The sudden rate cut, the notes about the overvalued housing market, that infamous “atrocious” comment.
Is Stephen Poloz trying to stress us out?
That was the question (more or less) in the House of Commons yesterday, while the Bank of Canada governor, and his senior deputy, Carolyn Wilkins, were paying a little visit to the House’s finance committee.
“It’s certainly not our intent to surprise or to frighten people,” Poloz replied to a crowd of (presumably frightened) MPs.
While rejecting the claim that Canada has a housing bubble on its hands (while maintaining that the market is 20 per cent overvalued), Poloz and Wilkins were nonetheless on the (cautious) defensive: The rate cut was needed, housing is still headed for a “soft landing,” the first quarter is still not going to look good. (One could footnote that the real issue here is how you define “atrocious.”) Poloz also repeated his positive go-to line, where the second half of the year will look a little brighter. Nothing new here.
But let’s zoom out on the bigger question. Dear MPs: Would you rather know the governor of the Bank of Canada will tell you what’s going on in the Canadian economy, or would you rather mandate, especially during an election year, that he allow you to sleep peacefully?
Today is actually a bigger day down south, so, once again, turn your eyes to Janet Yellen and the Fed’s announcement on interest rates, as well as first-quarter GDP. Meanwhile, today we’re looking at the fallout from Twitter’s botched earnings report (in more ways than one), as well as golden executive pay packets and the new economics of bank heists. There will be some numbers out for March for Canada’s industrial product price index and raw material index, and some possibly interesting news from Brazil and Sweden, which will both announce their benchmark interest rates, as Fiat, Time Warner and MasterCard report.
Movers this morning include the latest investment announcement from the Norwegian Sovereign Wealth Fund, the world’s largest, with about $900 billion in oil wealth. The fund is so large, anything it does has an impact—the fund is believed to have at least a 1.3 per cent stake in every listed stock—and, in the last quarter, it gained a staggering, record $53 billion, fuelled by increased monetary stimulus. The fund is also notable for its policy on divestments and climate change: Although itself fuelled by Norway’s oil wealth, it divested multiple coal companies last year and is under pressure to divest from coal entirely.
What to expect from first-quarter GDP and the Fed. Today is a big one in American economic news, even if the real announcement looks primed to have very few shocks, surprises or twists. The Wall Street Journal is predicting seasonally adjusted GDP growth of around one per cent (down from the last quarter’s 2.2 per cent), although there doesn’t seem to be a lot of consensus on what to expect. Things to watch for include business spending, consumer spending (which was on a tear during the previous quarter), inflation (still below the two per cent target), and the impact of macro factors ranging from the oil price, a West Coast port strike and, crucially, the impact of a stronger U.S. dollar (which companies have been consistently saying is putting a damper on their first-quarter profits). But there’s a potential pitfall in drawing too much significance from first-quarter U.S. GDP numbers, according to Justin Wolfers at the Upshot blog. A statistical pattern shows that first-quarter growth nearly always comes under expectations, even when the economic picture otherwise looks bright, suggesting that the “seasonal adjustments” applied to each quarter to ease out differences from weather and holidays may not be quite “adjusted” enough. The mix of a slightly softening picture for the American economy has pushed back expectations for when the rate hike, still parked at a historically low 0-0.25 per cent, will finally increase: Earlier predictions had this at June, current predictions seem to be leaning toward September.
Twitter’s bad day. Disappointing news came early for Twitter investors yesterday, after the company’s earnings were leaked early—and they weren’t great. Nasdaq took the blame for leaking the results, but the problem with first-quarter earnings lay with Twitter, which came up short on their own predictions and downgraded their growth expectations for the whole year. The company’s net loss is now at $162 million, cutting their expectations for full-year revenue down to $217 billion, from $2.27 billion—even as revenue did rise by 74 per cent. The flop comes from lower-than-expected returns from its “direct response” advertising—just advertising you can click on—and the market responded by wiping off more than a quarter of the company’s paper value immediately after the announcement, ultimately closing down 18 per cent.
The great golden expanding pay packet. Executives at the world’s largest gold mines have been under fire lately: Even as gold shares have fallen, their pay just keeps getting plumper. Now, Barrick’s chairman, John Thornton, says he’s heard the protests, and pledged, “We will go back and refine our system, particularly as it relates to me.” Tim Kildaze at the Globe noted the discrepancy that was drawing shareholder ire at a meeting yesterday: Last year, Barrick’s share price was down nearly a third—and Thornton’s pay packet was up more than a third, to nearly $13 million. The Canadian company isn’t the worst offender, either: Kildaze notes the case of Eldorado, where share price was down nearly 60 per cent over five years and, last year, the CEO got a pay raise of 146 per cent, to earn $13.8 million that year. In other gold news, Barrick announced another selloff yesterday, of its Chilean copper mine, as it grapples with $13 billion in debt.
The rise and fall of the bank heist. BBC has this epic tale of a young Indian-American nurse turned gambling high-roller and, ultimately, (bewigged) bank robber. It’s in the great tradition of stories about unlikely bank robbers, my favourite niche genre of them all, maintained by the genius Skip Hollandsworth at Texas Monthly and the amazing Sports Illustrated-article turned book, The Ballad of the Whisky Robber, about a failed Transylvanian hockey player turned heist master. But what it also highlights is the changing economics of bank robbing: In an increasingly cashless society, it’s just not that profitable anymore. Since 2003, the BBC says bank robberies have fallen by almost half (and it’s also not a preserve of gender equality; only eight per cent of bank robbers are women). How do people steal from banks, instead? You know the answer: via malware. In February, a Russian cybersecurity outfit said it had discovered evidence of a long-running bank heist—more Ocean’s Eleven than Bonnie and Clyde—which had stolen at least $300 million from more than 100 banks around the world.
Need to know:
TSX: 15,346.07 (+1.99), Tuesday
Loonie: 83.13 (+0.49), Tuesday
Oil (WTI): $56.67, Wednesday (7 a.m.)