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Briefing highlights

  • Expansion not done yet: CIBC
  • Trump’s China tariff threat ripples through markets
  • Stocks, loonie, oil at a glance
  • HBC looks to sell Lord + Taylor
  • Toronto home sales surge in April
  • Air Canada swings to profit
  • Kraft to restate results
  • What to expect in jobs report
  • What else to watch for this week
  • Required Reading

Room to run

Much has been of the fact that the U.S. economic expansion has run for so long now, and that perhaps investors should start preparing for the end.

Well, as Yogi Berra might quip, it ain't over till it's over.

(By some measures, the expansion is already the longest ever. By others, we’ll hit that milestone in a couple of months.)

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"You must be creative to come up with a scenario that will kill this expansion any time soon, despite the message from the long end of the [yield] curve," said Benjamin Tal, deputy chief economist at CIBC World Markets.

"The current expansion will continue its course, more slowly than any other expansion, but with a positive sign attached to it."

Mr. Tal ran through several reasons for this, noting in a report that expansionary periods don’t just peter out and die. Something has to kill them, like a run-up in interest rates that would spark a recession, for example.

But Federal Reserve chair Jerome Powell and his colleagues have called a halt to interest rate increases, as have other central banks, including the Bank of Canada.

Federal Reserve chair Jerome Powell

Yuri Gripas/Reuters

"Monetary policy overshooting triggered many recessions in the past," Mr. Tal said. "But with the Fed on the sidelines now, chairman Powell is avoiding past mistakes."

Nor will President Donald Trump's trade actions kill the expansion.

"As for the trade dispute with China, President Trump has been in power long enough to allow for certain patterns to emerge in his behaviour," Mr. Tal said.

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"He creates a crisis, runs with it for a while, and then announces that he’s solved it, and that a 'tremendous' deal has been reached," he added.

“In reality, the new deal will correct things at the margin, without tackling the underlying structural issues. We’ve seen it with North Korea, with USMCA, and we’ll probably see it with China.”

President Donald Trump

ERIN SCHAFF/The New York Times News Service

Trade talks between China and the U.S. are scheduled to resume in Washington this week, and had been going well, according to negotiators, until the game changed on the weekend, with Mr. Trump renewing threats against Beijing.

"In a few weeks, President Trump will probably declare victory, pointing to some Chinese compromise, on issues such as intellectual property protection, technology transfer and agriculture," Mr. Tal said.

"But in reality, the new trade deal probably won’t solve China’s many structural issues, nor will it impair its drive for technological domination," he added.

"The next dispute will be with the EU over autos, and the result will not be very different. And markets, being accustomed by now to the way that the story unfolds, will show little emotion."

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And with that, markets will turn their attention back to what's left of corporate earnings this week, with what we've seen so far helping to calm some nerves.

"As earnings season comes to an end, major fears about U.S. recession possibilities have been set aside (for now), with equities roaring back to life," said BMO Nesbitt Burns economic analyst Priscilla Thiagamoorthy.

"Of the 388 companies on the S&P 500 that have reported so far, 75.5 per cent beat estimates."

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Trump ups ante

Those U.S.-China trade talks are anyone’s guess now.

Mr. Trump upped the ante via Twitter Sunday, suggesting not enough progress in negotiations and threatening to raise existing tariffs and unveil new ones.

That sent markets reeling.

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“We know from past experience that this could be one of Trump’s infamous negotiating tactics, but there is a good chance that this time it will backfire,” said Jasper Lawler, head of research at London Capital Group.

“Suddenly, the risk of a full-blown trade war has increased sharply, and the markets are reflecting this,” he added.

Sue Trinh, Royal Bank of Canada’s head of Asia foreign exchange strategy in Hong Kong, agreed this could be just Mr. Trump’s negotiating style.

“Sources say Trump’s tweet was prompted by an update from [United States trade representative Robert] Lighthizer indicating China was pulling back from earlier commitments,” she said.

“It is not clear Trump will follow through with the threat of raising tariffs this Friday - he has pushed back twice on the previous deadlines - in January and in March, and it is an all too familiar trick from his playbook to threaten tariffs to speed up negotiations and win concessions.”

Beijing also moved today to help juice its economy by trimming the reserve requirement ratios among smaller banks.

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Markets at a glance

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HBC looks to sell Lord + Taylor

Hudson’s Bay Co. has put a “for sale” sign over its Lord + Taylor business, sparking a jump in its stock price.

HBC said it’s looking at “strategic alternatives” for the unit, which runs about 40 outlets in the U.S., including a potential sale or merger, The Globe and Mail’s Marina Strauss reports.

“HBC has been simplifying its organization, strengthening its retail operations and unlocking the value of its real estate,” the company said.

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Toronto home sales surge

Toronto home sales roared ahead in April, climbing almost 17 per cent from last year’s sluggish sales level as detached houses saw a sales leap, The Globe and Mail’s Janet McFarland reports.

The average sale price for all types of homes climbed 1.9 per cent over last April to $820,148, pushed higher by tighter market conditions, the Toronto Real Estate Board said.

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Ticker

Air Canada swings to profit

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From The Canadian Press: Air Canada swung to a profit in its latest quarter compared with a loss a year ago as it saw its operating revenue rise 9 per cent. The airline earned $345-million, or $1.26 a diluted share for its first quarter, compared with a loss of $203-million or 74 cents a year ago.

Kraft to restate results

From Reuters: Kraft Heinz Co. will restate financial statements for 2016 and 2017 to fix accounting errors that resulted from misconduct of several employees of the packaged food company’s procurement area, the company revealed in a filing.

What to watch for this week

These will be a busy few days on the overseas front, though there are still some key Canadian and U.S. earnings reports to come.

MONDAY

Bank of Canada governor Stephen Poloz speaks to a Winnipeg business audience, though he’s unlikely to drop anything new given the central bank only recently released its monetary policy report, and he and senior deputy governor Carolyn Wilkins said what they had to say just last week to a couple of parliamentary committees.

Earnings: Air Canada, Bausch Health Cos., Clearwater Seafoods Inc., Mosaic Co. And Pengrowth Energy Corp.

TUESDAY

Earnings: Aurora Cannabis Inc., CCL Industries Inc., George Weston Ltd., Kinross Gold Corp., MEG Energy Corp. and WestJet Airlines Ltd.

WEDNESDAY

China reports various indicators through the week, including key trade numbers today.

"We think that export growth slowed last month and that lacklustre domestic demand kept import growth subdued," said Katie Kwok of Capital Economics.

"In contrast, the credit data should be more upbeat as monetary easing continues to feed through to stronger lending growth."

At home, Canada Mortgage and Housing Corp. reports April housing starts, which economists believe rose by 1 per cent or more to an annual pace of between 194,500 and 200,000.

"While building permits have been running strong, the demand for housing has seen successive hits from mortgage rule changes and higher interest rates," said CIBC senior economist Royce Mendes.

"As a result, we see housing starts clocking in at a pace of 196,000 in April, and possibly decelerating again in the months to come," he added.

"The recent fall in five-year interest rates will give the Canadian housing market some respite, but challenges still remain and should see housing starts run below 200,000 for 2019 as a whole."

Earnings: Barrick Gold Corp., E-L Financial Corp., Finning International Inc., Guardian Capital Group Ltd., Home Capital Group Inc., Sun Life Financial Inc. and Thomson Reuters Corp.

THURSDAY

Trade is on the agenda in both Canada and the U.S., with some major earnings to boot.

Economists generally expect Statistics Canada to report that the country's trade deficit narrowed in March to $2.3-billion from February's $2.9-billion.

"All told, we’re looking for the trade deficit to narrow to $2.5-billion," said Benjamin Reitzes, BMO's Canadian rates and macro strategist.

"Despite the anticipated improvement, the gap remains relatively wide, reflecting global trade uncertainty and a relatively weak Canadian competitive backdrop."

Analysts generally expect the U.S. report, in turn, to show the trade deficit swelling in March to US$51.3-billion from US$49.4-billion.

Okay, ready for this? Earnings: Athabasca Oil Corp., Brookfield Asset Management Inc., CI Financial Corp., Canadian Natural Resources Ltd., Canadian Tire Corp., Cascades Inc., Cineplex Inc., Crescent Point Energy Corp., Hydro One Ltd., Magna International Inc., Quebecor Inc., Telus Corp., TMX Group Ltd. and Trican Well Service Ltd.

FRIDAY

It's generally pointless to try to forecast Canadian jobs reports because they're so volatile.

But for the record, observers expect Statistics Canada to report that the country gained between 4,000 and 20,000 jobs in April, with unemployment holding at 5.8 per cent.

TD economists, though, believe Canada lost 10,000 jobs, with the rate edging higher to 5.9 per cent.

"A modest increase in employment, combined with tame wage readings, will reinforce that the Bank of Canada won’t be hiking rates this year, but won’t do anything to justify the possibility of a rate cut, which markets are now pricing in," said CIBC's Mr. Mendes, who expects to see job creation of 4,000.

Overseas, we'll find out how Britain's economy fared in the first quarter.

"Rising wages and low unemployment are likely to keep the U.K. economy in expansion territory in Q1, though the numbers are likely to reflect a somewhat cautious U.K. consumer, and an expansion of about 0.2 per cent, helped by strong performance in manufacturing as a result of inventory building ahead of the [original] March 29 Brexit deadline," said CMC Markets chief analyst Michael Hewson.

In the U.S,, analysts generally expect to see that higher costs at the gas pump helped push overall consumer prices up 0.4 per cent in April from March, bringing annual inflation to 2.1 per cent from 1:9 per cent.

"The price of oil appears to have peaked late in the month, however, which will limit the contribution from oil to inflation over the rest of the year, as we see oil prices falling from here," said CIBC economist Katherine Judge.

Markets will be watching closely, too, as Uber readies its initial public offering.

"In what is set to be the biggest IPO this year, ride sharing app Uber is following in the footsteps of sector peer Lyft in the hope that they will fare better in terms of how the market reacts to its decision to float on the stock market," said CMC's Mr. Hewson.

"Pricing at between US$44 and US$50 a share, the company is looking to raise US$9-billion, valuing the business at over auS$84-billion. It certainly comes across as a rich valuation even if it has a more international focus, as well as a more diverse business model."

Uber's main issue is that "it doesn’t make any money, losses of US$3-billion last year alone and a cash burn of US$2-billion a year, with little prospect of a profit in the near future."

And finally, a couple of notable earnings: Enbridge Inc. and Onex Corp.

Required Reading

Behind Facebook’s push

After years of privacy scandals, Facebook is embarking on a major shift in its business, from a public town square to a place where users will spend most of their time communicating in private. U.S. correspondent Tamsin McMahon reports.

Questrade expands

Questrade Financial Group Inc. is stepping into the lending and deposit-taking business after acquiring Mississauga-based Community Trust Co. for an undisclosed amount, wealth management reporter Clare O’Hara writes.

Canola troubles

The Huawei feud isn’t the only reason canola exports to China are tanking. Columnist Barrie McKenna looks at what the collapse of China’s swine industry means.

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