrels of oil equivalent per day. The company also sees capital spending of about $1.1-billion to $1.2-billion in 2020, below its latest forecast range for last year.

Also ...

What analysts are saying today

“Big U.S. tech companies have been leading the gains in the latest rally, resuming their position as market leaders. Microsoft and Apple both stand to benefit from the dollar falling in value against the yuan because it lessens the cost of their products in China, which helps sales. Facebook is banned in China but its prospects of entering the market will be much improved with a phase one trade deal in place.” Jasper Lawler, head of research, London Capital Group

“The symbolic removal of the ‘currency manipulator’ tag from China has no great significance but it’s a reward for getting the ‘phase o e’ trade deal over the line and markets are euphoric ahead of tomorrow’s signing ceremony. The yuan is stronger, and is dragging trade-sensitive currencies with it. The yen is the main loser, though sterling too, remains under pressure. The clear signs of U.S. economic slowdown are ignored on the grounds that the slowdown is too gradual to bother anyone. The market will get back to that topic in due course.” Kit Juckes, global fixed income strategist, Société Générale

Required Reading

Morneau cites fiscal policy

Finance Minister Bill Morneau says fiscal policy such as increased government spending will need to play a larger role in the event of an economic downturn because central banks can do little with global interest rates near historic lows. Bill Curry reports.

BlackRock’s Fink on climate change

Climate-change activist Greta Thunberg has a new ally in Larry Fink, the influential chief executive of BlackRock Inc., one of the world’s largest fund managers. Read Andrew Willis on BlackRock and the environment.

Gap starts on graduation

Canada’s gender earnings gap starts immediately after postsecondary graduation and widens notably in the first five years in the work force as men out-earn women, a new report finds. Matt Lundy reports.

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