Skip to main content
business briefing

These are stories Report on Business is following Tuesday, Jan. 13, 2015.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Rates, loonie in focus
Some market players are now betting that the Bank of Canada could cut interest rates, rather than hike.

The speculation is mild at this point, but it's the shift in sentiment that's important, said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

This shift began Friday as Statistics Canada released what was seen as a weak labour market report, showing a loss of 4,300 jobs in December and the unemployment rate holding at 6.6 per cent.

As The Globe and Mail's David Parkinson reported, December marked two consecutive months of jobs losses, though the numbers were actually better than they looked because of the strength in full-time employment.

Still, some in the markets suddenly changed their view, speculating that the Bank of Canada could cut its benchmark rate from 1 per cent at some point in the next year, Ms. Sutton said.

Before that, the speculation had been on when the central bank under Governor Stephen Poloz could raise rates for the first time.

That's not to say that Ms. Sutton sees a rate cut in the cards, only that some others do.

"Markets are pricing in a 4-per-cent probability of an interest rate cut in Canada over the next 12 months," she said.

"The shift has been relatively dramatic with the market having been pricing in an 8-per-cent probability of a hike just two sessions ago," she added.

"Weaker-than-expected employment combined with falling oil prices is taking its toll on BoC expectations and CAD; however, we would suggest that the deterioration needed for the BoC to turn towards interest rate cuts would be significant, and is not part of our forecasts."

She was referring to the loonie by its symbol.

No matter how it plays out, rates aren't going to rise any time soon.

Charles St-Arnaud of Nomura Securities, for example, said yesterday that he expects the Bank of Canada to cut its outlook for economic growth when it releases its monetary policy report next week, by 0.3 of a percentage point, in turn bringing new thinking to the rate outlook in the markets.

"If we are correct, this means that growth in 2015 would be only slightly higher than potential," he said.

"With the output gap closing at a slower pace, we doubt the BoC will be in a position to hike rates until 2016."

The plunge in oil prices has prompted some observers to push back their expectations for a rate hike until sometime next year, thus lagging the Federal Reserve.

Indeed, Mr. Poloz said recently that the collapse in oil prices could shave 0.3 of a point from economic growth this year.

But, as senior economist Sal Guatieri of BMO Nesbitt Burns noted, that was a month ago.

"Since then, prices have slid a further $17, which could have at least another tenth off growth," Mr. Guatieri said today.

"A further downgrade of the bank's growth outlook could push a rate hike into 2016," he added.

"We are currently calling for an October 2015 move (four months after Fed liftoff, but this could change if Lane sounds particularly gloomy today."

All of this has played into the weakness of the Canadian dollar, which has tumbled along with crude prices, and hit new depths again today.

The loonie, as the country's dollar coin is known, touched a low of 83.38 cents U.S., and a high of 83.82, establishing into its new territory below the 84-cent mark. It sat at 83.68 cents by late afternoon.

Lower for longer?
The Bank of Canada offered no new update on the specific impact of the oil plunge, but did warn today that the rout may not be over.

Which means Canada's economy could be hit further, The Globe and Mail's Barrie McKenna reports.

In prepared remarks for a speech in Madison, Wisc., deputy governor Timothy Lane said the collapse in prices is downbeat for Canada, though a boon globally.

"Over time, higher-cost oil is still likely be needed to satisfy growing global demand, but prices could go lower, or remain low, for a significant period before those medium-term forces do their work," Mr. Lane said.

All eyes now turn to the Bank of Canada's rate decision and monetary policy report next week, when the central bank may well trim its projection for economic growth this year, as Nomura's Mr. St-Arnaud noted.

TD sees oil hitting Ottawa finances
Updated forecasts by Toronto-Dominion Bank project that Canada's Conservative government will be in deficit for two years longer than originally planned due to the sudden drop in oil prices and the impact of tax cuts announced in the fall.

Rather than a $1.9-billion surplus in 2015-16 as outlined in Finance Minister Joe Oliver's fall fiscal update, TD now projects a $2.3-billion deficit, followed by a $600-million deficit the following year. The return to surplus would be pushed back to the 2017-18 fiscal year, The Globe and Mail's Bill Curry reports.

However, the report cautions that the government has put aside $3-billion a year for unforeseen events and that amount could still be enough to post slim surpluses in the coming years. It would not be enough, though, to allow the government to announce major new spending in the 2015 federal budget.

Caisse to take over projects
The Caisse de dépôt et placement du Québec is eyeing two major projects – a public transit system on Montreal's new Champlain Bridge and a rail link to the city's international airport – as part of its new deal to take over infrastructure ventures from the provincial government, The Globe and Mail's Bertrand Marotte reports.

The $214-billion public pension fund manager said today the two projects are priorities under the agreement it has struck with the Liberal government. The projects are expected to cost about $5-billion combined and completion is targeted for the end of 2020.

The Caisse plans to create a new infrastructure subsidiary to manage all new projects. Creation of the new business model, aimed at cutting the government's debt load, is subject to the adoption in the National Assembly.

Tall tales
There's a reason some call Toronto the city of cranes.

Still, Canada's biggest city has some catching up to do, according to a new report.

Toronto ranked in the top 10 cities for skyscraper buildings last year, the report from the Council on Tall Buildings and Urban Habitat noted today.

Toronto is near or at the bottom of the top 10 list depending on how it's measured because the group looked at the total number of buildings of at least 200 metres, and the sum of the heights.

Tianjin came first.

By country, Canada was in the top five for total number, tying Indonesia, Japan and the United States, though lagged each of those based on sum of the heights.

And based on the latter, 2014 was the "tallest year ever" around the world, the group said, with a cumulative 23,333 metres.

Streetwise (for subscribers)

ROB Insight (for subscribers)

Business ticker

Follow Michael Babad on Twitter: @michaelbabadOpens in a new window

Report an error

Editorial code of conduct

Tickers mentioned in this story