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Briefing highlights

* Moody’s takes dimmer Ontario view

* Bank of Canada holds steady

* Loonie drops on BoC

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* An Alberta-B.C. scene I’d love to see

* Markets at a glance

* Trump slams TPP again

* Morgan Stanley profit jumps

* Roots beats estimates

* IBM shares tumble on earnings

Moody’s changes outlook

Moody’s Investors Service is taking a dimmer view of Ontario, changing its outlook on the province’s ratings to “negative” from “stable” after the Liberal government’s recent budget.

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Moody’s, one of the world’s major agencies, changed its outlook, not its ratings, but its decision is nonetheless another voice in the run-up to what’s expected to be a hotly contested June 7 election.

“The outlook change to negative from stable on Ontario’s ratings reflects Moody’s expectations that spending pressure will challenge the province’s ability to sustain balanced fiscal results across multiple years,” it said in its statement late Tuesday.

“Furthermore, Moody’s assumes that the financing requirements will be larger than previously assumed leading to an upward trend in the debt burden and a faster rise in interest expense than previously anticipated.”

The Liberals unveiled billions of dollars in new spending and a return to deficits in their recent pre-election budget.

“We see an increased pressure on the ratings, and the negative outlook highlights the fact that there could be a change in the next 12-18 months,” Michael Yake, a Moody’s senior credit officer, added in an interview.

Ontario’s debt is expected to top 230 per cent of its revenue in the 2017-18 fiscal year, up from what Moody’s said was its previous estimate of 227 per cent, to levels that don’t compare well to its peers.

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“Increased debt financing will also occur during a time of rising interest rates, which will accelerate the increase of the province’s interest expense,” Moody’s said.

“Measuring an anticipated 8.3 per cent of revenues in 2017-18, which is already the highest measure of Aa2-rated Canadian provinces, interest expense could consume 9 per cent of revenue in 2020-21 and continue to increase thereafter as interest rates are expected to rise.”

Economic growth is expected to slow, adding pressure to the revenue side.

“Furthermore, as sustained low interest rates have pushed consumer debt to record levels over the past decade, the province will likely face increased challenges to introduce new revenue measures despite a high level of policy flexibility,” the agency added.

BoC holds the line

The Bank of Canada will be raising its key interest rate at some point, but not today.

As The Globe and Mail’s Barrie McKenna reports, governor Stephen Poloz, senior deputy Carolyn Wilkins and their colleagues held their overnight rate at 1.25 per cent amid still uncertain times for trade and the housing market.

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This was expected, but the Canadian dollar nonetheless lost some steam, though still remained above 79 US cents.

The central bank also noted that economic growth in the first quarter was softer than initially forecast, but “should rebound in the second quarter, resulting in 2-per-cent average growth in the first half of 2018.”

While markets still expect a rate hike down the road, the central bank “will remain cautious with respect to future policy adjustments,” it said.

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

Globe and Mail Update

“Markets appear to have seen today’s statement as dovish, given little hint of an immediate rate hike,” said Andrew Grantham of CIBC World Markets.

“However, that’s not the bank’s style, and some of the more subtle changes regarding the inflation outlook mean we still another move coming in July.”

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A scene I’d love to see

Mr. Rogers on the spat between British Columbia and Alberta:

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Let’s make the most of this beautiful day / Since we’re together, might as well say / Would you be my, could you be my / Won’t you be my neighbour?

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Markets at a glance

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