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Briefing highlights

  • Canadian dollar may be near peak
  • Loonie at about 80 cents today
  • Global markets at a glance
  • What to expect from jobs reports
  • What else to watch for this week
  • Discovery to buy Scripps for $14.6-billion
  • HSBC boosts profit, unveils buyback
  • Charter says it’s not interested in Sprint

'Making like bitcoin'

The Canadian dollar has staged an impressive rebound, up by more than 10 per cent in just two months, but that may be as good as it gets for the born-again loonie, observers say.

Having said that, it may stick at around its recent levels for some time, a far cry from the 73-cent (U.S.) mark of May and a boon for Canadians vacationing in the U.S. this summer, albeit a likely worry for exporters and the Bank of Canada.

"Given the relatively quick ascent of the loonie in recent weeks, the upside is likely limited going forward," said Toronto-Dominion Bank economist Dina Ignjatovic, who expects the currency to hover at about 79 cents through 2018.

The loonie shot up again Friday, after a strong economic report from Statistics Canada, and is trading today at about 80 cents.

But, like TD's Ms. Ignjatovic, Bank of Montreal chief economist Douglas Porter believes there are 10 reasons to be cautious now. Actually, nine plus a bonus:

1. Oil, to which the Canadian dollar is linked, still sits below $50 a barrel. Mr. Porter said in a report: "Yes, it's had a nice recent rally and is now testing that threshold, but the loonie has no business being above 80 if oil can't hold 50."

2. Liquefied natural gas, a biggie for British Columbia, is "on life support." Just last week, Petronas nuked plans for an $11-billion B.C. plant, a move that "casts much broader doubt on the future of what was expected to be a big industry for the province."

3. With the currency "making like bitcoin," the Bank of Canada is probably growing antsy. The rise in the past few weeks will "make them more cautious about hiking rates again."

4. Ottawa is said to also be antsy about the central bank's likely path of higher interest rates after its initial hike in mid-July, with a Bloomberg report suggesting government sources are fretting about the impact on consumers. Said Mr. Porter: "Yikes. These 'sources' do realize that rates were once – gasp – above 10 per cent?"

5. Canada, the U.S. and Mexico are poised to renegotiate the North American free-trade agreement, which many observers have warned could weigh on the loonie: "Yes, they seem to be headed in a sane direction … but who really knows what twists and turns they can take, with the very real possibility of a collapse, or a tough deal for Canada."

6. Even with a bounce in exports, Canada is "still struggling" when it comes to trade, with the current account deficit at about 3 per cent of gross domestic product.

7: From carbon taxes to increases in minimum wages, Canadian businesses face "a multitude of new costs which will constrain competitiveness."

8. True, economic growth has been impressive, but Mr. Porter and others say it's going to slow.

9. Ouch: "There is a non-trivial risk that the current housing correction in and around Toronto turns into something nastier."

10. Bonus: "Even after a four-game sweep, the Blue Jays are still in last place." That may have nothing to do with the loonie, but if you're a Jays fan, you might be feeling like an exporter right about now. (That comment came before Sunday's amazing comeback, but don't take that to suggest that the loonie's a leading indicator.)

While we may have tested the loonie's upper limits, Mr. Porter added later, "currency markets are famous for overshooting … for a short spell."

One of the questions making the rounds now is how the loonie's sudden strength could sway the Bank of Canada.

Observers generally expect further increases in the central bank's benchmark overnight rate, which now sits at 0.75 per cent. But, of course, the Bank of Canada was counting on a cheaper currency to help boost exports.

Still, analysts don't see the loonie derailing the central bank's likely time frame. Since I'm into lists today, here's one from Mark Chandler, head of fixed income and currency strategy at RBC Dominion Securities.

"There are many reasons to believe that the appreciation of the Canadian dollar is less of a restraining factor than assumed in some circles and certainly less than it may have been in the past," Mr. Chandler said, listing five reasons for easing the "fear factor" around the loonie.

1. Currency gains are equivalent to tighter monetary policy, and the Bank of Canada used to have a financial conditions index that measured everything from interest and foreign exchange rates to stock and house prices. Said Mr. Chandler: "RBC Economics has replicated the bank's index – which was discontinued in late 2015 – and its current value shows that the overall level of financial conditions, while tightening in recent months, remains at about the same level of overall accommodation as seen since the beginning of 2016."

2. The loonie's up against the U.S. dollar, but hasn't changed all that much against other major currencies. And, remember, it hit its lows as markets fretted over the troubles at Home Capital Group Inc. and shorting of the Canadian dollar was high. Said Mr. Chandler: "It is not clear that this should be the appropriate starting point for gauging the impact of moves on the economy."

3. "It is well established that the impact of exchange rate movements on import and domestic prices has waned over the past decades." What Mr. Chandler means by that is this: In the olden days (of the early- to mid-1990s), a 10-per-cent rise in the loonie was seen as having a similar effect on economic growth and inflation as a jump of three percentage points in short-term interest rates.

4: You have to look at more than just a financial conditions index: "For example, the nascent improvement in U.S. industrial production points to some potential gains for Canadian exporters, providing some offset to recent currency moves."

5. You also have to look at the reasons for the loonie's rise: "Given the central bank's desire to tighten conditions on future inflation risks from a rapidly closing output gap, some gains in the Canadian dollar were anticipated and – at least some of the strength – welcomed."

(There was no mention of the Blue Jays. Or the Maple Leafs.)

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Markets at a glance

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What to watch for this week

It's going to be a busy one, largely for corporate earnings, but with a couple of significant economic reports and central bank decisions thrown in.

"Today marks the beginning of a massive week for the markets, representing a cross roads of big economic and corporate data," said IG market analyst Joshua Mahony.

"While last week saw 20 per cent of the S&P 500 firms reporting, this week sees economic releases more than compensate for any drop-off in earnings data," he added.

"In an earnings season that has been dominated by the outperformance of U.S. firms, all eyes will be on the world's biggest company on Tuesday, to see if Apple can push the Dow and Nasdaq into yet another new record high."

Key will be Friday's jobs reports in Canada and the U.S.

You can never really guess what Statistics Canada will say about the labour market, but observers expect the agency to report Friday that the economy created somewhere between 8,500 and 19,000 jobs in July, with unemployment holding at 6.5 per cent.

"Employment growth will slow in the back half of the year as the economy chews through remaining slack, and available workers," said Nick Exarhos of CIBC World Markets.

"But the slowing in jobs should be offset by what will be stronger wage gains, bolstering Canadian incomes."

In the U.S., analysts expect to see 180,000 jobs created in July, and unemployment easing further to 4.3 per cent.

The rest of the calendar:


Europe reports jobs and inflation numbers, the latter expected to show an annual pace of 1.3 per cent in the euro zone.

Quarterly earnings reports will pick up speed later in the week, but today brings BP PLC, HSBC Holdings PLC, Heineken NV, Martinrea International Inc. and Precision Drilling Corp.


Australia's central bank is expected to hold its key rate steady at 1.5 per cent.

And here's where earnings reports really pick up steam: Air Canada, Allstate Corp., Apple Inc., Archer-Daniels-Midland, Intact Financial Corp., Pfizer Inc., Saputo Inc., Shopify Inc., Thomson Reuters Corp., Time Warner Inc., Under Armour Inc., WestJet Airlines Ltd. and Westshore Terminals Investment Corp.


Earnings: American International Group Inc., CGI Group Inc., Canadian Tire Corp., Cineplex Inc., Delphi Automotive, Dorel Industries Inc., Great-West Lifeco, Home Capital Group Inc., Humana Inc., Kinross Gold Corp., Linamar Corp., Manulife Financial Corp., Marathon Oil Corp., MetLife Inc., Molson Coors Brewing, Restaurant Brands International Inc. and Tesla Inc.


The Bank of England is expected to hold its key rate at 0.25 per cent.

Earnings: Aetna Inc., Allergan PLC, Apache Corp., BCE Inc., Berkshire Hathaway Inc., Canadian Natural Resources Ltd., Duke Energy Corp., E-L Financial Corp., Enbridge Inc., Fairfax Financial Holdings Ltd., Gildan Activewear Inc., IGM Financial Inc., Kellogg Co., Kraft Heinz Co., Open Text Corp., Paramount Resources Ltd., SNC-Lavalin Group Inc. and Viacom Inc.


Besides the jobs reports, markets will also get to see the latest trade numbers from the U.S. and Canada. Statistics Canada is expected to report that the trade deficit narrowed somewhat in June, to about $1-billion or less.

Earnings: Power Corp of Canada and Power Financial Corp.

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