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Noah Zivitz

Managing Editor, BNN Bloomberg

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Inflation was even hotter than expected last month. Statistics Canada’s consumer price index surged 7.7 year-over-year in May, far surpassing the median estimate of 7.3 per cent, and hitting the highest level since 1983. Sure, gasoline was the standout factor, with those prices up 48 per cent compared to a year earlier. But looking through the details, every single one of the major categories tracked by StatsCan rose more than two per cent, which is the Bank of Canada’s target for overall inflation.

Reaction and insight into the implications for the BoC started with BMO Capital Markets Senior Economist Sal Guatieri at 8:30 a.m. (who noted inflationary pressure is bound to heap more pressure on employers to ramp up wages, lest they face strike action among unions). We’ll have plenty of voices throughout the day, bookended by ex-Deputy Prime Minister and Finance Minister John Manley at 4:30 p.m.; he might also have something to say about Scotia’s report this week that laid some blame for inflation at the feet of the federal government. Also of note: Bank of Canada Senior Deputy Governor Carolyn Rogers is speaking this morning at a Globe and Mail event; we’ll monitor for any hint of what to expect in the next policy decision.

POWELL IN THE HOT SEAT AND INVESTORS UNNERVED

Our buffet of inflation coverage extends far beyond Canada this morning. Federal Reserve Chair Jerome Powell begins two days of Congressional testimony on the Fed’s Monetary Policy Report. We should expect him to stick close to last week’s talking points; and (at the risk of editorializing) the chance of a major news breakthrough might be overwhelmed by the prospect of political grandstanding by lawmakers in a mid-term election year. Meanwhile, U.S. President Joe Biden has called on Congress to implement a three-month gas tax holiday. Inflation and recession fears are again torpedoing investor sentiment this morning: U.S. futures are all deep in the red, West Texas Intermediate crude has been down as much as 5.8 per cent, and the U.S. dollar is rallying against most major currencies (including the loonie, which slipped below US$0.77).

CAPITAL CUSHION STEADY FOR THE BANKS

It’s status quo for the Office of the Superintendent of Financial Institutions’ domestic stability buffer requirement. Think of that as the extra capital cushion required at lenders that have been deemed systemically important in this country (the Big Six) to ensure they can withstand shocks. As things stand, the buffer is 2.5 per cent of risk-weighted assets. For context: the buffer was slashed to 1.00 per cent from 2.25 per cent in March 2020 as the pandemic took hold. OSFI said its decision today reflects an “assessment that systemic vulnerabilities remain elevated and have increased, while near-term risks are moderate but rising given an environment of heightened uncertainty.”                            
 
WHAT TRANS MOUNTAIN IS WORTH

Long story short: not as much as it used to be. The Parliamentary Budget Officer today estimated that the federal government (and all Canadians by consequence) is now facing a loss on purchase of Trans Mountain, with the net present value now seen at negative $600 million. This comes just a few months after the federal government announced it was cutting off taxpayer funding for the pipeline expansion, whose cost had nearly doubled to $21.4 billion. Last time the PBO weighed in on Trans Mountain, in December 2020, he viewed the feds’ investment as barely above water (that was before the budget for the expansion ballooned to more than $20 billion.)
Reporter: Tara or via Bloomberg // Producer: As assigned for Yves Giroux                           

GLOBAL ENERGY INVESTMENTS ON THE RISE

The International Energy Agency estimated today that global energy investment will rise eight per cent this year to US$2.4 trillion. It's a modest increase for a time when we all know there's a global energy squeeze. And it's even more modest than the headline suggests: the IEA said about half of the increase in spending is due to higher costs. "These challenges are deterring some energy companies from picking up their spending more quickly," the watchdog said in a release. We'll dive into where the bulk of the spending is being allotted, and we’ll flag here that we’re speaking with Cenovus Energy CEO Alex Pourbaix, who is in D.C. getting the word out on energy security, at 1: 15 p.m. Can’t help but wonder if Pourbaix’s messaging in Washington will be as pointed as Chevron CEO Mike Wirth’s, who blasted U.S. President Joe Biden yesterday, saying the administration “has largely sought to criticize, and at times vilify, our industry.” 

OTHER NOTABLE STORIES

  • Brookfield Asset Management confirmed this morning it raised US$15 billion for its first global transition fund, laying claim to the “largest private fund dedicated to facilitating the global transition to a net-zero carbon economy,” according to the release. Brookfield said the fund was oversubscribed, and noted US$2.5 billion has already been spent or allocated.
  • Empire Company is raising its quarterly dividend 10 per cent to $0.165 per share; that news came alongside fiscal fourth-quarter sales that missed estimates and same-store sales (ex-fuel) that fell 2.5 per cent.
  • Canadian Apartment Properties Real Estate Investment Trust announced a couple of transactions late yesterday afternoon. It has sold four properties (with a total of 793 apartment units) in Ontario for $200.1 million, and it purchased what’s being described as “a brand-new, luxury property” in Kanata, Ont., for $43.7 million.
  • Conifex Timber announced a special dividend after markets closed yesterday. It’s going to pay out $0.20 per share on Aug. 8, amid what CEO Ken Shields called “strong” cash flows.

NOTABLE RELEASES/EVENTS

  • Notable data: Canadian CPI
  • Notable earnings: Empire Company, AGF Management, KB Home
  • 900: Parliamentary Budget Officer releases report “Trans Mountain Pipeline – Update”
  • Approx. 900: Office of the Superintendent of Financial Institutions makes semi-annual announcement on Domestic Stability Buffer level-setting
  • 930: U.S. Federal Reserve Chair Jerome Powell delivers semi-annual Monetary Policy Report to U.S. Senate Banking Committee
  • 1040: Bank of Canada Senior Deputy Governor Carolyn Rogers participates in "Growth and Risk - The Future of the Canadian Economy" fireside chat at event hosted by The Globe and Mail
  • 1100: Innovation, Science and Industry Minister François-Philippe Champagne makes announcement on about supporting “the development of responsible AI in Canada”
  • 1300: BlackBerry annual meeting
  • 1400: U.S. President Joe Biden delivers remarks on gas prices
  • Alberta Premier Jason Kenney and Energy Minister Sonya Savage participates in IHS Oil Sands Dialogue Workshop in Washington, D.C.