Briefing highlights
- Don’t talk smack about Canada: Société Générale
- Stocks, loonie, oil at a glance
- Brexit fears whack Britain’s pound
- Huawei revenue rises despite blacklist
- Bank of Japan holds steady
- Air Canada posts better-than-expected profit
- Apple earnings in spotlight
- Required Reading
Watch what you say
U.S. President Donald Trump has refrained from talking smack about Canada for a while now.
And he should keep it that way if he wants to hold down the U.S. dollar, a big foreign bank advises.
He should watch how he treats Mexico, Europe and China, too, Société Générale says, citing countries that are now more likely targets than Canada. Indeed, Washington is now embroiled in a trade war with Beijing, with talks to resolve the battle resuming this week.
Of course, Mr. Trump is never one to hide what he thinks and, with that in mind, it’s important to note that the new trade agreement between Canada, the U.S. and Mexico has yet to be ratified.
Mr. Trump has complained about other countries manipulating their currencies, and has said the U.S. dollar is too strong.
Thus, Société Générale’s Kit Juckes said, he should watch how he treats America’s major trading partners lest he help weaken their currencies.
“The message to President Trump might be to be careful about how he treats the U.S.’ biggest trading partners,” said Mr. Juckes, a global fixed-income strategist.
“If he wants a weaker dollar, it would help enormously to avoid further weakness for the MXN, CAD, EUR or CNY,” he added, referring to Mexico’s peso, the loonie, the euro and China’s yuan by their symbols.
Mr. Juckes looked at the real effective exchange rates of those four major trading partners.
“The [U.S.] dollar has risen a lot since 2011, but it’s the Canadian dollar and Mexican peso that have really weakened,” Mr. Juckes said.
Remember, too, that the Federal Reserve is poised to begin cutting interest rates, likely as early as Wednesday. The Bank of Canada holding firm in the face of that should prop up the loonie.
“If we think the dollar is too expensive and at risk from both from an easing Fed and from the president’s rhetoric, what can we reasonably buy?” Mr. Juckes said, citing two currency pairs worth looking at.
“One is to remain short EUR/JPY because in relative terms, the euro curve has repriced more than anyone else’s and the [European Central Bank] is still trying hard to keep alive expectations of further easing,” he added, referring to Japan’s yen by its symbol.
“From very low (very negative) rates, incremental falls may be more powerful. The second is USD/CAD, because Canadian and U.S. rates are beginning to diverge.”
For the record, some observers see the loonie rising but destined to fall again.
“Our outlook for the Canadian dollar has it appreciating over the remainder of this year, reaching 1.28 versus the dollar by the first quarter of 2020, as the Fed trims rates a couple of times while the Bank of Canada remains on the sidelines,” CIBC World Markets senior economist Royce Mendes and economic analyst Taylor Rochwerg said in a recent report, that 1.28 meaning a loonie at just over 78 US cents.
“That said, we still believe the longer-term trend in CAD is towards further weakness, given the economy’s international competitiveness issues,” Mr. Mendes and Ms. Rochwerg added, projecting the Canadian dollar will tumble to about 72.5 US cents by the end of 2020.
And that, they said, has some people questioning if such wide swings are even likely.
“Looking at the past 20 years of data, not only are such swings possible, they are actually the norm,” Mr. Mendes and Ms. Rochwerg said.
“The average difference between the minimum and maximum value of the Canadian dollar over any 12-month period is 15 cents. It’s the lack of volatility in the past year that’s so unusual.”
Read more
- Trump pushes for a significant rate cut ahead of Federal Reserve meeting
- If it looks like a currency war, and quacks like a currency war, it’s still not necessarily a currency war. Yet
- How the U.S. and China are suppressing Canada’s economy (and why the central bank is so perturbed)
- How the ‘trade war premium’ is impairing the Canadian dollar
- U.S. Congress and Trump administration moves closer to new NAFTA with Mexico and Canada
Markets at a glance
Read more
Pound stumbles
Britain’s pound continues to take it on the chin amid fears that the country is headed for a hard Brexit with no deal with the European Union.
“It is clear that the new U.K. government has taken the calculated decision to up the ante on the EU, at the expense of the exchange rate, in order to try and drive further concessions from a Europe that is already struggling with significant economic weakness, and whose exports into the U.K. will now become much more expensive,” said CMC’s Mr. Hewson said.
“There appears to be a calculation being made that rather than risk a no-deal, that both parties will come to a solution which prevents a shock dislocation which could ripple out across Europe.”
Read more
Huawei revenue rises
Huawei Technologies Co. posted a 23.2-per-cent jump in revenue in the first half of the year, even as the Chinese company lamented a recent U.S. blacklist.
“Revenue grew up fast through May,” chairman Liang Hua said in unveiling the results.
“Given the foundation we laid in the first half of the year, we continue to see growth even after we were added to the entity list,” he added.
“That’s not to say we don’t have difficulties ahead. We do, and they may affect the pace of our growth in the short term.”
Huawei’s net profit margin for the period was 8.7 per cent, the company said.
Smartphone shipments rose 24 per cent from a year earlier to 118 million.
Read more
BoJ holds firm
The Bank of Japan held firm today, though stressed it was ready to do whatever’s needed whenever it’s needed.
“We continue to believe that the BoJ will not act until 2021, which includes taking into account the time needed for businesses and households to recover from the consumption tax hike,” said analysts at Société Générale.
“However, in light of central banks becoming dovish globally, the BoJ could extend its forward guidance, indicating that it will remain on hold for longer than the current ‘at least around spring 2020.’”
Ticker
Air Canada posts better-than-expected profit
From Reuters: Air Canada reported a higher-than-expected profit for the second quarter, as the carrier flew more high-paying passengers, helping it weather the initial impact of the Boeing 737 Max grounding.
Procter & Gamble beats estimates
From Reuters: Procter & Gamble Co.’s quarterly revenue and profit beat Wall Street expectations, boosted by price hikes and strong demand for its beauty products such as SK-II and Olay.
U.S. consumer spending up modestly
From Reuters: U.S. consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation that could see the Federal Reserve cutting interest rates on Wednesday for the first time in a decade.
Hong Kong protests take economic toll
From Reuters: Months of increasingly violent protests in Hong Kong are taking a growing toll on the city’s economy, weighing on confidence and scaring away tourists from one of the world’s most vibrant shopping destinations.
BP beats estimates
From Reuters: A strong rise in oil and gas production helped BP offset weaker crude prices and refining profit to again beat profit expectations.
Mastercard tops estimates
From Reuters: Mastercard Inc. beat Wall Street estimates for quarterly profit, as a robust economy encouraged customers to spend more, boosting fee income for the world’s second-largest payment processor.
What to watch for today
Apple Inc., reports quarterly results, and those earnings are always a market event.
“The smart phone market continues to be the main money spinner for Apple, however if Samsung’s latest numbers are any guide Q3 could see a significant slowdown in demand,” said CMC Markets chief analyst Michael Hewson.
“A slowing Chinese market, and a reluctance on the part of iPhone users to upgrade already very expensive models, could see the company struggle to meet expectations, though the Indian market could help pick up the slack now that Apple has ceased selling its lower-price models there.”
Also helping could be recent upgrades to the iPad and Mac, he said.
Required Reading
The Refinitiv deal
Blackstone Group Inc. and Thomson Reuters Corp. will have doubled the value of their equity in Refinitiv Holdings Ltd. in just 18 months if a takeover of the financial data provider by London Stock Exchange Group PLC is completed. Jeffrey Jones reports.
Ottawa fires back
The federal government has fired back against airlines in a legal battle over its new passenger rights law, saying it has the authority to make rules on how the carriers deal with delayed customers, cancelled flights or lost baggage, Eric Atkins writes.
Rogers taps new media chief
Rogers Communications Inc. has tapped former Facebook Canada executive Jordan Banks to lead the company’s media division, Christine Dobby reports. Rogers Media president and long-time Canadian television executive Rick Brace is set to retire at the end of the year, and Mr. Banks will join the company on Sept. 9.