Canada Markets Cheat Sheet (January 24, 2011)
Strengths
- PwC predicts Canadian companies will do more deals in emerging markets, with foreign deals in the Middle East, Asia and Africa becoming the new norm. [Bloomberg]
- Last week, the Bank of Canada left the overnight rate unchanged and the 2011 growth rate estimate was revised modestly higher.
- Loonie tunes up: the Canadian dollar continues to trade above “par” vis-à-vis its bigger brother to the south [David Rosenberg, Gluskin Sheff]
- [Canadian] M&As tracked at $155-billion in 2010 [Bloomberg]
- Joint ventures and minority acquisitions will be more popular amid higher regulatory oversight of takeovers, in an effort to reduce the economic or political risks of a deal, the report predicted.
- It echoed a similar report released last month by business consultants and auditing firm KPMG that said the high loonie, increasing demand for goods in Asia and companies looking to spend their idle cash will lead to more mergers and takeovers involving Canadian businesses in 2011.
- That firm suggested Canadian companies could find major opportunities in Europe.
- Finance Minister Jim Flaherty said on Friday he sees no return to the days of the "Canadian peso", saying the strong currency reflects confidence in the country's economy.
- "Business people I've met here certainly share the view -- small business people and big business people -- that the Canadian dollar is not likely to go back to the days of being relatively cheap vis a vis the U.S. dollar. We're done with the Canadian peso," Flaherty told reporters in Vancouver where he was holding pre-budget consultations.
- Canadian mergers and acquisitions were worth $155 billion in 2010, while domestic transactions are expected to outpace the global trend in 2011, the PwC report said.
- Canadian retail sales rose faster than economists predicted in November, with widespread advances led by gains at new-car dealers. [Bloomberg]
- Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Ontario sold a combined $6.5 billion of debt in the U.S. and Australia, taking advantage of a rising dollar and lower funding costs abroad. Bank of Nova Scotia, Canada’s third-largest bank, issued A$1 billion ($987 million) of covered bonds yesterday in its first sale of the securities in Australia. Canadian Imperial sold $2 billion of five-year covered bonds in the U.S., while Ontario issued $3.5 billion of U.S. dollar-denominated three- year notes. [Globe and Mail]
Weaknesses
- Canadian November manufacturing sales unexpectedly fell 0.8% in the month of November although this only partially reversed the 1.5% increase recorded in October. The weakness was generally narrowly based in the transportation equipment component which dropped a sizable 7.0% in the month and in turn reflected a 9.2% drop in motor vehicles. Ex the motor vehicles, manufacturing sales would have been up 0.2% for the month. [RBC Economics]
- Canada’s dollar retreated against its U.S. counterpart for the first time in five weeks as the Bank of Canada suggested lending rates will remain unchanged and commodities fell on concern China will seek to curb growth. [Bloomberg]
- Canadian Finance Minister Jim Flaherty said he doesn’t expect a major weakening of the country’s currency, whose gains reflect the strength of fiscal policy and commodity prices. [Reuters]
Opportunities
- In the periphery - Goldman Sachs Group Inc. said, "Investors should buy bullish options on the biggest U.S. energy companies because the stocks are poised to rally as global growth boosts crude prices and industry profits." [Bloomberg]
- Staying at home: we continue to advocate a core position in Canadian securities considering how treacherous the overseas climate is proving to be [David Rosenberg, Gluskin Sheff]
- China Petroleum & Chemical Corp., the country’s biggest refiner, joined a group investing more than $100 million in Enbridge Inc.’s proposed $5.5 billion pipeline to Canada’s west coast, Enbridge said. [Bloomberg]
Threats
- Canadian Finance Minister Jim Flaherty said the next federal budget will be presented in March. [Bloomberg]
- As of March 18, the government will no longer insure mortgages with amortization periods of more than 30 years. That will keep some potential home buyers out of the market, and in theory, help stop already debt-burdened households from going even deeper. Ottawa will also make home refinancing rules tighter, among other moves. [Globe and Mail]
