Briefing highlights
- Economy contracts in February
- Transat in sale talks
- Stocks, loonie, oil at a glance
- Europe’s economy perks up
- Berkshire to invest in Occidental
- Encana swings to quarterly loss
- Apple earnings in spotlight
- Required Reading
Things that go thud
That thud you heard this morning came from Statistics Canada’s report on how the economy fared in February.
It did not fare well, contracting 0.1 per cent after better-than-expected growth of 0.3 per cent in January.
Here’s what dragged the economy down, according to the federal agency:
Statistics Canada’s “mining, quarrying and oil and gas extraction” category slumped for the sixth month in a row, with all components declining.
The biggest hit came from a 4.4-per-cent slump in mining and quarrying, except for oil and gas, as “nearly all types of mining were down due to lower international demand.”
“Metal ore mining was down 4.8 per cent with reduced output of most types of metals,” Statistics Canada said.
“Non-metallic mineral mining decreased 3.7 per cent largely due to a 6.9-per-cent contraction in potash mining as exports to the United States declined. Coal mining was down 6.1 per cent, the largest monthly decrease since November 2017.”
The oil and gas sector also suffered, but was down just 0.6 per cent compared to January’s 2.6-per-cent hit as Alberta let up on its mandated oil production cuts.
The weather also had an impact as the transportation and warehousing category slipped 1.6 per cent, marking the sharpest drop since mid-2011 and largely because of a 10.8-per-cent decline in rail transport.
“There were widespread declines in rail movement of products, such as iron ore, potash and fuel oils and crude petroleum,” the agency said.
“Cold weather and heavy snowfalls across many parts of the country and a train derailment near Field, British Columbia that closed an important rail line through the Canadian Rockies in the early part of the month all had adverse effects on rail transportation.”
That frosty weather, though, helped push up output among utilities. And it didn’t hold back the construction sector, which gained for the second consecutive month, by 0.2 per cent.
Also hit were the finance and insurance sector, down 0.6 per cent, and manufacturing, down 0.4 per cent.
And, of course, residential real estate took it on the chin as housing markets continue to adjust to a new regime.
“Activity at offices of real estate agents and brokers was down 6.6 per cent, the fourth decline in five months, as there was lower housing resale activity in Ontario, Quebec and British Columbia,” Statistics Canada said.
The contraction was just below the flat reading economists had generally expected.
“Today's miss will take tracking forecasts of the Canadian economy below 1 per cent for Q1, closer in line with the Bank of Canada's downbeat projection,” said CIBC World Markets senior economist Royce Mendes, referring to the central bank’s recent forecasts.
“Given that the miss came from two volatile sectors, however, market reaction could prove somewhat limited.”
What this means is that “it looks like we may be in the soft patch for a bit, particularly as trade and transportation sector data suggest little destocking in the energy sector despite production curtailments,” said Toronto-Dominion Bank senior economist Brian DePratto.
“This suggests a risk of another subpar performance in the second quarter. The good news, however, is that the underlying economic signals remain generally healthy, with construction activity rising for a second month, and some modest signs of life in investment.”
Read more
- Canada’s economy unexpectedly shrinks in February
- Barrie McKenna: Bank of Canada leaves key interest rate unchanged at 1.75 per cent, citing economic slump
- David Parkinson: BoC’s downgraded outlook exposes Canada’s business-investment problem
- Janet McFarland: BoC says mortgage stress test playing only small part in declining home sales
- Looming recession or ‘head fake’? Here’s how you’ll know
- David Berman: Take comfort, investors: The recession-warning inverted yield curve is gone for now
- James Bradshaw: BMO chief says recession risk ‘remains relatively low’
- Ian McGugan: Why the global economy can’t handle higher interest rates
- Scott Barlow: ‘We advise investors to prepare for recession’ – Citi
Transat in sale talks
Transat AT Inc. says it’s in preliminary talks to sell the holiday travel company.
It named no names but said talks are under way “with more than one party,” and stemmed from “expressions of interest” rather than it initially seeking a sale.
It has struck a committee of independent directors to look at the offers.
“This situation has no impact on the clients or employees of Transat, nor on its operations, which are continuing as usual,” Transat said.
Read more
Markets at a glance
Read more
Europe perks up
The European economy is perking up, with unemployment easing.
Economic growth in the euro zone picked up to 0.4 per cent in the first quarter, and in the broader European Union to 0.5 per cent, the Eurostat agency said today.
“This is the best rate of growth since 2017 and highlights a potential fight back after a downbeat 2018,” IG’s Mr. Mahony said of the euro zone number.
Separately, Eurostat also reported that the jobless rate in the euro zone eased in March to 7.7 per cent, the lowest since September, 2008.
Across the EU, unemployment eased to 6.4 per cent in March.
The agency now estimates that 15.9 million people are without work in the EU, 12.6 million of them in the euro zone.
Greece, Spain and Italy are suffering the highest jobless rates, at 18.5 per cent, 14 per cent and 10.2 per cent, respectively.
Enjoying the lowest unemployment are Czechia, or Czech Republic, Germany and the Netherlands, at 1.9 per cent, 3.2 per cent and 3.3 per cent.
Ticker
Berkshire to invest in Occidental
From Reuters: Occidental Petroleum Corp. said Berkshire Hathaway Inc. would invest US$10-billion in the U.S oil and gas company to help fund its acquisition of smaller rival Anadarko Petroleum Corp.
GM tops estimates
From Reuters: General Motors Co. reported a higher-than-expected quarterly profit, driven mostly by highly lucrative pickup truck sales in the U.S. market and lifted in part by revaluations of shares it holds in ride-hailing company Lyft Inc. and Peugeot SA.
Encana posts loss
From The Canadian Press: Encana Corp. reported a loss of US$245-million in its latest quarter as it was hit by restructuring costs and an unrealized hedging loss. The loss of 20 US cents a share compared to a profit of US$151-million or 16 US cents a share in the same quarter a year earlier.
Tesla to cut panel prices
From Reuters: Tesla Inc. plans to announce it has started selling solar panels and related equipment for up to 38 per cent below the national average price, the New York Times reports.
Mnuchin seeks ‘substantial progress’
From The Associated Press: U.S. Treasury Secretary Steven Mnuchin said he hopes for “substantial progress” in talks with Chinese officials aimed at ending a tariff war over Beijing’s technology ambitions. Mnuchin and Trade Representative Robert Lighthizer were to have a working dinner and then meet Wednesday with Chinese negotiators.
BP profit slips
From Reuters: BP’s first-quarter profit fell by nearly a third but beat forecasts as lower oil and gas prices and weaker refining margins were partly offset by higher production and stronger trading.
What to watch for today
It’s a doozy of a day, largely because of the number of major companies reporting quarterly results: Airbus, Anadarko Petroleum Corp., ConocoPhillips, Encana Corp., General Electric Co., General Motors Co., Glencore PLC, McDonald’s Corp., Merck & Co., Pfizer Inc. and Westshore Terminals Investment Corp.
And Apple Inc., whose earnings are always an event.
“The company is a cash machine when it comes to selling its products, however it is now going into streaming services and looking to take on the likes of Netflix, Amazon, as well as Disney,” said CMC Markets chief analyst Michael Hewson.
“The big question is how much money is the company looking to spend,” he added.
“It certainly has much deeper pockets than its rivals, however its core business still remains handset sales. Even Q1’s downgraded forecasts still showed revenues of US$84.3-billion despite weaker demand for its iPhones.”
Required Reading
Macquarie restructures Canadian unit
The Canadian capital-markets arm of Australia’s Macquarie Group Ltd. is shutting its institutional equity sales, trading and research businesses across the country amid a lengthy slump in resource-related financings and deals. Jeffrey Jones and Tim Kiladze report.
Tims revamps Roll Up the Rim
Tim Hortons is revamping its annual Roll Up the Rim giveaway after partly blaming a weak showing from the promotion for disappointing first-quarter results, retailing reporter Marina Strauss writes.
What one portfolio manager is doing
Brenda Bouw talks to Sun Life portfolio manager Kathrin Forrest about why she’s trimming her equity position and embracing higher quality bonds.