Top of the Morning

In a special for The Globe and Mail, Gregory Thomas, federal director of the Canadian Taxpayers Federation, gives the government some advice on how to spend its surplus:

If only families with children are going to get tax cuts, then income splitting comes second in the survey as the best way to do it. The preferred option is extending the child care deduction.

The reason is simple. The current income-splitting proposal fails the fairness test in many ways. Single parents would get no tax relief. Families with one 17-year-old and one high-earning parent would get far more tax relief than average-income couples with four pre-schoolers at home.

There is a better option. Parents can already deduct $7,000 for daycare, babysitting or camp costs for children aged under 7 and $4,000 for kids aged under 17.

Pushing that deduction limit to $10,000 would help every parent – including single parents. If the government allowed a working parent to pay their stay-at-home partner and claim the deduction, it would level the playing field for everybody.

On the Homefront

TSX 60 futures are falling ahead of the open after the composite index suffered a large loss last week.

 

The yield on the five-year Government of Canada bond is drifting lower to trade around 1.63 percent.

 

The Canadian dollar is stuck just below 0.90 against the greenback this morning after getting whacked last week.

 

EnCana makes major acquisition. EnCana (ECA) announced its intention to purchase Althlon Energy in a deal valued at $7.1 billion (U.S.), with management planning to invest $1 billion in these assets to more than double the amount of production rigs by year-end 2015. Many had speculated that the company, which is flush with cash following its two-part sale of PrairieSky (PSK), would deploy some of those funds in an acquisition – and that is indeed the case.  EnCana expects that this acquisition will boost production by 30,000 barrels of oil equivalent per day. The purchase of this Texas-based company is another step in EnCana’s shift to make its production profile more towards oil. “This transformative acquisition further accelerates our strategy and provides us with a prime position in what is widely acknowledged as one of North America’s top oil plays,” said CEO Doug Suttles. A previous press release indicated that a webcast, which includes a slide presentation, will begin at 8:00am (EDT).

 

Trading fees tumbling across the board. The Globe and Mail’s Tim Kiladze details the “all-out online trading price war” that’s well underway in Canada. Qtrade is undercutting some of Canada’s biggest banks by charging a flat rate of up to $8.75 per trade, compared to $9.95 at Royal Bank, TD, and Scotiabank. If you’re a frequent trader, this will help diminish the effect of transaction fees on your total returns.

 

Food processing company shuts down plant in New Brunswick. On Friday, Maple Leaf Foods (MFI) announced that it would be closing a plant in Moncton that had been in operation for nearly 50 years. This move comes as part of a planned restructuring that will roughly half its number of meat plants, and will impact 100 jobs. However, this closure may not result in a net 100 job losses across Canada, as Maple Leaf has transferred production to other facilities in Winnipeg, Saskatoon, and Hamilton.

 

Sears Canada shelled on Friday. Shares of long-struggling retailer Sears Canada (SCC) cratered to end last week, plummeting 16.9 percent on Friday. The cause of the crash? The New York Post reported that the company was considering filing for bankruptcy, and contacted a law firm to discuss this matter. Though Sears Canada denied that there was any truth to these rumours, the speculation clearly weighed on the stock. Sears Holdings announced that it was exploring strategic alternatives for its Canadian subsidiary earlier in the year, but has not had much success finding a suitor.

Daily Dispatches

Scenes of havoc are unfolding in Hong Kong, where pro-democracy protestors have gathered in droves and largely held their ground despite the use of tear gas and pepper spray employed by the authorities. Residents are livid over China’s decision to allow them to vote for a leader in 2017 – but only from a list of candidates approved by the Communist party. These protests have effectively shut down some areas of the former British colony, and sparked a sell-off in the Hang Seng index.

 

The U.S. dollar index rose to its highest level in more than four years on Sunday evening, as the prospects for the Federal Reserve to begin raising rates in early-to-mid 2015 have traders flocking to the greenback. Fixed income portfolio manager David Schawel notes that, based on the latest Commitment of Traders report, speculative USD long positions are at a 20-year high.

 

A double dose of U.S. economic data is on the docket, with August’s PCE price index and pending home sales due out at 8:30am (EDT) and 10:00am, respectively. The former – the Fed’s preferred gauge of inflation – is the more important of the two, and is expected to show a moderation in inflation that provides all the necessary cover for monetary policymakers to keep rates at ultra-low levels for the time being.

 

An update on the state of the Japanese economy is coming this evening, with the most recent prints on employment, household spending, industrial production, housing starts, and retail sales scheduled to be released. Policymakers are currently divided on whether the next hike to the sales tax, pencilled in for October 2015, needs to be delayed in light of how poorly the economy has performed since the tax was last raised in April.