How large will the election-year surplus be?

Your top financial and economic news for Nov. 12


Over at Worthwhile Canadian Initiative, Stephen Gordon has penned a very worthwhile read. Canadians shouldn’t be worried about over-reliance on natural resource extraction, he writes, it’s the “manufacturing trap” that should be cause for concern:

Protectionist policies for manufacturers and a home-grown – but curiously not exportable – theory that equates a large manufacturing sector with economic development dominated Canadian economic policy for more than a century. Does anyone remember any political party campaigning for a “National Policy” (sic) to defend the natural resource industry? Me neither. In fact, the ‘manufacturing trap’ story probably fits the facts better than that of the staples trap…

Indeed, the enthusiasm with which governments are willing to throw public funds at manufacturing firms is the strongest evidence of a manufacturing trap.

On the homefront

The TSX is in the midst of a five-day winning streak, with Tuesday’s gains driven by a rebound from the battered miners, particularly those who produce gold. The price of bullion surged nearly $20, and stocks who dig up the commodity rose in tandem with the shiny metal. Since last Wednesday, Energy has been the best-performing sector as WTI crude oil has moved off a four-year low. TSX 60 futures are moving lower ahead of the open.
The Canadian dollar is building on Tuesday’s advance, rising to 0.884 against the greenback early this morning.


Just how big will the election-year surplus be? During a speech in Toronto early this afternoon, Finance Minister Joe Oliver will deliver the fall fiscal and economic update – a document which is expected to provide a fresh estimate of just how large next year’s surplus will be. Much has been made of the impact the lower oil price will have on the federal government’s revenues. The Parliamentary Budget Officer’s report that called for a small surplus in this fiscal year forecast that the price of WTI crude would remain around $90 (USD) over the projection horizon; it’s currently lingering below $80. However, the fall in the loonie has cushioned the blow for domestic oil producers (in Canadian dollars, the price per barrel hasn’t taken a huge hit), and if this persists, may well do the same for Ottawa. The government’s fiscal position has changed substantially since that report was issued, as a suite of measures (in sum, a small increase to personal income taxes beginning in fiscal 2015 and a sizeable increase in spending) were announced on October 30.


Earnings. Loblaw (L) posted adjusted earnings per share of $0.90 in the third quarter, three cents above the consensus estimate, with same-store sales up 2.6 percent. EnCana (ECA) reported operating earnings that came in slightly below analysts’ expectations as production was lower than anticipated, but management stressed that the firm was two years ahead of schedule on reaching its 2017 targets.


A perfect political storm could see Keystone XL approved in the Senate soon. Bloomberg reports that Senate Democrats are thinking about voting in favour of the controversial TransCanada (TRP) pipeline in order to improve Mary Landrieu’s chances in an election scheduled to take place in early December. But don’t get too enthusiastic: it’s uncertain that such a vote would be anything more than symbolic, as President Barack Obama can still veto whatever measure is approved the Senate, and its passage – or whether such a vote even occurs – is no sure bet.

Daily dispatches

A potentially historic agreement between the world’s two biggest economies (and carbon emitters) has been unveiled. The United States has committed to bringing emissions by 26 to 28 percent below levels seen in 2005, while China pledges to have its carbon emissions peak by 2030. Mother Earth might be breathing a sigh of relief due to this announcement but it’s likely she’ll hold her breath, as such promises are easier made than kept. Moreover, this deal is no panacea when it comes to dealing with climate change, though it’s certainly a step in the right direction.


The Bank of England’s Mark Carney struck a decidedly dovish note, slashing its growth and inflation forecasts. Monetary policymakers believe it’s likely that inflation will dip below 1 percent over the next six months, and won’t reach the 2-percent target until the end of 2017. The cable (the British pound relative to the U.S. greenback) hit the skids as traders digested this update and commentary from the governor.


There are conflicting headlines coming out of Japan about whether Shinzo Abe is preparing to move to dissolve the Diet (the nation’s Parliament) and call a snap election for December as he looks to delay the implementation of another sales tax hike. Such a decision would likely increase the sitting prime minister’s support and foster further weakness in the yen, CIBC’s head of currency strategy Jeremy Stretch told Reuters. “This news saw USD/JPY surge through ¥116.00 and in turn saw the Nikkei trade at a seven year high,” writes IG market strategist Stan Shamu. “Some of these gains reversed through Asian trade after Japan’s Chief Government spokesman denied reports around the sales tax hike delay.”

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