Briefing highlights
- What to expect in GDP report
- Huawei gets limited 5G role in Britain
- What to watch for from Apple
- What analysts are saying today
- Required Reading
Flatliners
Canada’s economy is flatlining, temporarily at this point.
Gross domestic product contracted 0.1 per cent in October, and economists expect the November reading, to be reported by Statistics Canada Friday, will be flat and possibly even show a similar pullback.
“The economy probably continued to stall out in November,” said Derek Holt, head of capital markets economics at Bank of Nova Scotia.
Of course, November had some special things happening, including a short-lived strike against Canadian National Railway.
But it doesn’t set the stage for a strong fourth quarter.
“We’re anticipating the economy will rebound in December, but that will provide a bigger lift to Q1 than Q4,” said Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist.
The “lone bright spots” in November included a 0.7-per-cent rise in retail sales volumes from October, a similar gain in housing starts and a 0.6-per-cent increase in existing home sales “that might have a small positive influence upon ancillary housing services (lawyers, agents, lenders, etc.),” he added in a lookahead to Friday’s report.
“At least two of those gains reversed the next month. Retail sales are nevertheless quite weak on a trend basis, and it’s highly unlikely this is because of leakage of consumer spending to foreign online sales not captured in retail sales.”
And the rise in home sales, added Mr. Reitzes, was “likely offset” by a decline in crude production.
Markets, of course, will be wondering what Friday’s report could mean to the Bank of Canada’s timing and path for interest rates, particularly amid concerns over the potential economic impact of the new coronavirus.
“There’s little debate that a big new shock to global growth could easily prompt the bank to trim rates,” said BMO chief economist Douglas Porter.
He did not mention the coronavirus but did cite the drop in oil prices that came as a result.
Read more
- Stock market, economy face temporary slump from spreading Wuhan coronavirus
- David Parkinson: What economists are cheering, and fearing, for the year ahead
- David Parkinson: Canadian economy slows, but BoC likely to hold rate
Huawei given limited 5G role in Britain
British Prime Minister Boris Johnson has agreed to allow Huawei Technologies Co. to supply components for Britain’s 5G wireless network with some restrictions, setting Britain on a collision course with U.S. President Donald Trump, The Globe and Mail’s Paul Waldie reports.
The government announced that “high-risk vendors” such as Huawei will be excluded from “sensitive core parts of the 5G and gigabit-capable networks.” It has also put a 35-per-cent limit on the market share these vendors can have in supplying equipment to the non-core parts of the network.
The announcement came after a meeting earlier Tuesday of the National Security Council, which consists of the Prime Minister, several senior cabinet ministers and security service representatives.
Read more
Ticker
More oil losses
From Reuters: Oil futures were set for a sixth day of losses as the death toll from a virus in China rose, but the heavy sell-off of recent sessions was curbed by output outages in Libya and OPEC comments designed to calm demand fears.
Apple said to face iPhone challenges
From Reuters: Apple Inc.’s plan to ramp up iPhone production by 10 per cent in the first half of this year may hit a roadblock as the coronavirus outbreak spreads across China, the Nikkei Asian Review reported. The company has asked its suppliers, many of whom have manufacturing centers in China, to make up to 80 million iPhones in the first half of 2020, the Nikkei reported, citing people familiar with the company’s plans.
Renault expected to name CEO
From Reuters: Renault’s board is set to meet later on Tuesday to approve the nomination of Luca de Meo, the former head of Volkswagen’s Seat brand, as its next chief executive, two sources familiar with the matter said. The Italian-born executive, who stepped down from Seat earlier this month, is not due to take up his post at the French car maker until towards July, due to negotiations around his contract, according to one of the sources.
Also ...
- Xerox revenue falls as more businesses turn to digitization
- U.S. Treasury curve inverts as virus outbreak fans growth fears
What to watch for today
Apple reports quarterly results, which are always an event.
“This will be the first quarter where we’ll get to see how much interest there has been in Apple TV+ as the company takes on Netflix and Disney in the streaming space,” said CMC Markets chief analyst Michael Hewson.
What analysts are saying today
“The belief that low rates can and will smooth over in the deepest potholes in the road ahead for financial markets, is deeply ingrained. But there will be an economic impact from the virus outbreak, even if we don’t yet know how long it will last and therefore how big the economic hit will be. Whatever else happens, there will be more pressure for easier policy in China, and further reason for other central bankers to remain dovish.” Kit Juckes, global fixed income strategist, Société Générale
“We think it is better to wait for the rise in the number of cases to slow before getting positive about the markets again. We know there is an incubation period of 14 days and the virus can be passed on when the subject is not showing symptoms. Putting that together, we could be on the cusp of a plateau or a massive escalation in the number of cases.” Jasper Lawler, head of research, London Capital Group
“China is the largest import of copper as well as oil in the world, so it was hardly surprising that both markets endured heavy losses yesterday. The bearish sentiment rippled out into other commodities like platinum plus palladium – which posted a record high last week, so profit taking has been common place. It wasn’t all bad news for commodities, as gold gained ground. The metal benefitted from the risk-off strategy of traders, but the move to the upside wasn’t that big when you compare it to the losses incurred in equities.” David Madden, analyst, CMC Markets
Required Reading
Investors fret
Investors are worried that Facebook’s refusal to police political ads could backfire, Tamsin McMahon writes.
Tims franchisee group rebrands
A group representing Tim Hortons franchisees that clashed with their parent company in recent years has rebranded and is actively recruiting new members in a bid to address an array of operational concerns with management. Susan Krashinsky Robertson reports.