* What Iran sanctions could mean
* Bombardier’s Moscow office raided
* Markets at a glance
* Sainsbury’s buys Walmart’s Asda
* What to expect from Poloz
* What to expect from the Fed
* Apple earnings in spotlight
* What else to watch for this week
* Air Canada posts loss, revenue up
* T-Mobile to acquire Sprint
What Iran sanctions could mean
Markets are watching closely as President Donald Trump nears a key decision on Iran’s nuclear deal.
Some observers expect Mr. Trump to kill the agreement by a May 12 deadline, which could mean renewed sanctions against Iran, in turn unsettling oil and currency markets.
This all plays into what Mark McCormick calls “the ugly contest” among dollar bloc currencies as the greenback rises and the loonie, for example, also suffers from the holding pattern of the Bank of Canada.
Tehran has a multination agreement that allows for a waiver on sanctions amid nuclear restrictions on Iran.
Mr. Trump discussed the issue last week with French President Emmanuel Macron, who raised the prospect of negotiating a new pact.
But Mr. Trump isn’t buying that, and JPMorgan Chase analysts, for example, believe the U.S. could well kill the agreement, though the President could also extend the sanctions waiver to give his new National Security Adviser and Secretary of State time to look at the situation.
“In a worst-case scenario, Iran’s attempt to restart its nuclear program could push EU to join the U.S. in tightening sanctions on Iran,” said JPMorgan’s John Normand.
“Our strategists expect oil export disruption could be around [500,000 barrels a day] - the level of imports from Japan, South Korea, India and Turkey — but, ultimately, the stringency of U.S. monitoring/tightening sanctions after the waiver is not extended will determine the impact.”
Which brings us back to Mr. McCormick, North American head of foreign exchange strategy at TD Securities.
“One of the risk factors on the move higher [in the U.S. dollar against the loonie] was a possible spike in oil prices if the U.S.-Iran deal collapses (the reimposition of sanctions would probably see a US$5-10-a-barrel move in oil proxies),” Mr. McCormick said in a recent report, adding the caveat that what we could be seeing is Mr. Trump’s “art of the deal” again.
However, he added later, “our models show that a 10-per-cent move in oil (if the U.S. walks away from the Iran nuclear deal) is worth about 1.3-per-cent downside in USDCAD.”
- Macron, Rouhani pledge to work to preserve Iran nuclear agreement
- Trump lauds ‘great relationship’ with Merkel in meetings on Iran, trade
- Scott Barlow: ‘Mission accomplished for OPEC’ as global oil industry [ex-Canada] enjoys boom
- Iran won’t accept any amendments to nuclear deal: senior official
- Paul Waldie: Trump whisperer: French President Macron emerges as Europe’s point man for U.S.
Moscow office raided
Russian police have raided the Moscow offices of a Bombardier Inc. joint venture as part of an investigation into the Montreal-based transportation giant’s business relationships in the country, according to documents and video footage reviewed by The Globe and Mail.
The searches were conducted as part of a criminal probe into allegations of “corruption during procurement of railway equipment,” according to legal documents. The general-director of the Bombardier-controlled company has received at least five police summons since the probe began in the fall, documents from Russia’s Interior Ministry and the office of the Moscow region’s Transport Prosecutor show, The Globe and Mail’s Mark MacKinnon reports.
Ludovic Saint-Pol, communications manager for the rail control division of Bombardier Transportation, acknowledged the legal action and said “the visit conducted on our premises involved a unit of the Moscow Region Customs Office.” He did not comment further on the matter.
Markets at a glance
- Follow our Inside the Market
- Sainsbury’s in $10-billion swoop on Walmart arm Asda to create top U.K. supermarket
The Exorcist, the Godfather and Brian: What to watch for this week
It’s fitting that Cineplex Inc. is among the many companies reporting quarterly results this week because investors are going to be on the edge of their seats for five days running.
The theatre chain joins about 65 other companies listed on the Toronto Stock Exchange and almost 145 on the S&P 500, as first-quarter earnings season nears its climax.
“The U.S. reporting season has delivered strong earnings beats and surprises, with 36 per cent of S&P 500 companies having reported thus far,” John Normand of JPMorgan Chase said.
About 80 per cent of those have topped the profit estimates of analysts and 68 per cent have eclipsed revenue projections, he noted.
“Blended 1Q revenue growth [reported + estimate] is now 7.4 per cent and earnings growth is 21.1 per cent [vs. 17.6 per cent last week].”
There’s more than just earnings to keep us entertained, with some key economic readings and expected developments as movie trailers.
“The looming [May 1] expiration of temporary exemptions to U.S. steel and aluminum import tariffs for the group of countries that includes Canada is sure to keep some investors on edge,” Bank of Montreal economist Carl Campus said.
“Combine these forces with a relatively strong earnings season and a U.S. 10-year Treasury yield that briefly held above 3 per cent for the first time in over four years and the result was a very mixed week for stocks [last week],” Mr. Campus said.
So sit back and enjoy the show:
MONDAY: SUPER SIZE ME
There are some lesser-tier economic readings, but McDonald’s Corp., Air Canada and Allergan PLC share the week’s opening credits.
- Canadian airline profits projected to fall in 2018 on increased costs
- Greg Keenan: Air Canada to offer lie-flat seats on some North American routes
TUESDAY: THE EXORCIST
Bank of Canada governor Stephen Poloz speaks in Yellowknife to the chamber of commerce about just how big the household debt problem is in Canada.
Spoiler alert: Big.
Derek Holt, head of capital markets economics at Bank of Nova Scotia, said he’d be surprised if Mr. Poloz doesn’t reiterate what senior deputy governor Carolyn Wilkins said in late March as he helps us exorcise our debt demons.
“With high levels of household debt and the Canadian economy operating close to capacity, monetary policy actions to achieve the inflation target and support financial stability are currently complementary. The Bank of Canada has underscored that there is nonetheless a fine balance to be struck here: While moving too slowly would allow more time for financial vulnerabilities to build, moving too quickly could have outsized effects, given the high level of household indebtedness.”
It’s actually a double feature on economics as Statistics Canada precedes Mr. Poloz with a reading on economic growth in February.
Economists expect the report to show a rebound of 0.3 per cent after January’s dip.
Nonetheless, just one thumb up here.
“A weak 0.3-per-cent reading will leave us tracking 1.7 per cent for Q1, matching the rate seen in the fourth quarter of last year,” Royce Mendes of CIBC World Markets said.
“That leaves some elbow room for the Bank of Canada to leave rates unchanged at its May meeting, using that time to monitor the myriad of headwinds facing the economy.”
The Reserve Bank of Australia is meeting, meanwhile, and is expected to keep its benchmark rate steady at 1.5 per cent.
“And the central bank may well revise down its GDP growth forecasts in May’s statement on monetary policy [Friday],” said Paul Dales of Capital Economics.
There are also manufacturing purchasing managers index readings from around the world and a long list of earnings, one of the stars being Apple Inc. We’ll see what the reviewers say about its performance.
And just think of how much easier this all would have been had they had an iPhone:
“When Apple announced the launch of the £1,000 [$1,768] iPhone X last year, there was some skepticism about the sustainability of a pricing policy which, while aimed at a loyal audience, could prompt a significant slowdown in the longer term,” CMC Markets chief analyst Michael Hewson said.
“When paying that sort of money for a device, it is highly likely that the churn rate will slow,” he added.
“A lot of people wouldn’t pay that much for a computer, let alone a phone. Despite a positive start at the end of last year, the high price points do appear to be starting to have an effect on handset sales, if recent warnings from Apple suppliers are any guide.”
WEDNESDAY: THE GODFATHER (AND BRIAN)
Federal Reserve chief Jerome Powell, the godfather of central bankers, announces his rate decision, along with the rest of his cast.
Spoiler alert: Unlike the actual movie, this is likely to be boring, with no change expected after the Fed raised rates in March.
“To be sure, interest rates are likely to grind higher but the ‘gradual’ pace expected probably means not at back-to-back policy meetings,” Royal Bank of Canada economists said in their plot summary.
“Attention will be more focused on indications of the likely pace of future hikes. The economic backdrop still looks solid – and with a boost from tax cuts earlier this year and higher federal discretionary spending still largely to come.”
Indeed, this week marks the beginning of a key, if uncertain, month for the Fed, not to mention markets and the world in general.
Negotiators are rushing to reach a deal to overhaul the North American free-trade agreement. Also on the horizon is a U.S. deadline on Chinese import tariffs. U.S. President Donald Trump is going to meet at some point with the newly warm and fuzzy Kim Jong-un and also must decide soon whether to stand by Iran’s nuclear agreement, which could unsettle the oil market.
And given the, um, messiah complex in the White House, there’s no telling what could happen.
“Anything could happen over this time frame, but say that – come June 13 – a harsher shock to oil and gasoline prices, a significant escalation of U.S.-China trade tensions and a failed attempt at securing greater stability on the Korean peninsula combined to impair financial stability, and possibly to the detriment of global growth,” Scotiabank’s Mr. Holt said.
“Does the Fed still hike? At a minimum, I would think market conviction would decline. Taken further, what’s the enormous rush for the Fed to deliver its projected two more hikes this year — or maybe three — over the remaining six meetings in the face of such uncertainty?”
Markets will also be treated to European economic readings, which Jack Allen of Capital Economics expects to show slower first-quarter growth in the euro zone. He expects an accompanying reading to show a further easing in unemployment to 8.4 per cent in March.
This is also the day that Cineplex reports results, as do several others, including Kraft Heinz Co., Loblaw Cos. Ltd., Manulife Financial Corp. and Mastercard Inc.
- Rising costs, inflation on radar as U.S. earnings season unfolds
- Sean Silcoff: Person involved in price-fixing scheme fights to keep name out of spotlight
Spoiler alert: Mr. Allen expects inflation in the euro zone to come in at 1.3 per cent for April, unchanged from March.
Get a large popcorn, because there’s a lot more:
Economists expect Statistics Canada’s monthly look at trade to show the deficit narrowed to somewhere between $2-billion and $2.3-billion in March from February’s $2.7-billion.
“Export growth will be led by agricultural products after transportation bottlenecks led to an unprecedented 17-per-cent decline in February, concentrated in grains,” Toronto-Dominion Bank economists said.
″[Canadian dollar] depreciation should also lend a hand, with the cumulative decline from the Q1 highs reaching 6.7 per cent by mid-March,” they added.
“However, energy products represent a downside risk on maintenance shutdowns that were pulled forward due to market conditions. On the other side of the ledger, imports should see a more modest increase after a 1.9-per-cent advance in February.”
The United States also reports its trade deficit, expected to show a narrower US$55.6-billion.
Opening and closing credits: BCE Inc., Berkshire Hathaway Inc., Bombardier Inc., Canadian Natural Resources Ltd., Crescent Point Energy Corp., Fairfax Financial Holdings Inc. and SNC-Lavalin Group Inc., among others.
FRIDAY: OFFICE SPACE
Markets are awaiting the key U.S. labour report, which economists expect to show net job creation of 185,000, give or take a few, and a dip in unemployment to 4 per cent in April.
“A slightly cooler gain in jobs than the average seen in Q1 shouldn’t change what’s a largely positive outlook for household incomes and consumer spending,” Andrew Grantham of CIBC said.
“Should business investment start to pick up again later in the year following the tax cut and other incentives given to companies to make such investments, that should restrengthen the trend in construction and manufacturing employment growth.”
So, is it safe to go back in the market?
- Air Canada posts $170-million loss, revenue rises from year ago
- T-Mobile agrees to acquire Sprint in $26-billion deal