Briefing highlights
- Loonie ‘weaker for longer’
- On this day in 1974 ...
- Markets at a glance
- Brexit in the spotlight
- Crescent Point cuts budget, dividend
- From today’s Globe and Mail
Three-and-a-half-penny Opera
A major American bank is "bearishly revising" its outlook for the Canadian dollar, largely because of what it expects will be a bumpier road to signing off on the proposed new U.S.-Mexico-Canada trade deal.
JPMorgan Chase now expects the loonie will be “weaker for longer” as U.S. political developments hang up approval for the pact meant to replace the North American free-trade agreement.
“One key reason for our downgraded CAD outlook is a notably pessimistic reassessment of NAFTA/USMCA ratification risks, which we now believe will prove a lot bumpier than most market participants realize,” Daniel Hui, JPMorgan global foreign exchange strategist, and his colleague Patrick Locke said in their new forecast, referring to the currency by its symbol.
"U.S. politics is currently dominated by the partial shutdown of the federal government; the governing relationship between the Democrats (now the majority within the House of Representatives) and the Republicans is clearly off to a poor start."
Mr. Hui and Mr. Locke now project the loonie will sink to about 74 US cents by mid-2019, before probably regaining some ground to close out the year at 77.5 US cents.
That is, obviously, a 3.5-penny difference, the depths coming at the height of the June-August vacation season, when many Canadians travel to the U.S. Of course, a weaker-for-longer loonie would also be a longer boon for Canadian exporters.
There are other reasons for a soft currency, among them low oil prices and a less aggressive Bank of Canada. Economists now see the central bank raising its benchmark only twice this year, maintaining a loonie-friendly gap between Canadian and U.S. rates.
JPMorgan still expects the new trade deal will pass this year. It’s getting to that point that could weigh on the currency.
"We note there are a number of avenues for Democrats to delay the ratification process, which could lead directly to President Trump initiating withdrawal from NAFTA ... as a tactic to force the passage of the USMCA through Congress," Mr. Hui and Mr. Locke said.
“Such a scenario, which would trigger a six-month countdown before the actual withdrawal, would create a great degree of uncertainty for industry and financial markets that presents significant risk for exposed assets and markets like USD/CAD,” they added.
“We ultimately believe there is a 70-per-cent chance of passing the USMCA this year, but the most likely path (50 per cent) to that outcome is via contentious delays and ultimately withdrawal brinksmanship, the turbulence of which markets are not yet fully prepared for.”
Read more
- In 2037, the loonie could still be worth just 75¢
- Hoser losers: Everyone’s dissing the Toronto stock market and Canadian dollar
- David Rosenberg’s ‘10 reasons to hate the loonie’ (and some from JPMorgan, but only into 2019)
- Still loonie after all these years: Canadian dollar will still be impaired two years from now, CIBC says
On this day in 1974 ...
The TV sitcom Happy Days premiered, starting a decade-long run about those innocent times. Just sayin'
Source: Henry Winkler as Fonzie, ABC via YouTube
Markets at a glance
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Brexit in spotlight
British Prime Minister Theresa May takes her Brexit deal to Parliament today for a vote she’s expected to lose.
“The vote was postponed last month to buy the PM some time to convince lawmakers to back the deal she made with the EU, but I don’t think the result will be any different,” said BMO senior economist Jennifer Lee.
"The majority won’t pass the deal as is, but it will be interesting to see how wide the margin will be," she added.
Watch the pound and the impact of the currency’s fortunes on British stocks.
"Although recent Brexit developments have led us to abandon our central view that PM May’s deal will be ratified, when we weigh up the possible Brexit outcomes we still think that there is more upside than downside risk for sterling," said Liam Peach of Capital Economics.
"Sterling’s recent resilience following a number of defeats over Brexit in Parliament for the government suggests that a lot of bad news has already been discounted. Arguably, the only uncertainty over Tuesday’s parliamentary vote on May’s Brexit deal is the size of the government's defeat."
Over the longer term, Mr. Peach said, “we think that investors will rediscover their appetite for risk in 2020 and that, over the course of the next two years as a whole, sterling will still be driven up by tighter-than-expected monetary policy and stronger-than-expected growth in the U.K.”
Read more
- Paul Waldie: ‘Grave uncertainty’ awaits U.K. if MPs don’t back Brexit plan, May says on eve of vote
- Paul Waldie: May losing control over Brexit plans after two defeats in Parliament
- U.K. opposition leader Corbyn calls for election to break Brexit impasse
- Citigroup profit rises 14 per cent on lower expenses
- Battered U.S. bank stocks may get a boost this year
More news
- Oil producer Crescent Point cuts 2019 budget, dividend on oil price plunge
- Magna says 2019 revenue to be hit by unit sale, GM’s Oshawa plant closing
- Wells Fargo misses revenue expectations, hampered by weakness in consumer banking