Skip to main content

Business Briefing Probability of Canadian recession ‘small but rising’: Scotiabank

Briefing highlights

  • Recession risk ‘small but rising’
  • Stocks, loonie, oil at a glance
  • Manufacturing sales slip
  • Bank of America tops estimates
  • Johnson & Johnson raises forecast
  • Netflix earnings in spotlight
  • Required Reading

Recession risk

The probability of a recession in Canada is “small but rising,” Bank of Nova Scotia says.

Scotiabank senior economist Nikita Perevalov was responding in a report to all the chatter of late about the risk of a recession in the United States in the wake of the temporary inversion of the yield curve.

But “our work finds that looking at the yield curve in isolation provides an incomplete picture of recession risk,” Mr. Perevalov said, citing market angst based on a recession-risk model by the New York Federal Reserve.

Story continues below advertisement

“To properly estimate risk of recession in Canada using the yield curve, we must include consumer confidence in Canada and the NY Fed’s probability of a U.S. recession.”

The yield curve inverted in March in Canada, Mr. Perevalov noted, but you’ve got to look beyond that, he said in his recent report titled “Probability of a recession in Canada in 2019-20 is small but rising.”

“While the yield curve is flashing warning signs, the fact that consumer confidence grew each month from January to March suggests that conditions are still benign,” Mr. Perevalov said.

“While a recession is not very likely in the next few quarters, this probability is gradually rising: The model-implied probability of a recession in Canada increases to 11 per cent in 2020,” he added.

“If Canadian consumer confidence starts to deteriorate in the coming months, the probability of a recession will rise further.”

Read more

Markets at a glance

Read more

Factory sales slip

Canadian manufacturers suffered a down month in February, with sales slipping 0.2 per cent.

When you strip out the impact of prices, sales fell 0.5 per cent in volume terms, Statistics Canada said.

Story continues below advertisement

“A slight chill returned to the Canadian manufacturing sector in February, with sales falling marginally following an all too brief return to growth in January,” said CIBC World Markets senior economist Andrew Grantham.

Sales fell in 15 of the 21 industries measured, accounting for almost 66 per cent of the sector.

Driving the declines were the auto assembly and wood products industries.

New orders rose 1.5 per cent, while unfilled orders dipped 0.4 per cent and inventory levels rose for the third month in a row, by 0.5 per cent.

Ticker

Bank of America tops estimates

Bank of America Corp. reported a better-than-expected rise in quarterly profit, as a growing loan book and cost cuts made up for a drop in revenue in investment banking. Reuters reports.

Story continues below advertisement

Johnson & Johnson raises forecast

Johnson & Johnson beat quarterly profit estimates and raised its adjusted sales growth forecast for the year, Reuters writes.

OECD warns on China

China’s stimulus measures will shore up economic growth this year and next but may undermine the country’s drive to control debt and worsen structural distortions over the medium term, the OECD said in a report on Tuesday. Reuters reports.

What to watch for today

A big day, particularly for the oil patch as Alberta goes to the polls.

Watch, too, for quarterly results from Netflix Inc., which is always interesting given the battle to control our entertainment habits.

Story continues below advertisement

“In an increasingly competitive market place, Netflix remains the market leader in this particular space, and for all the talk of Apple’s new streaming service being a ‘Netflix killer’ it is unlikely to be anything but in the short term,” said CMC Markets chief analyst Michael Hewson.

“The news that Disney is also launching its own streaming service Disney+ in November is another added element of competition that will keep the pressure on Netflix,” he added.

“That being said, the valuation for Netflix is still way ahead of the challenges it is likely to face in the short term. Shrinking margins as the company spends more and more money on adding content is likely to exert upward pressure on subscription prices.”

Read more

Required Reading

Mortgage stress test

The federal government’s new mortgage stress test was responsible for a drop of as much as $15-billion in residential mortgage borrowing last year, according to a report to be released today. Janet McFarland reports.

Canadian banks

Story continues below advertisement

Lower market volatility took a bite out of the equity trading revenues at some of the big U.S. investment banks and analysts say a similar theme could play out north of the border, as well. Alexandra Posadzki reports.

Uber

Uber’s horrendous losses make its high equity valuation a fantasy, Eric Reguly writes.

The markets

From our market strategist Scott Barlow: Four helpful observations for investors, a stock growing at light speed, and dividend investing secrets.

Bank stocks

Story continues below advertisement

And Ian McGugan looks at why bank stocks aren’t necessarily the best investment.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter