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Briefing highlights

  • The ‘scariest number of them all’
  • A Trudeau-Trump meeting I’d love to see
  • What analysts say about trade war
  • Markets at a glance
  • U.S. jobs report better than expected
  • Marchionne lauds wiping out Fiat Chrysler debt

‘Scariest number’

David Rosenberg is ringing alarm bells over the “newbies” in the U.S. financial-services industry.

Indeed, the chief economist at Gluskin Sheff + Associates considers the 13.4 million American bankers, brokers and others who have joined the industry since the financial crisis the “scariest number of them all.”

Mr. Rosenberg parsed numbers from the Job Openings and Labor Turnover Survey, which is oft referred to as JOLTS. Compiled by the U.S. Department of Labor’s Bureau of Labor Statistics, it tracks job openings, new hires, resignations, and dismissals and layoffs.

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If you track the data from the beginning of 2009, that ugly period many of us remember so well, to the latest report for March, you see some big numbers.

The biggest is 13.4 million, those who signed on to the industry in the middle of the crisis.

“Much of this was to replace the 6.9 million who had enough of this business and walked away, or the 3.9 million who were summarily fired over the past nine years,” Mr. Rosenberg said in his recent report to clients.

“Either way, we have 13.4 million newbies in this industry with no experience – at least no experience in navigating through a shifting paradigm,” he added.

“These poor folks, and the soon-to-be-poor investors who have their money with these people, have only one cycle under their belt. In fact, only a half-cycle when you really think about it.”

The current expansionary cycle has been running for a long time now, and some economists warn it’s about to end. Which is Mr. Rosenberg’s point about the newbies.

“They have only known economic expansion; a bull market in equities and all risk assets; massive leverage; uber-low or negative interest rates; extremely low levels of volatility; deflation or ultra-low inflation; endless rounds of quantitative easings; globalization; and central banks having your back at all times.”

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The story is somewhat different in Canada, said Jennifer Reynolds, chief executive officer of the Toronto Financial Services Alliance (TFSA).

Canadian bank headquarters stand on Bay Street in Toronto

Brent Lewin/Bloomberg

Canadian banks came through the crisis unlike their American and European counterparts, though the industry has also expanded, with employment rising by 10.5 per cent between 2006 and the last count, according to the Conference Board of Canada and TFSA.

“Canada’s financial sector emerged from the 2008 economic crisis as arguably one of the strongest financial systems globally,” Ms. Reynolds said, noting that, unlike other countries, employment in the industry has climbed from pre-crisis levels.

“As a result, we did not have the scale of tremendous job losses we observed in other financial centres and retained much of the talent that steered us through that crisis.”

Indeed, Canadian banks were deemed sound, and much envied during the meltdown.

In Toronto, the heart of the Canadian industry, the sector employed almost 272,300 people, well up from the 217,725 in 2016. Total industry employment levels indeed dipped by 2010, but have been rising ever since.

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“Not only was top talent retained through that period, but we also continued to grow that talent pool,” Ms. Reynolds said.

“Our expertise in asset management and pension fund management is recognized globally – we are very well positioned to compete with other countries when it comes to expertise in this area.”

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A conversation I’d love to hear

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What analysts say about trade war

“The situation is fluid and there is plenty of scope for back pedalling. More broadly, there are implications for how Trump can build a political/economic alliance against China while at the same time pushing America First onto key allies.” Sue Trinh, Royal Bank of Canada

“Whilst Trump sees these tariffs as a tool to leverage ahead of trade negotiations, we are already seeing signs that this could backfire, with Canada announcing a $12.8-billion package of retaliatory tariffs. The EU’s decision to refer the topic to the WTO is clear sign that they are not willing to go down the tit-for-tat trade war route, hence the European rebound we are seeing this morning.” Joshua Mahony, IG

“Perhaps the most important message from tariffs is that they are based on flimsy rationale - and that makes it difficult to predict which industry might be next. In this case, the U.S. has justified the tariffs on national security grounds, a questionable position given that Canada, Mexico, and Europe are all U.S. allies. The U.S. also explicitly tied the hike in tariffs for Mexico and Canada to failure to come to an agreement on NAFTA before the end of May. But if the point was to target NAFTA partners, then why steel? The U.S. was a net exporter of steel to both Canada and Mexico last year. Not knowing which industry could be next means any industry could be next, and that means more uncertainty for all trade-intensive businesses.” Nathan Janzen, RBC

“In terms of [foreign exchange] impact, unsurprisingly [the Canadian dollar] and [Mexican peso] have had the largest knee-jerk … not least due to the likely read-throughs on NAFTA risk … Meanwhile, ‘safe haven’ currencies of [the yen] and [Swiss franc] should benefit and, overall, be relatively more sensitive to evolving global trade war risk. Elsewhere, for currencies less directly impacted, it is not clear how dominant or lasting the latest U.S. trade antagonism will be as a [foreign exchange] driver in the immediate aftermath compared to other factors, in part because White House policy itself is so volatile and ambiguous to pin down.” Daniel Hui, JPMorgan Chase

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“Tariffs could hurt the U.S. just as much as—or more than—Canada, since so many industries use steel and aluminum as an input. The steel-consuming industries are a much larger share of the economy than steel producers. For instance, industries such as construction, automotive, aerospace, food and beverage manufacturing would be negatively impacted by tariffs by boosting input costs (which could be passed on the customer, thereby raising consumer prices). Construction, autos and machinery manufacturing comprise 80 per cent of total domestic steel consumption and their input costs would rise. With costs going up, jobs and prices would take a hit.” Michael Burt, The Conference Board of Canada

Markets at a glance

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