Briefing highlights
- What's next for stocks, loonie?
- Global markets mixed so far
- Loonie well below 75 cents
- TD raises dividend, profit climbs
- Canadian Natural profit jumps
- GDP expands 2.6% in fourth quarter
“There are no signs of anxiety in the market.”
Ipek Ozkardeskaya
The Dow Jones industrial average is above 21,000, and the Canadian dollar below 75 cents U.S. Which begs the obvious question: What comes next?
“There are no signs of anxiety in the market,” said London Capital Group senior market analyst Ipek Ozkardeskaya.
Which may be somewhat surprising given that President Donald Trump has yet to provide real details of his fiscal and economic program, and analysts far and wide are warning that stocks are overdone and possibly headed for a fall.
For now, though, investors are riding a wave of optimism, and the U.S. dollar is firming, over Mr. Trump’s spending plans and Federal Reserve signals that the economy is on the upswing, so much so that it may raise its benchmark rate again in a couple of weeks.
As for the Canadian dollar, it’s being held down by the prospects of a March 15 Fed rate hike and a dovish Bank of Canada.
The divergence between the two central banks is U.S. dollar-friendly and loonie-unfriendly. And don’t expect the Bank of Canada to go out of its way to upset that thinking as it counts on a lower currency to help buoy exports.
“Our three-month outlook for the Canadian dollar is rather soft,” Ms. Ozkardeskaya said.
Global markets were mixed Thursday, and the loonie traded at a low of 74.66 cents and a high of 75.05 cents.
So what comes next? Here’s what observers are saying:
Stocks
“While the pledge to spend $1-trillion is a laudable one, a serious obstacle remains, namely that of the U.S. Congress, which still has to agree to a new debt ceiling limit by March 15. Once again markets are looking at this through rose-tinted glasses, expecting that a Republican-controlled House will simply wave this through, while we still have little in the way of details in terms of tax policy.” Michael Hewson, CMC Markets
“The promise of a $1-trillion infrastructure spending spree crushed any fears that we could see the Trump rally come under pressure. The winners from Trump’s recent appearances are clear: Deregulation of financial services, a 10-per-cent rise in military spending, and $1-trillion towards infrastructure projects all provide significant opportunities for U.S. firms.” Joshua Mahony, IG
“We are of the view that most of the increase in risk asset prices since the second half of 2016 gets fundamental support from the global profit recovery and acceleration in global economic data ... However, we remain concerned that a tipping point in earnings momentum might well be reached within the next three to six months, which could add significant market volatility.” Luc Vallée and Eric Corbeil, Laurentian Bank Securities
U.S. and Canadian dollars
“It is crystal clear that the BoC will keep its dovish stance in 2017. We do not expect any rate hikes this year. Therefore, the divergence between a more hawkish Fed and a clearly dovish BoC will remain supportive for a further depreciation in the loonie. We could see a further slide to 70 cents against the greenback over the next three months.” Ms. Ozkardeskaya
“The [U.S.] dollar has gained 1.8 per cent against the yen since two-year yields started really moving higher at the start of last week, but the weakest currency of all over that period is the Canadian dollar. If anything, [the U.S. dollar versus the loonie] looks too low relative to short-dated yield spreads, at the same time as looking too high relative to oil prices (and too high on valuations but that won’t matter).” Kit Juckes, Société Générale
“The BoC’s dovish skew is intended to keep Canadian yields and the loonie under pressure.” Benjamin Reitzes, Bank of Montreal
How markets ended Wednesday
TD raises dividend
Toronto-Dominion Bank capped first-quarter earnings season among the country’s banks with a dividend increase and stronger profit.
TD profit climbed to $2.5-billion, or $1.32 a share, from $2.2-billion or $1.17 a year earlier.
The bank’s quarter dividend will increase by 5 cents to 60 cents.
“We are pleased with our start to 2017,” said chief executive officer Bharat Masrani.
“Our focus on organic growth, combined with favourable market conditions this quarter, led to strong results in our retail and wholesale business segments on both sides of the border.”
Canadian Natural posts stronger profit
Canadian Natural Resources Ltd. is boasting a stronger fourth-quarter profit as it looks ahead to production increases this year.
Profit climbed to $566-million, or 51 cents a share, from $131-billion or 12 cents a year earlier.
Its annual loss was $204-million or 19 cents, narrower than the $637-million or 58 cents of a year earlier.
This year, the company said in a statement, will be “equally as transformational as Canadian Natural targets to deliver 6-per-cent production growth with a $3.9-billion capital program.”
GDP up 2.6%
Canada’s economy was chugging along at a better-than-expected pace in the final months of last year.
Gross domestic product expanded at an annual pace of 2.6 per cent, Statistics Canada said, as, among other things, businesses reduced their inventories and the housing market perked up.
The rate of growth was stronger than the 2 per cent generally expected by economists.
For the year, real GDP climbed 1.4 per cent.
“The future may be uncertain, but the recent past has been solid for the Canadian economy, with some messy details for the market to chew over,” said CIBC World Markets chief economist Avery Shenfled.
“Fourth-quarter growth topped expectations with a 2.6-per-cent gain, fueled by strength in household consumer spending, advancing at 2.6 per cent,” he added.
“But final domestic demand was weak, gaining only 0.4 per cent annualized, with outsized weakness in business capital spending. Inventories dropped, but there was a huge decline in imports, making net trade a positive contributor despite a lacklustre 1.3-per-cent pace to real exports.”