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business briefing

Briefing highlights

  • Economists weigh in on Ontario budget
  • Chevron in huge Anadarko deal
  • Stocks, loonie, oil at a glance
  • JPMorgan profit hits record
  • Wells Fargo profit rises
  • Required Reading

Ontario is setting a reasonable bar that they should be able to step over, barring a big decline in the economy.

Bank of Montreal

The first budget from Ontario’s new young government may seem surprising to some in that it’s not the shock and awe they might have expected.

Indeed, it’s downright reasonable in many respects when compared to comments we heard in the runup to the financial plan.

But, economists warn, the next few years won’t be pain-free as certain cuts take effect. (Though you can always drown those sorrows under planned changes that will allow us to have tailgating parties in stadium parking lots and start drinking in bars as early as 9 a.m.)

As The Globe and Mail’s Laura Stone and Jeff Gray report, Premier Doug Ford’s Conservatives came out with a snappy new licence plate slogan – A Place to Grow – and plans to balance the budget by 2023-24.

If you look at what’s being cut, though, some may well consider Ontario a place to grow your sorrows.

And we’d already seen some of the plans for education and health care. Here’s the rundown:

Economists generally lauded Finance Minister Vic Fedeli’s timeline for balancing the books. Even though that would come after the next election, at least it’s a timeline.

“Swinging the axe on non-core expenditures will keep overall program spending flat this year (up by a marginal 0.1 per cent),” said Royal Bank of Canada senior economist Robert Hogue.

“The average growth in program spending will be limited to just 1.2 per cent annually over the following four years,” he added.

“In real per capita terms, program spending is set to decline by about 1.6 per cent annually over those four years. That’s what we call fiscal restraint!”

We’re going to pay for cuts. Program spending will rise at an average annual pace of just 0.8 per cent over three years. Health, education and public transportation will get a bit more, while other areas will lose, notable among them the ministries of Social Services and the Environment.

“The planned restraint won’t be pain free for a province that already ranks the lowest among its provincial counter­parts in per-capita program spending,” said Toronto-Dominion Bank deputy chief economist Derek Burleton and economist Rishi Sondhi.

“While, the cuts will be far from pain free, the five-year plan in our view represents a decent compromise between moving for­ward in addressing the province’s fiscal challenges and not slaying the deficit too quickly to dramatically undercut the economic expansion,” they added.

Mr. Fedeli was correct when he said “we have developed a reasonable path to balance.” But so, too, was New Democratic Party Leader Andrea Horwath when she warned that cuts to social services and Indigenous Affairs will hit Ontario’s most vulnerable.

Add to Ms. Horwath comments those from Legal Aid Ontario, whch bemoaned hefty cuts and warned that “the reductions will have a significant impact on vulnerable Ontarians who require legal assistance and have no other means of obtaining it.”

Not to be lost here is a day care tax credit and a small amount to help fund dental care for low-income seniors.

That credit, though, could have an unintended consequence, warned Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist, and BMO senior economist Robert Kavcic.

Clearly there’s a focus on low-income households which, with the federal child benefits introduced a couple of years ago, add meaningful benefits,” they said.

“However, with benefits fully phased out up the income scale (at both levels of government), the incentive for higher-educated professionals to participate in the work force could be reduced.”

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Chevron strikes Anadarko deal

Chevron Corp. unveiled a megadeal in the energy patch, striking an agreement to buy Anadarko Petroleum Corp. for US$33-billion in stock and cash.

Anadarko shareholders would get 75 per cent stock and 25 per cent cash, for what the companies said would be an overall value of US$65 a share.

Chevron is also taking on an estimated US$15-billion in debt.

“The combination of Anadarko’s premier, high-quality assets with our advantaged portfolio strengthens our leading position in the Permian, builds on our deepwater Gulf of Mexico capabilities and will grow our [liquid natural gas] business,” Chevron chief executive officer Michael Wirth said in announcing the deal.

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Markets at a glance

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JPMorgan, Wells Fargo profits rise

JPMorgan Chase & Co. kicked off first-quarter reporting season among the major U.S. banks with a record profit and jump in return on equity.

JPMorgan profit climbed in the quarter to US$9.2-billion, or US$2.65 a share, from US$8.7-billion or $2.37 a year earlier.

Return on common equity rose to 16 per cent from 15 per cent.

“Even amid some global geopolitical uncertainty, the U.S. economy continues to grow, employment and wages are going up, inflation is moderate, financial markets are healthy and consumer and business confidence remains strong,” chief executive officer Jamie Dimon said, citing record revenue and profit.

Separately, Wells Fargo & Co. also posted a jump in first-quarter profit to US$5.9-billion, or US$1.20 a share, from US$5.1-billion or 96 US cents a year earlier.

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Ticker

Home prices slip

Canadian home prices fell in March for the sixth straight month as most major markets weakened, according to the Teranet-National Bank house price index, Reuters reports.

China exports perk up

China’s exports rebounded in March but imports shrank for a fourth straight month and at a sharper pace, painting a mixed picture of the economy as trade talks with the United States reach their endgame, Reuters reports.

Required Reading

Banks prepare for Brexit

Canada’s big investment banks are preparing for the possibility of a worst-case Brexit scenario, with some taking steps to bolster their Dublin offices in case Britain is not able to strike a deal with the European Union before the new Halloween deadline. Alexandra Posadzki reports.

Middle class squeezed

The middle class is shrinking across the developed world, according to a new report from the Organization for Economic Co-operation and Development. For Prime Minister Justin Trudeau’s Liberals or any future Canadian government, Ian McGugan writes, this is both an opportunity and a challenge.

Manulife in executive shuffle

Manulife Financial Corp. is eliminating its chief operating officer role as it redraws reporting lines for seven key divisions, according to people familiar with the matter. James Bradshaw, Clare O’Hara and Tim Kiladze look at what’s happening at the big insurer.

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