Say hello to budget week

April 20: Prepare yourself for the federal budget. Plus, Mobilegeddon, a party on the Chinese markets, and the economics of marijuana


MORNING-PLAYBOOK-STORYAfter last week’s barrage of central bankers and IMF meetings, this week is all about budgets – that is, the federal budget – and earnings, as major companies (from Google to IBM to Canadian Pacific) begin reporting their latest results this week.

There’s little on the economic calendar today, besides a speech from Bank of Canada governor Stephen Poloz in New York (he’ll be speaking again in Washington on Friday). The federal budget, delayed on volatile oil prices, will be released tomorrow, and Thursday will bring news of Ontario’s budget. In the U.S., this week’s events are home price data on Wednesday, and then real GDP for the last quarter on Thursday. There will also be some big earnings reports today, including from Rogers, Canadian National Railway and Morgan Stanley. However, analysts have warned to take a handful of salt with any reports of earnings “beating expectations”: amidst questions on the pace of growth, expectations have been set unusually low. Meanwhile, oil prices are rising this morning, currently sitting above $56.

The TSX is starting the week down, after a rally turned slightly sour as the current cocktail of international events – from constant evidence of China’s slowing growth, to growing worry over the fate of Greece in the eurozone – chipped back global markets on Friday. This morning, China has announced more monetary stimulus, and ECB president Mario Draghi ended the week by attempting to reassure the doubters that the ECB can deal with Greece, partly as the latest stimulus program seems to have given the zone some economic hope. But he noted that if the situation goes further downhill, as it well might, they are entering “uncharted waters.”

The Canadian economy check-up. There’s no better time for a check-up than the day before the federal budget is released, and Friday brought with it plenty of numbers to look into. The highlights: the latest release of inflation data showed prices are picking up – the “core” index, which excludes more volatile items like gas, was up 2.4 per cent in March, above the Bank of Canada’s two per cent target, hitting its highest point since 2008. General inflation, which has been hit heavily by oil prices, was 1.2 per cent in the year to March, up from one per cent the previous month. Meanwhile, retail sales got a bump, increasing by 1.7 per cent last month. The loonie, for its part, was swinging more than a cent during the day on Friday, heading up to almost 83 cents before dropping back under 82 cents at closing. Given that analysis of the Canadian economy has largely been doom-and-gloom lately, what are we to make of all this? Conventional logic says a faster pace of inflation means a hike in interest rates – but, as Kevin Carmichael points out for Maclean’s, that’s clearly not the case today. Kevin spoke to Stephen Poloz in Washington about why our assumptions for how to read economic data may no longer hold. “The fundamental forces on inflation are downward, not upward,” Poloz said, noting there are misleading signals in the data. The inflation increase could be driven by higher import costs due to the strength of the greenback – which wouldn’t reflect an underlying strength in the Canadian economy – but then again, the strength of the “core” rate also suggests that increasing prices are widespread, and the economy could be a bit stronger than it has lately seemed.

Mobilegeddon is coming. Whatever could Mobilegeddon be? The ability to only speak to your close friends and family via your smartphone? Your smartphone’s ability to track your every word and movement? A sudden inability to pay for anything using cash, or get anywhere with only a physical map? No: this goes a little further than that. From this week, Google will change their search algorithms to give a higher ranking to mobile-friendly sites. And because many sites live or die on Google algorithms, this is a big, big deal. The twist? Last week brought news that the European Commission is slapping Google with anti-trust charges for allegedly using the search engine to give precedence to their own services – and the Commission does not have a mobile-friendly website. They’re not the only one: Microsoft is also lacking a mobile-friendly website. Google warned a couple months ago that the change would occur, but this highlights the power Google has to determine what information will be (easily) found, and when: so when Google says jump, you call the web developers. In other big-tech news, the WSJ reported Canada’s “Big Six” banks are going up against Apple in negotiations over bringing ApplePay, the company’s mobile-payment system, to Canada. 

Fighting slowing growth, China cuts their bank reserve requirement. Every week brings more news of a slowdown in Chinese factories, and the PBOC has been responding with lowered expectations, and two general rate cuts this winter alone. Now the central bank has offered stimulus once again, cutting the bank reserve requirement by one per cent (to 18.5 per cent.) Is the purpose to unleash more credit? Not everyone agrees: Reuters notes that many banks have been reluctant to lend more, and the move may be partly intended to cushion the blow of currency leaving the country (capital outflows). Last week, official reports said Chinese GDP grew seven per cent in the first quarter, which hit the Chinese government’s (lowered) expectations for growth. Meanwhile, Chinese equity markets in Shanghai and Hong Kong spent some of last week on benders, hitting new highs on an influx of money from mainland retailer investors (i.e., regular people), many of whom appeared to be investing on borrowed money. In response, the Chinese regulator warned investors about borrowing to buy, prompting worries over a wave of sell-offs on a very heated market. So far, that sell-off hasn’t materialized: on news of the PBOC stimulus, the Shanghai Composite spent today partying – with trading volume 113 per cent above its already-excited average. At the same time, the WSJ reported that the same regulator is considering allowing mainland investors easier access to Hong Kong, a channel for cash which has traditionally been tightly restricted – a move could boost the Hang Seng still further.

The economics of 4/20. It’s April 20, the unofficial day of marijuana – and, therefore, a day to examine the economics of the world of weed. For the occasion, Bloomberg has drawn up a list of public companies that are based largely around marijuana, from pharmaceutical companies to growers, who have been fuelled by the legalization of recreational cannabis by Colorado and Washington in 2014. Are they a good investment? Well, they’re volatile, as Bloomberg points out, but with a potential wave of legalization across several U.S. states, this could be a growth industry. In Canada, at least one city is seeing the economic benefits of industrial-scale weed: Nanaimo, B.C. The Vancouver Island city is home to the Canadian branch of an American “cannabis conglomerate,” and the company is now the city’s fourth-largest employer – a bigger source of jobs than Sobeys.

Need to know:
TSX: 15,360.55 (-26.22), Friday
Loonie: 81.78 (-0.32), Friday
Oil (WTI): $56.14, Monday (4 a.m.)


Say hello to budget week

  1. Canada punishes investors, savers, pensions with lower value money, below world returns, tax us on value losses when you use USD or Yuan currencies as the metric. And politicians wonder why I now invest more outside of Canada than in Canada. Yep, more than 75% invested outside of Canada….. as the politicians lie to the masses.

    Going to lie about taxes, as GST/tariffs are a lot more on (1.00/0.80) 25% more when we buy produce, imported stuff, so tax greedy Ottawa CBSA does tariff tax on healthy foods and basic clothing, and them taxes are up 25% just from devalued money, inflation and GST/PST extra. But they will lie and say taxes didn’t go up but media should ask, hidden taxes, $45+ billion a year did go up. Its why many items including staples like beef, chicken, cheese, butter be 2-3 times the price in Canada than USA.

    More lies in tax table creep. Basic deductions, all either unchanged or up only 0.9% — far below any inflation stated including REAL inflation. But hey, its about lies, decpetions to keep people stupid about what is really going on, the disposable income of the middle/lower class is getting smaller.

    Hey, politicians and govmint unions pension 55 can split and do pension deduction amounts, its a subtle hole in how pensions, RRSPs, LIFs are classified giving retired 55 politicians/unions a break.

    Reason they want lower LIF withdrawls is BS too. What is taxed at a higher rate on death, $50,000 in LIF+RRSP or $500,000??? Fact is the alter will see 42% or more!!!! More you have in pensions, the more money govmint gets in the end. Its all about tax greed.

    Shafts seniors, disabled too with TFSA. Why can seniors not contribute say back 30 years? Do like Americans, a IRA to ROTH conversion, but we can’t do a RRSP/LIF to ROTH???? But hey, its all about tax greed and statism.

  2. Devalued money for govmint debt no legitimate investor buys is a tax. Canada was devalued (1.00/0.80) 25% in the last two years. If you invested $1,000,000 USD (or Yuan equivalent) 2 years ago, you would only have $800,000 principle today.

    I call it a hidden cumulative inflation tax. Maybe media should challenge Ottawa’s statements on inflation.

    And say you invested $1M in Ontariowe 2 years ago, say you made $5,000 on the million, you would be taxed on it, even though you lost $200,000 to currency.

    And if you invested in USA, well, you pay 25% more taxes on dividends and gains.

    But hey, Ottawa is about deception, lies and using taxation as slavery. In fact, its the only option on the ballot, more govmint, less for the people. Tax me more, I will spend less on someone else’s job and govmint can pretend to fix the problem it created. After all, its fantasy land Ozawa….

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