Top of the Morning

A key milestone has just been reached in the Canadian advertising market, writes The Globe and Mail’s Lisa Ostrikoff, and it’s all thanks to you:

It’s taken two decades, but the time has finally arrived: Canadian advertisers now spend more on digital ads than they do on print, radio and television, according to a new report from IAB Canada.

Digital ad revenue in the country jumped 14 per cent last year to $3.5-billion. And there are no signs of this trend slowing down…

One of the beautiful things with digital is that it’s easy to target your exact demographic, and measure your results so there is no questioning where every ad dollar is going.

This is the one core area which traditional advertising cannot compete with – and why we’ll see more ad dollars shifted to digital for years to come.

On the Homefront

TSX 60 futures are virtually flat ahead of the open as the composite index looks to snap a four-session losing streak.

 

The yield on the five-year Government of Canada bond edged downwards overnight to hover at 1.65 percent.

 

The Canadian dollar is tumbling, dipping below 90 cents against the U.S. greenback this morning.

 

BoC’s Lane on the loonie. In his speech on Wednesday, Bank of Canada Deputy Governor Timothy Lane suggested that the end of quantitative easing was putting downward pressure on the value of the Canadian dollar relative to the U.S. greenback. However, while Fed’s reduction in bond-buying may have helped fuel the 10-cent decline seen since the beginning of 2013, the ‘tapering’ of asset purchases south of the border has long been priced into the market. Going forward, what’s more likely to drive the pair from a monetary policy standpoint is the extent to which the interest rate differential between the two central banks narrows. The Bank of Canada’s overnight rate is at 1 percent, while the U.S. central bank’s federal funds rate is set between a range of 0 to 0.25 percent. CIBC believes the gap between the two central banks will be completely eliminated next year, and projects the loonie will fall to 0.85 USD by the end of the second quarter as a result of this convergence.

 

Harper on the budget, Keystone, and the housing market. In an expansive interview with The Wall Street Journal’s editor-in-chief Gerald Baker in New York City, Prime Minister Stephen Harper shared his thoughts on the state of the nation’s finances, a controversial pipeline that’s weighed on U.S.-Canada relations, and whether Canadian home values would experience a U.S.-style crash. The prime minister says Canada is “very close” to eliminating its budget deficit in the current fiscal year and thinks that the approval of Keystone XL was inevitable in light of the mutually beneficial nature of the project. When it comes to the real estate market, Harper opined that a Canadian housing crisis is “not going to happen.”

 

Valeant Pharmaceuticals managing expectations to perfection. Shares of Valeant Pharmaceuticals (VRX) gapped higher on Wednesday and ended the day up 7 percent on the TSX. In an exchange of letters between Valeant CEO Michael Pearson and his counterpart from Allergan, David Pyott, the leader of the Montreal-headquartered company said his firm’s Q3 results would surprise to the upside. “We expect our results to be better than consensus on revenue, and better than the guidance we provided in our second quarter earnings call for Cash EPS, organic growth, restructuring charges and adjusted cash flow from operations,” he wrote. Many commentators had asserted that the Canadian pharma giant was looking to acquire the Botox maker as soon as possible because its upcoming reports would show that the company’s performance was deteriorating. Based on this news, in particular, the double-digit growth expected from its Bausch & Lomb segment, that does not appear to be the case. That’s the business unit that Valeant said will serve as the model for the integration of Allergan, if it were to occur. Certainly, the Canadian pharma giant is doing a fine job of managing expectations. The stock slumped after management lowered its full-year guidance in its Q2 earnings report, released at the end of July, while this de facto boost to Q3 guidance has given shares a big shot in the arm as we inch closer to the December 18 special meetings of Allergan shareholders that will likely determine the fate of Valeant and Ackman’s hostile takeover attempt.

 

How’s Canada’s labour market really doing? While the Labour Force Survey (LFS) released on the first Friday of the month gets all the attention, the Survey of Employment, Payrolls, and Hours (SEPH) also provides a perspective on job growth in Canada. The SEPH, unfortunately, is rather stale – this morning’s reading will be for July, while Statistics Canada has already published August’s LFS – and as such, arrives to little fanfare. However, these metrics have told slightly different stories about what’s transpired in Canada’s labour market this year. If you look at the LFS, employment has been stagnating, trending marginally higher. Conversely, the SEPH shows that the labour market is bouncing back from a poor start to the year:

The major differences between these two metrics: the LFS is a survey of households, whereas the SEPH is based on administrative files from employers. In addition, the latter excludes certain categories, such as agriculture and fishing, as well as many instances of self-employment.

Daily Dispatches

The euro is plumbing two-year lows against the U.S. greenback on the heels of dovish comments made by European Central Bank Mario Draghi, who indicated that policymakers are willing to boost the level of stimulus if warranted. Poor data flow – like Italy’s unexpected dip in retail sales for July – and a drop-off in inflation expectations justify the current use of unconventional monetary policy from one of the world’s largest central banks, and has opened up opportunities for investors. “Trading the ever-diverging paths from the major G10 central banks has been one of the most successful thematics that have played through the markets for the last couple of months,” writes IG chief market strategist Chris Weston. “Fundamentally, this divergence doesn’t look like disappearing anytime soon. In fact, in the case of Europe it looks like the trade may still be in its infancy.” Another FX and rates trader pointed out, inflows from outside the euro zone into the area’s equities and bonds have tumbled, yet another source of downward pressure on the continent’s currency.

 

New Zealand’s central bank governor has no qualms about jawboning his currency. In a statement, Graeme Wheeler said the level of the New Zealand dollar was “unjustified and sustainable” – remarks that stand in stark contrast to Governor Stephen Poloz’s pronouncement that a floating loon and a floating loonie were things of beauty. The kiwi proceeded to crumble following Wheeler’s comments.

 

A pair of economic releases are due out of the United States this morning, with last week’s initial jobless claims and durable goods orders for August due out at 8:30am (EDT).