- Central banks in spotlight
- China’s growth at 27-year low
- Stocks, loonie, oil at a glance
- Home sales dip in June
- U.S. bank earnings on tap
- Required Reading
We're heading toward key central bank meetings that promise to move financial markets.
Indeed, just speculation over those meetings, coupled with a corporate earnings season that boasts some big names this week, will dominate markets for the next while.
This comes as the world's major central banks have already moved into dovish territory amid heightened global economic uncertainty related to trade and other issues.
First up on the monetary policy front is the European Central Bank, which has already pledged to hold interest rates down through the first half of next year. The ECB unveils its next decision July 25.
"The ECB won't be out-dovished," said Bank of Montreal senior economist Jennifer Lee (who wondered if that's even a word, though it certainly fits the bill in this era of central banking).
"The parade of cautious-sounding ECB officials continued to march through [making public comments last week], dropping hints that they, too, will act if needed."
Ms. Lee had originally expected that the ECB would, at its next meeting, drop the reference to how long rates will stay at current levels.
Ms. Lee now believes that the ECB, still under Mario Draghi through late October, will drop guidance and trim or possibly tier its deposit rate, which is different from its main refinancing rate, and pave the way to resume its asset-buying program in the fall.
International Monetary Fund chief Christine Lagarde has been nominated to succeed Mr. Draghi, and is expected to be affirmed, also with a dovish bent.
Societe Generale believes governments may have to step in via fiscal policy as the ECB is running out of ammo.
"ECB policy makers are sending reassuring messages that there is room for more, and markets have willingly priced that in," said Societe Generale's Anaroli Annenkov and Michel Martinez.
"However, we doubt that the economic data will be sufficiently weak for radical action in the near term and instead expect more easing next year," they added in a recent report.
"If disinflation risks emerge, the ECB is likely to do 'whatever is left,' but the time of the big bazookas is largely gone. Instead, the pressure is on fiscal policy to stabilize output."
After the ECB this month comes the Federal Reserve, and chair Jerome Powell has already primed the market for a rate cut, boosting stocks.
That would be the first cut, and markets and economists expect more. It's the depth and timing of those cuts that are in question and the subject of much speculation.
“Between now and the July 31 meeting there are data on retail sales, housing starts, home sales, durable goods orders and a few others,” said Toronto-Dominion Bank senior economist James Marple.
"Even relatively positive outcomes on all these reports are unlikely to move the Fed off that 25-basis-point cut," he added.
"They could, however, go a long way to moving market pricing for additional cuts (almost three by the end of this year). In the meantime, Fed speakers have one more week to communicate their take on economic data before the quiet period preceding the July meeting."
The Bank of England, of course, is in a different boat, facing huge political and Brexit uncertainty.
But governor Mark Carney and his colleagues could easily act should Brexit developments dictate that.
The Bank of Canada, in turn, had its moment last week, when it cited the global trade uncertainty, tweaked its economic projections and held its benchmark overnight rate steady at 1.75 per cent.
Governor Stephen Poloz, senior deputy governor Carolyn Wilkins and their colleagues are going nowhere fast. At the very least, they won't be moving rates for some time yet.
And some observers believe they'll yet trim rates, holding the Canadian dollar in check in the process.
"We expect the bank to stay in park for some time, though one can’t rule out a reversal," said Ms. Lee's colleague, BMO senior economist Sal Guatieri.
"Unexpected weakness in exports or investment would likely prod it into action, while increased protectionism could even see Poloz stomping on the gas pedal while in reverse gear."
- Bill Curry: Bank of Canada leaves rates on hold amid global trade tensions
- David Parkinson: Poloz to remain focused on risk management amid shift to ‘trade war dependence’
China’s growth slows
China’s economy is cooling, its pace of growth the slowest in almost three decades.
The economy expanded in the second quarter by 6.2 per cent, in line with what economists had expected but still slower than the first quarter.
Still, other indicators fared better, helping to boost sentiment despite the dip in economic growth.
“Gains for the Chinese yuan highlight the markets willingness to overlook the 27-year low in Chinese growth, with traders instead focusing on the improved industrial production, fixed asset investment, and retail sales figures,” said IG senior market analyst Joshua Mahony.
Markets at a glance
Barrick joint venture awarded payout
The World Bank has ordered Pakistan to pay a joint venture operated by Barrick Gold Corp. and Chile’s Antofagasta PLC US$5.4-billion in damages stemming from a multiyear dispute over a mining lease, The Globe and Mail’s Niall McGee reports.
The fracas dates back to 2011 when the Balochistan province in Pakistan rejected the JV’s attempts to secure a mining lease for the Reko Diq copper-gold project. Barrick and Antofagasta appealed the decision and launched an international arbitration claim shortly after.
Barrick and Antofagasta both indicated a willingness to come to a negotiated settlement with Pakistan in dual statements.
- Niall McGee: Barrick Gold joint venture awarded $5.4-billion payout over Pakistan mining lease dispute
Home sales dip
From Reuters: Resales of Canadian homes fell 0.2 per cent in June from the previous month, the Canadian Real Estate Association said. The industry group said actual sales, not seasonally adjusted, rose 0.3 per cent from a year earlier, while the group’s home price index was down 0.3 per cent from June last year.
China threatens freeze
From Reuters: China’s government and Chinese companies will cut business ties with U.S. firms selling arms to Taiwan, China’s Foreign Ministry said, declining to give details of the sanctions in a move likely to worsen already poor ties with Washington.
What’s at stake in auto talks
From The Associated Press: In recent years, Detroit auto makers have been at relative peace with the United Auto Workers union because times have been good and profit-sharing checks have been fat. That could change this week as talks open on new four-year contracts with the union representing 142,000 workers across the U.S.
From Reuters: Bitcoin slumped more than 10 per cent over the weekend to a two-week low as fears of a crackdown of cryptocurrencies grew on mounting scrutiny of Facebook’s planned Libra digital coin.
From Reuters: The U.S. may approve licenses for companies to re-start new sales to Huawei in as little as two weeks, according to a senior U.S. official, in a sign President Donald Trump’s recent effort to ease restrictions on the Chinese company could move forward quickly.
What to watch for today
Citigroup Inc. kicked off the second-quarter earnings parade among the big U.S. banks, to be followed later in the week by Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley.
"The U.S. banking sector has undergone some major changes since the credit crisis," said CMC Markets analyst David Madden.
"The banks are unwilling to take on as much risk, and in recent years there has been a big cutback in banks’ trading departments," he added.
"Volatility in the financial markets has dropped off in the past few years, compared with the days of the euro zone debt crisis, and, before that, the global credit crisis, and that has been another reason for the fall in trading revenue."
Thus, Mr. Madden said, the big banks have been trying to bolster results via "less risky" business, such as fees from investing banking, meters and acquisitions, wealth management and, in some cases, retail banking.
"The fact that some U.S. indices have reached all-time highs on a few occasions in the past year should have helped the banks’ wealth management units, as well as their M&A teams," Mr. Madden said.
"Speculation the U.S. Federal Reserve is going to cut interest rates later this year has driven down U.S. government bond yields, and that is likely to compress the net lending margin rate, so those banks that have retail banking units are likely to earns less from lending."
- Citigroup’s profit rises 7 per cent on gains in consumer lending
- David Berman: Expected rate cuts could help revitalize Canadian and U.S. bank stocks
Chevron seeks to revive LNG terminal
Chevron Corp. has submitted a revised plan to regulators to build a terminal to export liquefied natural gas from northern British Columbia, hoping to start construction by 2023, Brent Jang writes.
Airlines get boost
The global grounding of Boeing 737 Max passenger jets is rippling through the airline industry amid a busy spring and summer travel season. Stefanie Marotta reports.
Out of step
Canada’s buoyant job market is out of step with the economy, columnist David Parkinson says, and is due for a drop.