Good things gro-o-owing in Ontario, economists say

Your top financial and economic news for Sept. 17


France, the ‘sick man’ of Europe (or, if you prefer, the worst-performing organ on one of the sickest men in the world), isn’t on track to cut its deficit by as much as the European Union’s authorities desire. And, as Pierre Briançon of Reuters Breakingviews writes, that’s a good thing:

As the French prime minister brings his program to a parliamentary confidence vote, he faces both revolt from within his ruling Socialist Party and criticism from the conservative opposition. At least he is doing something on which everyone should agree: France won’t go all out to try to meet EU-imposed budget deficit targets…

Ignoring the targets for now makes sense. So the government will stick to the previously announced spending cuts – €50-billion ($71-billion) over three years, starting with €21-billion next year – without raising taxes to make up for the shortfall. A more austere budget would hit demand, send the economy into a tailspin and leave the targets even farther out of reach.

France must focus on convincing its European partners that it is serious about reform and intent on boosting growth. It should stop overpromising on austerity – which prevents both.

On the Homefront

TSX 60 futures are moving lower ahead of the open after the composite index booked a decent gain on Tuesday.


The yield on the five-year Government of Canada bond retreated marginally overnight to trade just above 1.69 percent.


The loonie is holding yesterday’s gains, trading around 0.912 against the greenback this morning.


Poloz pushes back against ‘loonie’ talk. In a speech delivered in Drummondville, the governor of the Bank of Canada pushed back against the tired trope that he has been actively seeking a lower loonie, insisting that “A floating loon is a thing of beauty, and so is a floating loonie.” Poloz engaged in a thought experiment to demonstrate why targeting a given level of the exchange rate would not be prudent. However, those comments did not touch on the last period when the Bank may have wanted to consider intervening to keep the loonie from appreciating too much. During the question-and-answer period, the governor highlighted the extent of the labour market slack that persists amongst youths and prime-age workers that is attributable to the recession. “That suggests there’s meaningful room for job growth before the economy runs into capacity pressures,” writes Bank of Montreal senior economist Benjamin Reitzes.


Lumenpulse founders cashing in on the company’s success. Late in the trading day on Tuesday, shares of Lumenpulse (LMP) were halted pending news. The LED manufacturer revealed that it had come to terms on a bought deal to add about 3.4 million shares to the public float. However, there won’t be any dilution as a result of this offering, as these shares are being sold by the founding members, including Chairman, President, and CEO François-Xavier Souvay, and key early stakeholders in the company. This secondary offering was priced at $19,50 per share, a 2 percent discount to where the stock was trading when it was halted. Canaccord Genuity and National Bank, the bookrunners for Lumpenpulse’s IPO, will also be underwriting this deal. The company’s IPO, which took place on April 15, was priced at $16 per share but ended its first trading day at $18.35. Shares rose above $23 during the summer but have been on a clear downtrend since late July.


Canadian division of U.S. Steel filing for bankruptcy protection. U.S. Steel Canada – which most in Hamilton still know as Stelco – has filed for creditor protection as it works to restructure its business. “U. S. Steel Canada has recorded a loss from operations in each of the last five years, with an aggregate operating loss of approximately $2.4 billion,” according to the press release. The parent company has agreed to finance current operations through 2015. However, “current operations” are but a shadow of what they used to be; the mill in Hamilton no longer produces steel, only coke. U.S. Steel has had its fair share of labour strife during its brief time as owner of this fomer Canadian steel giant, and more appears to be in the offing. The firm noted that its pension plans face a solvency deficiency of nearly $1 billion. The plight of U.S. Steel Canada is at odds with the resurgence of Canadian manufacturing, with sales rising to a record $53.7 billion in July (though lingering well shy of their peak when adjusted for inflation).


Good things gro-o-ow in Ontario. In a new report, CIBC’s Avery Shenfeld and Warren Lovely write that Canada’s most populous province “is poised to be the single biggest beneficiary from the combination of sturdy U.S. growth and a weaker Canadian dollar.” The economists are calling for above-average growth for Ontario in 2015. For cities in the long-struggling manufacturing heartland of Southwest Ontario – like London, which saw real GDP growth tick up from 0.6 percent in 2011 to just 0.8 percent in 2013 – these better times are sorely needed.

Daily Dispatches

Reviews for Apple’s new iPhones are coming out fast and furious, as the embargo was lifted on Tuesday evening. If you’re going to read just one, make it David Pogue’s. The founder of Yahoo Tech takes an in-depth look at the new phone and its features, offering comparisons to previous generations of the iPhone and products offered by Apple’s competitors with excellent visuals. “There’s not a single component that hasn’t been improved,” he writes of the new devices.


China’s central bank appears to be worried about the poor string of data and that increases the likelihood that the world’s second largest economy will miss its growth target. As such, the People’s Bank of China has injected $500 billion yuan (roughly $81 billion USD) into the country’s five largest banks in over to avoid any potential liquidity shortage and loosen credit conditions somewhat.


The United Kingdom’s labour market continues to firm. The number of U.K. residents claiming unemployment benefits fell by more than 37,000 in August. In fact, businesses have hired a net 774,000 more people from July 2013 to July 2014. This pushed the three-month moving average for the unemployment rate down by two tenths of a percentage point to 6.2 percent, a six-year low.


There’s a tiny flicker of life in euro zone inflation. The final reading for headline inflation showed that total CPI rose 0.4 percent year-over-year up one tick from the initial print. Inflationary pressures in the growth-starved euro zone remain muted to non-existent as the European Central Bank waits for its aggressive stimulus to have its intended effect on the real economy.


The Federal Reserve will be in the spotlight today, as Janet Yellen and her colleagues are set to release the central bank’s latest statement. Investors are currently obsessing over whether language in the commnuiqué that offers a clue as to how soon the first rate hike will be coming (the “considerable time” between the end of quantitative easing and an increase in rates) will be altered. The Financial Times’ Robin Harding has penned an excellent overview of the Federal Reserve’s options on this subject. The release will also contain an update on individual members’ projections for the policy rate, and this time around, the 2017 forecasts will be added. These, along with the short-term forecasts, will provide some insight as to what the Federal Reserve believes is a likely and/or appropriate “glide path” higher for the federal funds rate during this cycle. Janet Yellen will host a press conference beginning at 2:30pm (EDT).

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