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An ‘atrocious’ first quarter for Canada?

March 30: Will March wrap up on a sour note? If the prediction from the Bank of Canada is right, some nasty numbers are coming down the pipe


 

MORNING-PLAYBOOK-STORY

“Atrocious” is a strong word – and it’s far stronger coming from the Bank of Canada governor Stephen Poloz, who by necessity tends to be careful with his words. Poloz sent out a warning on the impact of the oil rout in a Financial Times interview yesterday. We’ll see what a bad first quarter could mean today as the first GDP numbers from 2015 are released – Stats Canada will release January’s real GDP this morning.

The TSX/S&P Composite Index saw an almost 100-point gain yesterday, and while the gains were widespread, the biggest boost came from a pharmaceutical company takeover. They certainly didn’t come from BlackBerry – while a surprise profit saw shares get a boost on Friday, revenue numbers were below estimates, and the blowback was a 6.3 per cent fall in shares yesterday. The loonie also dropped almost 0.6 cents yesterday, and starts the day below 79 cents.

Today will be a busy day for Canada. Besides real GDP numbers for January, we’ll see New Brunswick’s budget, and the set of payroll, employment, earnings and hours for January from Statistics Canada. This means we can take a long look tomorrow at how the first month of the first quarter shaped up for Canada as oil prices continued to fall (note “atrocious,” below.) This morning, the U.K. announced that fourth-quarter GDP had been revised upwards, just in time for the general election in early May, and Germany pushed record unemployment even lower. Key inflation numbers and the jobless rate are also expected this morning from the eurozone.

An “atrocious” first quarter for Canada? Bank of Canada governor Stephen Poloz gave an interview to the Financial Times, published yesterday, talking about the impact the oil rout has had on the economy. The key line? “The first quarter of 2015 will look atrocious, because the oil shock is a big deal for us.” Poloz reaffirmed his belief that exports would help the economy rebound in the second half of the year, but said cutbacks by energy companies would weigh against the consumer benefits of lower oil prices. He also said the Bank, which has abandoned “forward guidance” – the explicit practice of giving a timeline for when rate hikes could come – could take the practice up again, along with asset buying, if needed. In January, the Bank made a surprise cut to the benchmark rate, down to 0.75 per cent, which Poloz has characterized as “insurance” on the impact of the oil crisis. Analysts are currently predicting a decline for January’s real GDP numbers.

Rumours, intrigue, markets, mergers. The big mover on the TSX yesterday was Catamaran Corp., a pharmaceutical benefits company, which gained nearly 25 per cent after news of a $12.8-billion (cash) takeover deal. The offer for the company, which largely works with employers on securing health benefits, comes from another health-services company, UnitedHealth Group. The same day, the Vancouver mining company Teck denied rumours it was weighing a merger with the London-based, Chilean mining company Antofagasta PLC, as reported by Bloomberg, which would have made it one of the world’s biggest copper producers. But as the Financial Post points out, both companies, while public, are tightly controlled by families – and neither have demonstrated any willingness to give up the reigns. Mergers and acquisitions, particularly in health care and telecoms, have been on a roll this year: the first quarter of this year saw more than $95 billion worth of health care deals, 70 per cent higher than last year, with real estate deals and telecoms the runners-up. 

Iran and the price of oil. This week, oil has been rising and falling on the potential outcome of negotiations between the U.S. and Iran on a nuclear deal, which could end sanctions and release up to a million barrels of oil onto the markets, according to the country’s oil minister. As the success of negotiations looked more likely yesterday, oil slipped for the third consecutive day, and when the chances of a successful negotiation seemed more likely, oil made advances. You may recognize the moral queasiness from last week’s announcement of Saudi air strikes in Yemen, largely perceived as being a proxy for conflict with Iran: on hopes they would result in a blockage in a choke point for oil transport, oil got a sudden boost. There’s another, long-term side to the story of Iranian sanctions, Iranian oil, and the impact of foreign oil companies. The country, OPEC’s fifth-largest producer, is believed to hold 10 per cent of the world’s reserves, with underdeveloped gas fields, and foreign companies could be eager to get back in on the prize, despite a long and violent history. The parent company of BP once controlled the country’s energy industry until it was nationalized in the 1950s, which eventually led to a Western-backed coup. In the mean time, U.S. reserves of oil are expected to hit another high.

The race to stream your music. Jay Z got a lot of famous friends – including Beyoncé, Rihanna, Kanye West, and Arcade Fire – together to announce a music streaming service called Tidal. Jay Z had already bought the service as part of Aspiro, a Swedish rival to the streaming service Spotify, and said he would make the streaming industry more friendly to musicians – partly through packages that are more expensive than their chief rivals – with no free streaming options to lure in subscribers. The service will also feature some albums from Taylor Swift, who removed all her albums from Spotify last fall over a dispute over streaming payments for artists. At the same time, Alibaba signed a deal with BMG, which will allow them to stream major artists like Bruno Mars and the Rolling Stones over their own streaming services. Although known for being a massive e-commerce retailer, Alibaba is also a major purveyor of digital music streaming in Asia.

Need to know:
TSX: 12,908.39 (+95.97)
Loonie: 78.78 (-0.59), Monday
Oil (WTI): $47.63, Tuesday (6 a.m.)


 

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