The federal election campaign is getting fresh economic fodder today. Statistics Canada warned this morning in a flash estimate that the economy shrank 0.4 per cent last month. That would follow on the heels of a 0.7 per cent expansion in June. In a brief explanation of its estimate, the agency said the primary slowdowns last month were in manufacturing, construction and retail. Beyond the monthly numbers, there's also a surprise 1.1 per cent annualized contraction for the second quarter as a whole. There are a lot of details to parse through. TD Chief Canada Strategist Andrew Kelvin told us in his instant analysis that the July figure means the Bank of Canada's third-quarter forecast for 7.3 per cent growth is "essentially unattainable" and that there are "significant downside risks."
AN ECONOMY BUILT ON HOUSING AND DEBT
Ahead of GDP, we’ve already seen more evidence of the national real estate frenzy. According to Equifax, new mortgage volumes hit a record high of more than 410,000 in the second quarter as homebuyers flooded into the market and helped push total consumer debt up three per cent to $2.15 trillion. In its report, Equifax also warned about a “worrisome” spike in home equity lines of credit. We’ll dive into that theme shortly after 1 p.m. And it’s not just a consumer debt story today: the Canadian Federation of Independent Business released a new report showing that businesses that’ve taken on debt during COVID now owe an average of $170,000. For those in the hospitality sector, the average soars to $333,174.
MILESTONE DAY FOR CN RAIL
Today’s the self-imposed deadline for the U.S. Surface Transportation Board to deliver its decision on Canadian National Railway’s proposed voting trust that’s essential to its acquisition of Kansas City Southern. That process is going to play out with Canadian Pacific Railway waiting in the wings – and with a more influential investor preparing to agitate for change. U.K. hedge fund TCI Fund Management is now CN’s second-largest shareholder -- behind only Bill Gates’ Cascade Investment -- after raising its stake to 5.2 per cent and warning (in boilerplate language, it should be noted) of activist-like action, including a potential push for a board seat.
ALBERTA FISCAL UPDATE
We'll get a fresh look at the province's books this afternoon when Alberta Finance Minister Travis Toews releases the first-quarter economic and fiscal update. When the budget was released in February, the United Conservative Party government forecast an $18.2-billion deficit this year. At the time, the government baked in a $1.25-billion COVID-19 contingency and built its numbers around an assumption of West Texas Intermediate crude oil at US$46 per barrel and Western Canadian Select at $40.70. Those commodities closed yesterday at US$68.46 and US$56.59, respectively.
TRAVEL WATCH
We’ll be keen to hear from voices in the travel and hospitality industry today after the U.S. State Department raised its travel advisory for Canada one notch, which means Americans are being urged to reconsider visiting due to “a high level of COVID-19 in the country”. Still with travel, interesting to see that in Alberta’s announcement yesterday about launching booster shots, it also said additional mRNA doses will be allocated to Albertans who are travelling to a country that doesn’t recognize the AstraZeneca vaccine or mixed doses.
OTHER NOTABLE STORIES
- Not a good sign for the world’s second-largest economy: China’s services sector shrank last month, according to a purchasing managers index released overnight showing 47.5 for August, compared to 53.3 in July. Anything below 50 signals contraction.
- Topaz Energy will be on our radar today after Tourmaline Oil announced a secondary offering of 7 million shares in the company, priced at $15.45 apiece. The stock closed at $16.10 yesterday.
- Zoom Video Communications managed to outpace second-quarter expectations, and it nudged up its full-year forecasts. Nonetheless, revenue growth slowed sharply and the company’s third-quarter outlook barely managed to meet expectations. And so we’ve seen the stock down 11 per cent in pre-market trading. Keep in mind, shares have more than quadrupled since the start of 2020.
NOTABLE RELEASES/EVENTS
- Notable data: Canadian GDP (Q2)
- Notable earnings: Alimentation Couche-Tard
- 10:00: Liberal Party Leader Justin Trudeau makes announcement in Kanata, Ont. (plus avail)
- 10:45: Toronto Mayor John Tory makes announcement about city’s vaccine strategy alongside Medical Health Officer Dr. Eileen de Villa and Chair of Toronto Board of Health Joe Cressy
- 12:00: Conservative Party Leader Erin O’Toole makes announcement in Ottawa (plus avail)
- 12:00: NDP Leader Jagmeet Singh makes announcement in Coquitlam, B.C. (plus avail)
- 12:30: Alberta Finance Finance Minister holds news conference on first-quarter fiscal update (1100 embargoed briefing)
- 14:30: Green Party Leader Annamie Paul holds news conference in Toronto
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