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Briefing highlights

  • A look at Citi's Canadian outlook
  • Bank sees Toronto housing correction
  • Loonie to rise, but won't reach parity
  • Markets at a glance
  • OPEC extends production cap
  • Guloien to retire as Manulife chief
  • Profits up at RBC, CIBC, TD
  • TD sees no widespread sales practice problems
  • Rayonier to acquire Tembec

Citi's Canadian outlook

It always helps to know what your neighbour is saying about you, particularly if that neighbour happens to be a big U.S. bank.

So here’s how Citigroup sees Canada at this point: The economy is on a “solid” track, unemployment is declining, the loonie is weak though will perk up, and both monetary and fiscal policies are easy.

And built into the economic forecast is a Toronto housing market correction.

“Real GDP is on track to expand at a 4-per-cent pace in 1Q 2017, led by stronger consumer demand for goods, services, and homes, as well as a modest rebound in business investment,” said economist Dana M. Peterson at Citi Research.

“The rise in inventories should offset the sizeable net exports drag anticipated,” she added as part of a new global outlook.

“Job gains and hours worked continue to expand and the unemployment rate is falling. However, [core consumer price index] and wage inflation continue to slow, signalling some remaining slack in the Canadian economy.”

The Bank of Canada, too, noted the strength of the first quarter in its rate statement Wednesday, and a weaker showing after that.

Citi projects economic growth in Canada at 2.6 per cent this year, 2 per cent in each of the following three years, and 1.9 per cent in 2021.

It also sees the loonie eventually rising, though never reaching parity with the U.S. dollar over that time-frame: Just over 74 cents (U.S.) this year, just below 73 cents in 2018, and then 75.2 cents, 78.7 cents and 83.3 cents.

Unemployment is forecast to ease, to 6.5 per cent next year.

“Several factors should contribute to Canada’s ongoing recovery, including completion of the internal structural adjustment away from commodities; a moderate U.S. expansion; slightly higher oil prices; easy domestic monetary and fiscal policies; and a weak Canadian dollar,” Ms. Peterson said in the report.

Citi first trimmed its 2018 economic growth forecast earlier, as the Ontario government unveiled several measures to deflate the housing bubble in and around Toronto, cutting its projection to 2 per cent from an earlier 2.2 per cent.

Ms. Peterson added in an interview that a housing correction takes about a year to play out. And it’s already under way in Toronto, having started in the second quarter, she said.

So looked at another way, that would shave growth in gross domestic product by 1 per cent over the course of four quarters.

That correction, by the way, would see home-price growth in Toronto slowing, not contracting outright.

And here’s something worth closing with: Just as activity moved east to Toronto after B.C.’s tax on foreign buyers of Vancouver-area properties, Ms. Peterson is now watching to see what happens in Montreal.

Markets at a glance

Guloien to retire

Donald Guloien is retiring as chief executive officer of Manulife Financial Corp., to be succeeded by Roy Gori.

Mr. Guloien will retire at the end of September, having spent 36 years at the big insurer, the last eight as its chief.

Mr. Gori, who came to Manulife from Citigroup in 2015, is now the insurer’s Asia division chief, and will become president early next month.

Bank profits up

Three more of Canada’s big banks are out with stronger second-quarter results.

Royal Bank of Canada profit rose to $2.8-billion, or $1.85 a share, from $2.6-billion or $1.66 a year earlier.

Canadian Imperial Bank of Commerce, meanwhile, posted a profit of $1.1-billion, or $2.59 a share, compared with $941-million or $2.35.

Toronto-Dominion Bank, in turn, reported profit rose to $2.5-billion, or $1.31 a share, from $2.1-billion or $1.07.

TD also said it has found no systemic problems related to the controversy over sales practices.

“We have largely completed this review and we continue to believe that we do not have a widespread problem with people acting unethically in order to achieve sales goals,” chief executive officer Bharat Masrani said in the statement announcing its results.

“As we have indicated, we will act on the opportunities we found to improve our business.”

Rayonier to buy Tembec

A Florida company has struck a deal to acquire Canada’s Tembec Inc..

Rayonier Advanced Materials Inc. is offering $4.05 a share cash, or 0.2302 of a share.

The deal is valued at $807-million (U.S.), but that includes almost $500-million in debt.

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