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morning business briefing

Briefing highlights

  • Turn off the taps: CIBC
  • Awaiting B.C. budget
  • HSBC to cut assets, jobs
  • Apple warning rattles markets
  • Air Canada, Walmart miss estimates
  • Manufacturing sales fall again
  • You can’t fool me!
  • Markets at a glance

Keep your friends close, and your wallet closer

The Bank of Canada can be a friend to the federal and provincial governments as budget season kicks off today.

Indeed, Canadian Imperial Bank of Commerce is urging governments to leave any largesse to the central bank and keep their own wallets closed.

"Barring the need for a major economic rescue package, both Ottawa and provinces ought to stay out of the limelight," said CIBC chief economist Avery Shenfeld.

“Leave the fine-tuning to the Bank of Canada if it’s necessary, and be prepared to step in with a wave of fiscal stimulus if the economy needs more than the minor lift that interest rate cuts now have room to deliver,” he added in his report on budget season, which begins today with British Columbia.

There’s no recession on the horizon, so fatter deficits aren’t justified, Mr. Shenfeld said. But, at the same time, economic growth has slowed, and uncertainties remain.

So what makes the most sense, cutting interest rates if needed, or trimming taxes and spending more?

“At the provincial level, Ontario is in good enough economic shape that it should stick with a gradualist deficit reduction plan given its existing debt burden,” Mr. Shenfeld said.

“B.C. and Quebec also sit near enough to full employment,” he added.

"Newfoundland and Labrador has some economic slack, but its debt load precludes provincial fiscal stimulus. While Alberta’s debt isn’t yet that elevated, its government hopes to combat economic slack through progress in getting the energy sector back in gear."

Ottawa, in turn, has some "fiscal elbow room." As a share of gross domestic product, its debt service payments are low.

“But if it’s going to be able to ride to the rescue with major stimulus in an outright recession, it should be keeping its powder dry for now,” Mr. Shenfeld said. “In contrast, a small dose of rate relief from the Bank of Canada might be warranted if the jobs numbers start to deteriorate to match the slow pace to GDP."

Rate cuts have other advantages over fiscal measures.

"Rate cuts are quick to announce and quick to reverse if the data improve," Mr. Shenfeld said.

“Dole out a tax cut or spending goodie now, and it’s difficult to reverse it politically,” he added. “Infrastructure spending is even less amenable to such adjustments, given long project lead times. The climb in capital spending that Ottawa unveiled in early 2016 didn’t show up until the latter half of 2017.”

As for the budgets themselves, Bank of Montreal senior economist Robert Kavcic expects a "mixed" picture.

“As public accounts rolled out over the past six months, they showed that the combined provincial deficit came in at $5.1-billion in [fiscal 2018-19], the narrowest total shortfall in a decade,” Mr. Kavcic said.

“Now, with mid-year fiscal updates for [fiscal year 2019-20] in hand, it’s clear that the broad deficit reduction was temporary,” he added. “Currently, the combined deficit is pegged at $14.6-billion for this fiscal year (which ends March 31), with Alberta and Ontario slipping deeper into the red, while large surpluses in B.C. and Quebec have shrunk.”

Awaiting B.C.

As Laurentian Bank Securities senior economist Dominique Lapointe notes, B.C.'s second quarterly report projected a narrower fiscal 2019-20 surplus of $148-million after revising down property transfer taxes and natural resources royalties, among other things.

B.C. has an "enviable economic and fiscal position" in Canada but threats are rising, Bank of Nova Scotia said, among them the tourist issues related to the coronavirus.

"And uncertainty has surfaced about the course of the LNG Canada megaproject following protests and rail service disruptions," Scotiabank said.

"Given the more sensitive risk environment, we expect a largely stay-the-course fiscal plan that focuses on maintaining surpluses and low debt levels and emphasizes efforts already under way with respect to child care, fighting climate change, and addressing housing affordability."

HSBC to cut assets, jobs

From Reuters:

HSBC Holdings PLC said Tuesday it would shed US$100-billion in assets, shrink its investment bank and revamp its U.S. and European businesses in a drastic overhaul that will mean 35,000 jobs cut over three years.

The bank, which has struggled to keep pace with leaner and more focused rivals, is seeking to become more competitive as it grapples with slowing growth in its major markets, the coronavirus epidemic, Britain’s European Union exit and lower central bank interest rates.

In the latest in a series of overhauls since the 2008 financial crisis, HSBC said it would merge its private banking and wealth businesses, axe European stock trading and cut U.S. retail branches as it seeks to remove US$4.5-billion in costs.

Europe’s biggest bank by assets, which makes the bulk of its revenue in Asia, said profit before tax tumbled by a third to US$13.35-billion in 2019, far below the average estimate of US$20.03-billion from brokerages compiled by the bank. That was due to US$7.3-billion in writeoffs linked to its global banking and markets and commercial banking business units in Europe.

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Apple rattles markets

Apple Inc.’s warning is sending a clear message that the coronavirus will have an economic impact wider than initially believed.

“Markets had been rubbing along in expectation that stimulus from China would smooth over any bumps in the road,” said IG chief market analyst Chris Beauchamp.

“But Apple’s warning upends those forecasts and suggests that we will see other companies reporting warnings,” he added.

“Apple’s stock has stalled over the past month, having moved in a straight line since August, and in the long run this will likely prove to be a boon for those looking for a buying opportunity.”

Mr. Beauchamp’s comments came as Apple’s revenue warning rattled stock markets.

The tech giant said it would fall short of its quarterly revenue estimates because of the impact.

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“The situation in China is getting worse and many more major global companies are likely to lower their outlooks’ on the back of the emergency,” said CMC Markets analyst David Madden.

“China is important in terms of manufacturing, sales as well as supply chains, so the wider negative impact has the potential to be huge, hence why dealers are bearish on stocks.”

Ticker

You can’t fool me

How did I know the following e-mail was a fake?

-----Original Message-----

From: Brexit European Lottery

Sent: Friday, February 14, 2020 6:30 AM

Subject: Congratulation,

Attention,

Your E-mail was selected as a Brexit/ Europe Lucky winner of £1,780.000.00 Gbp Only. Under the British Government. the Brexit (Britain) & European Union Throw Lottery of the year 2020 and you won. That is why we contact you for your Claim. meanwhile your fund sum £1,780.000.00 Gbp will be Credit in ATM Card and send to you. awaiting to hear from you very urgent. Congratulation!

Yours sincerely,

Boris Johnson Prime Minister of the United Kingdom of Great Britain.

Best regards,

David Sassoli, President of the European Parliament.

CC: António Manuel de Oliveira Guterres UN Secretary General

I knew it was a fake because there’s no way Mr. Johnson would let that money go!

Markets at a glance

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