CANADA ECONOMICS
JERUSALEM
THE GLOBE AND MAIL. THE CANADIAN PRESS. DECEMBER 21, 2017. UN VOTE ON JERUSALEM. Canada to abstain from UN vote on Trump’s Jerusalem move
MIKE BLANCHFIELD
OTTAWA - Canada will abstain from a contentious United Nations vote today on Donald Trump's decision to move the U.S. embassy from Tel Aviv to Jerusalem.
The vote in the UN General Assembly places Canada in a difficult situation because the U.S. President Donald Trump has threatened to retaliate against countries that support a resolution calling on him to rescind his plan to relocate the embassy.
A spokesman for Foreign Affairs Minister Chrystia Freeland said the Canadian government is disappointed the resolution landed on the floor of the General Assembly.
"This resolution is one-sided and does not advance prospects for peace to which we aspire, which is why we will abstain on today's vote," Adam Austen said.
"Canada's long-standing position is that the status of Jerusalem can be resolved only as part of a general settlement of the Israeli-Palestinian dispute. This has been the policy of consecutive governments, both Liberal and Conservative."
Austen said Canada wants to emphasize that Jerusalem has special significance to Jews, Muslims and Christians.
"Denying the connection between Jerusalem and the Jewish, Muslim and Christian faiths undermines the integrity of the site for all. We also reiterate the need to maintain the status quo at Jerusalem's Holy sites."
Freeland discussed the issue with U.S. Secretary of State Rex Tillerson during a meeting Tuesday on Parliament Hill, after which she suggested they had agreed to disagree.
"Canada and the United States have different views on issues and I think that we have a strong enough relationship — both our two countries and Rex and I personally — that we're able to be candid about those differences and explain them to one another," said Freeland, standing next to Tillerson.
Canada and the U.S. are currently locked in a tough renegotiation of the North American Free Trade Agreement with a protectionist Trump administration, but that shouldn't influence how it votes on the Jerusalem vote at the UN, said Bessma Momani, a senior fellow and Middle East expert with the Centre for International Governance and Innovation.
"Canada may find itself in a tough position as we try to renegotiate a NAFTA deal, but we should stand with the international community and wider expert opinion that the U.S. move is unnecessary, counterproductive, and toxic," she said.
"Moreover, there's power in a collective response against Trump and we should take comfort in that."
UN. 12/21/2017. 21 December 2017. General Assembly demands all States comply with UN resolutions regarding status of Jerusalem
By an overwhelming majority, Member States in the United Nations General Assembly on Thursday “demanded” that all countries comply with Security Council resolutions regarding the status of Jerusalem, following an earlier decision by the United States to recognize the Holy City as the capital of Israel.
Through a resolution adopted by a recorded vote of 128 in favour to nine against, with 35 abstentions, the 193-member Assembly expressed “deep regret” over recent decisions concerning the status of Jerusalem and stressed that the Holy City “is a final status issue to be resolved through negotiations in line with relevant UN resolutions.”
Action in the Assembly today follows a failed attempt by the Security Council on Monday adopt a similar text reflecting regret among the body’s members about “recent decisions regarding the status of Jerusalem,” with a veto from the United States, a permanent member of the Council.
Ahead of that failed resolution, Nickolay Mladenov, Special Coordinator for the Middle East Peace Process, told the Security Council that the security situation in Israel and the Occupied Palestinian Territory had become more tense in the wake of US President Donald Trump's decision on 6 December to recognize Jerusalem as the capital of Israel.
Subsequently, Yemen and Turkey, in their respective capacities as Chair of the Arab Group and the Chair of the Summit of the Organization of the Islamic Cooperation, requested the President of the General Assembly to “urgently resume’ the tenth emergency special session of the General Assembly in accordance with the so-named ‘Uniting for peace’ procedure.
This procedure, under Assembly resolution 377 (1950), is a pathway around a Security Council veto. By it, the Assembly can call an emergency special session to consider a matter “with a view to making appropriate recommendations to members for collective measures,” if the Security Council fails to act or if there is lack of unanimity among the Council’s permanent members, China, France, Russia, United Kingdom, and the United States.
Since the tenth such meeting, the Assembly has temporarily adjourned the emergency special session and authorized “the President of the General Assembly […] to resume its meeting upon request from Member States,” allowing for speedy consideration by the body of urgent issues.
The most recent resumed emergency session was in 2009 when the Assembly called a meeting on East Jerusalem and the Occupied Palestinian Territory.
Resolutions in the Assembly are non-binding and do not carry the force of international law as do measures agreed in the Security Council.
Find out more about the Assembly’s emergency special sessions and resolution 377 (1950) here
Today’s resolution demanded that “all States comply with Security Council resolutions regarding the Holy City of Jerusalem, and not recognize any actions or measures contrary to those resolutions.”
The General Assembly further affirmed that “any decisions and actions which purport to have altered the character, status or demographic composition of the Holy City of Jerusalem have no legal effect, are null and void and must be rescinded in compliance with relevant resolutions of the Security Council.”
In that regard the Assembly also called upon all States to refrain from the establishment of diplomatic missions in the Holy City of Jerusalem, pursuant to Security Council resolution 478 adopted in 1980.
Reiterating its call for the reversal of the negative trends that endanger the two-State solution, the Assembly urged greater international and regional efforts and support aimed at achieving, without delay, a comprehensive, just and lasting peace in the Middle East.
FULL DOCUMENT: https://www.un.org/apps/news/story.asp?NewsID=58330#.WjwvalWnGUk
BOMBARDIER
BOMBARDIER. December 20, 2017. Bombardier Statement on Department of Commerce Determinations
Montréal - Mike Nadolski, Vice President Communications and Public Affairs, issued the following statement in response to tariff determinations issued today by the U.S. Department of Commerce:
The evidence presented Monday at the U.S. International Trade Commission demonstrated that Boeing’s petition is an unfounded assault on airlines, the flying public, and the U.S. aerospace industry. That has been true since the start of the investigation, and recent developments make it even clearer, particularly the Bombardier and Airbus partnership, which will include the construction of a new U.S. manufacturing facility in Alabama. This facility will provide U.S. airlines with a U.S.-built plane thereby eliminating any possibility of harm due to imports.
Unfortunately, the Commerce Department decision is divorced from this reality and ignores long-standing business practices in the aerospace industry, including launch pricing and the financing of multibillion dollar aircraft programs. Moreover, we are deeply disappointed that the Commerce Department did not take this opportunity to rectify its past errors.
We remain confident that at the end of the process, the United States International Trade Commission will reach the right conclusion, which is that the C Series benefits the U.S. aerospace industry, U.S. airlines, and the U.S. flying public.
The fact is that the C Series simply does not threaten Boeing. Boeing did not compete in the Delta campaign. It has not made a plane sized to Delta’s needs for many years, since it stopped producing the 717 and 737-600. Moreover, Boeing has acknowledged that it has oversold its 737 production capabilities and has a backlog of more than 4,300 aircraft orders that stretches years into the future.
Bombardier’s innovative spirit led us to create the C Series, which is more comfortable, reliable, fuel efficient, and environmentally friendly than anything else in the market. The U.S. flying public and U.S. airlines should not be precluded from enjoying these benefits, especially given the tremendous positive impact the C Series brings to the U.S. aerospace industry.
Bombardier estimates that the new Alabama assembly line will add 400 to 500 direct jobs in the United States, along with thousands more indirect and induced U.S. jobs. It will also bring approximately $300 million in new foreign direct investment to the United States. These new U.S. jobs and investment are in addition to the 22,700 jobs already supported by Bombardier’s C Series through its U.S. supply base.
The Globe and Mail. 21 Dec 2017. U.S. upholds duties on Bombardier’s C Series. Bombardier: Boeing dispute emerging as flashpoint amid efforts to renegotiate NAFTA
NICOLAS VAN PRAET, MONTREAL
Customer demand for reduced prices is greater than ever. The harm is real right now.
KEVIN McALLISTER, CHIEF EXECUTIVE OF BOEING’S COMMERCIAL AIRCRAFT DIVISION
The U.S. Department of Commerce has issued its final ruling in the escalating clash between Boeing Co. and Bombardier Inc., upholding its previous finding that the Canadian plane maker must pay duties of nearly 300 per cent to import its C Series airliner into the United States.
Commerce ruled to implement anti-dumping duties of 80 per cent and countervailing duties of about 212 per cent, slightly lower than its initial calculation, for total tariffs of about 292 per cent. That would nearly quadruple the price of a C Series imported into the United States.
The department’s decision, made public on Tuesday, was expected and is not the ultimate verdict in the trade dispute. That will come in February, when the U.S. International Trade Commission decides whether Boeing was harmed, or threatened with harm, as a result of Bombardier’s actions. That ruling can be appealed in turn.
“It’s not unreasonable to think that the extraordinarily high [penalties] found by the Commerce Department do, to some extent, reflect the ideological bent of this administration,” said Edward Alden, a trade expert at the Council on Foreign Relations in Washington. “You now have a Commerce secretary who’s a cheerleader for protectionist tariffs. We’re in a very different world.”
As the trade battle works its way through legal institutions in the United States, the stakes continue to climb for the companies and countries involved.
The fight has fuelled trade tensions between Canada and the United States, emerging as a flashpoint as the two countries try to hammer out a new continental trade pact.
Canada this month cancelled a planned purchase of 18 Super Hornet fighter jets from Boeing in retaliation for the company’s trade challenge against Bombardier. The government of Britain, where parts of the C Series are built, has warned Boeing it risks losing defence contracts. The European Union has also joined the fray, saying the 300-per-cent duties levied by U.S. authorities on the C Series are unwarranted.
U.S. President Donald Trump is said to covet such duties as he tries to put in place an “America First” trade strategy that aims to save manufacturing jobs. Boeing is only one of several U.S. companies that have launched complaints against foreign rivals in recent months, aligning itself with the political winds to push its own interests.
Through Sept. 20, Commerce initiated 65 anti-dumping or subsidy investigations, a 48-percent increase from the last year under the Obama administration and a 16-year high in such actions, according to The Washington Post. Targets for complaints this year include imports of South Korean washing machines and steel from Vietnam.
Boeing filed a trade challenge against Bombardier in April this year, alleging the Montrealbased maker of luxury jets and single-aisle planes used unfair government subsidies to clinch an important contract for 75 CS100 C Series planes to Atlanta-based Delta Air Lines Inc. at “absurdly low” sale prices. Quebec helped secure the deal by providing Bombardier with a $1-billion (U.S.) investment lifeline the province says adheres to international trade rules.
The American aerospace giant argued at a Trade Commission hearing on Monday that Bombardier is offering the C Series at used-airplane prices, which is pressing rivals to offer cut-rate deals in their own right. It says its 737 Max 7 plane is at “extreme risk” because of Bombardier’s tactics.
“Customer demand for reduced prices is greater than ever,” Kevin McAllister, chief executive of Boeing’s commercial aircraft division, told the trade panel. “The harm is real right now.”
Bombardier counters that Boeing’s challenge is an unfounded assault on airlines, the flying public and the U.S. aerospace industry, which will all benefit when the high-tech C Series enters the fleets of U.S.based carriers.
The airplane, which is expected to open up dozens of new routes in North America alone and has been lauded for its cabin comfort, is the first clean-sheet designed single-aisle aircraft to come to market in nearly 30 years.
The C Series does not threaten Boeing, Bombardier says. Boeing did not compete in the Delta sales campaign. It has not made a plane of the size Delta needed since abandoning production of the 717 and 737-600.
“According to its public financials, Boeing is making money hand over fist,” said Peter Lichtenbaum, a Washington lawyer acting for Bombardier. “And with a backlog of 737 orders years into the future, there are no signs of difficulty on the horizon. In sum, Boeing does not deserve protection under the trade laws and any lack of Max 7 sales has nothing to do with the C Series.”
In any case, the trade dispute is rendered moot by Bombardier’s new agreement with Airbus Group SE, Mr. Lichtenbaum said.
Under that deal, the European plane maker will take control of the C Series program for no upfront cash, pledging in exchange to throw its considerable global logistics and sales power behind the Bombardier aircraft.
The partners plan to spend $300-million to set up a second assembly line at Airbus’s Mobile, Ala., facility to build C Series for the U.S. market.
The arrangement would make the aircraft a domestic U.S. product that is not subject to import duties, Mr. Lichtenbaum said. Building C Series in the United States “means that there is no longer any prospect, much less an imminent threat, of material injury caused by imports,” he said. “There will not be any imports.” BOMBARDIER (BBD.B) CLOSE: $3.02, DOWN 4¢ BOEING (BA) CLOSE: $297.95 (U.S.), UP 70¢
THE GLOBE AND MAIL. REUTERS. DECEMBER 21, 2017. Boeing held takeover talks with Embraer: report
Boeing Co has held takeover talks with Brazilian planemaker Embraer SA, the Wall Street Journal reported on Thursday, citing people familiar with the matter.
Boeing and Embraer have been discussing a deal that would involve a relatively large premium for Embraer, the WSJ reported.
THE WALL STREET JOURNAL. 12/21/2017. Boeing Has Held Takeover Talks With Brazil’s Embraer
Boeing has been in takeover talks with Brazilian aircraft maker Embraer, a move that would strengthen Boeing’s hand in the regional jet market and help it counter a recent move by Airbus to strike a similar deal.
BOEING. December 21, 2017. Boeing and Embraer Confirm Discussions on Potential Combination
CHICAGO & SAO PAULO – The Boeing Company (NYSE: BA) and Embraer (BM&FBOVESPA: EMBR3, NYSE: ERJ) today confirmed the two companies are engaged in discussions regarding a potential combination, the basis of which remains under discussion.
There is no guarantee a transaction will result from these discussions. Boeing and Embraer do not intend to make any additional comments regarding these discussions.
Any transaction would be subject to the approval of the Brazilian government and regulators, the two companies’ boards and Embraer’s shareholders.
Forward-Looking Information Is Subject to Risk and Uncertainty
Certain statements in this release may be forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “plans,” “expects,” “expected,” “scheduled,” “estimates,” “intends,” “anticipates” or “believes,” or variations of such words and phrases or state that certain actions, events, conditions, circumstances or results “may,” “could,” “would,” “might” or “will” be taken, occur or be achieved. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Many risks, uncertainties and other factors, which are often times beyond our control, could cause actual results to differ materially from these forward-looking statements, including, in addition to factors previously disclosed in Boeing’s and Embraer’s reports filed with the SEC and those identified elsewhere in this release, any risks relating to a potential strategic combination. Boeing and Embraer cannot give any assurance that such forward-looking statements will prove to have been correct. The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. Boeing and Embraer disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, conditions, circumstances or otherwise, except as required by applicable law. Please consult further disclosures Boeing and Embraer make on related subjects, if any, in reports to the SEC.
THE GLOBE AND MAIL. THE CANADIAN PRESS. DECEMBER 21, 2017. Metrolinx slashes $770-million deal with Bombardier
OLIVER MOORE, URBAN TRANSPORTATION REPORTER
The regional transit agency Metrolinx is cutting in half a $770-million vehicle deal with Bombardier Transportation for the Toronto area, The Globe and Mail has learned, turning the page on a long-running dispute between the two parties.
In the new deal, which was described by multiple sources and is expected to be announced as early as mid-day Thursday, Bombardier would also be subject to much stricter penalties if they are late with their deliveries.
Bombardier had originally contracted to produce 182 vehicles, with about two-fifths going to the now-under-construction Eglinton Crosstown light rail line and the remainder earmarked for other projects. Under the terms of the new deal, Metrolinx would use Bombardier vehicles on the Crosstown only. The other lines will be equipped by rival supplier Alstom.
The decision cuts the Bombardier order size from 182 to 76 vehicles. Because of fixed costs spread across the entirety of the contract, though, the dollar value of the deal is expected to be cut roughly by half.
One benefit accruing to Bombardier is that the deal also extends by 18 months their contract to operate and maintain GO service. The company had recently gone to court to fight for its right to bid on continuing to provide this service. The value of this extension was not immediately clear, but one source said it was enough to make up for the money lost of the LRV contract.
The contract is also expected to remove a substantial financial risk to Metrolinx. Under the original deal, the agency could levy fines of only $1,500 per day on Bombardier if a vehicle destined for the Crosstown was late. But under a side deal with the consortium building that line, Metrolinx was on the hook for as much as $500,000 per day if a vehicle was late. The new deal is structured to bring those penalties into line.
Bombardier has faced repeated criticism from both Metrolinx and the Toronto Transit Commission -- which has its own much-delayed vehicle order -- that the company cannot produce on time. The TTC is pursuing a damages process to try to claw back some of the costs it has incurred due to delays. Metrolinx became concerned enough to try to kill the deal, prompting Bombardier to seek a legal injunction. The courts agreed with the company, a decision that set off a chain of events culminating with this new deal.
The court decision prompted a formal dispute resolution process between Metrolinx and Bombardier. Neither side will talk about how this has gone, but the uncertainty of the outcome appears to have helped push both sides back to the bargaining table.
Also, in the aftermath of the court decision, Metrolinx showed its willingness to sideline Bombardier. In May, the agency struck a $528-million side deal with Alstom for 61 light rail vehicles, characterizing this as an insurance policy. These vehicles could be used to open the Crosstown on time if Bombardier fell short, Metrolinx said, and would otherwise go to other lines.
At the time Bombardier insisted it was capable of equipping all the lines and would fulfill the terms of the original contract.
BLOOMBERG. 20 December 2017. Bombardier CEO Dials Down New-Jet Ambitions to Focus on Cash
By Frederic Tomesco
- ‘There was an overinvestment in aerospace,’ Bellemare says
- Company would consider buying back stake in rail operation
Bombardier Inc. is scaling back plans to begin a new aircraft program, preferring instead to focus on generating cash flow and whittling down about $9 billion in debt, said Chief Executive Officer Alain Bellemare.
“Over the past few years there was an overinvestment in aerospace,’’ Bellemare said in an interview. “We don’t want to jump and launch an investment in a new program just for the sake of it.”
Bombardier has racked up debt over the last few years for such programs as the new Global 7000 business plane, which is due to enter service late next year, and the C Series commercial jetliner, which made its debut last year and cost at least $2 billion more than planned. The company is now about halfway through a five-year turnaround plan to restore profit and reduce debt. It has predicted break-even cash flow next year.
“We want to make sure we optimize the cash that we will start generating in 2018, 2019 and beyond,” said Bellemare, 56. He became CEO in 2015 and immediately set about shoring up the company’s balance sheet by raising more than $5 billion, including $1.5 billion from the Caisse de Depot et Placement du Quebec, a $1 billion investment in the C Series by Quebec’s provincial government and an equity sale.
The existing product line will generate sufficient revenue, he said, meaning the company sees no immediate need to start work on a new airplane. That marks a shift from January, when Chief Financial Officer John Di Bert said Canada’s biggest aerospace company would probably decide on a new model within 12 to 24 months.
Since Bombardier agreed in October to cede control of the C Series to Airbus SE, analysts have expected that the next big aircraft investment would be a business plane, typically the Montreal-based company’s most profitable segment.
Bombardier’s midsize Challenger line is the most likely candidate for a new model, said Ernie Arvai, a partner at aviation consulting firm AirInsight.
“You go where the margin is,” he said. “I don’t see the opportunity in commercial aircraft unless they do a larger C Series, and now that Airbus will be running the show, it won’t be Bombardier’s call to make.” The company last week forecast that business-jet revenue would jump 70 percent to $8.5 billion in 2020, saying the Global 7000 is sold out through 2021.
Global 8000
Bombardier at some point could build an extended-range version of the Global 7000, though a decision isn’t imminent, Bellemare said. The longer-range aircraft, called the Global 8000, would surrender 9 feet (2.7 meters) of cabin length to gain 500 nautical miles of flight distance compared with the Global 7000, according to Bombardier’s website.
“We need to see what would be the ultimate performance of the 7000, and then we will decide on the 8000,’’ he said. “We have time. The focus is on the Airbus deal. After that, it’s whatever makes good business sense.’’
Bombardier remains committed to building commercial planes, such as CRJ regional jets and Q400 turboprops, Bellemare said.
“Is Bombardier still going to be active in commercial aircraft? The answer is: For years to come, yes,’’ he said in an interview Dec. 14 in New York. “We are going to have a 40 percent participation in the C Series, and we have no plan to exit that. Short term, we want to keep selling Qs and we want to keep selling CRJs.’’
Rail Stake
The effort to improve cash flow could include buying back the Caisse’s 30 percent stake in Bombardier’s rail unit, Bellemare said. Canada’s second-largest public-pension-fund manager paid $1.5 billion last year for its holding in the rail operation, which has an order backlog of more than $33 billion.
“It’s got nothing to do with the Caisse,” he said. “They have been a great partner. They came in at a time when we needed that.”
“It’s got everything to do with how we return the best money to our shareholders,’’ Bellemare said.
INFLATION
StatCan. 2017-12-21. Consumer Price Index, November 2017
- Consumer Price Index, November 2017: 2.1% increase (12-month change)
- Source(s): CANSIM table 326-0020: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=3260020&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
The Consumer Price Index (CPI) increased 2.1% on a year-over-year basis in November, following a 1.4% increase in October. The all-items excluding gasoline index rose 1.5% year over year in November after increasing 1.3% in October.
Chart 1: The 12-month change in the Consumer Price Index (CPI) and the CPI excluding gasoline
12-month change in the major components
Prices were up in seven of the eight major CPI components in the 12 months to November, with the transportation and shelter indexes contributing the most to the increase. The clothing and footwear index declined on a year-over-year basis.
Chart 2: Consumer prices increase in seven of the eight major components
Transportation prices rose 5.9% on a year-over-year basis in November, following a 3.0% increase in October. Gasoline prices contributed the most to this acceleration, rising 19.6% year over year in November, after increasing 6.5% the previous month. The increase was partly attributable to higher crude oil prices in November, as well as a monthly decline one year earlier. The purchase of passenger vehicles index also accelerated to 3.6% on a year-over-year basis in November, following a 1.9% rise in October. The November increase was partly attributable to the greater availability of new 2018 model year vehicles.
The food index rose 1.6% year over year in November following a 1.3% increase in October. On a month-over-month basis, the food index rose 0.8% in November, the largest monthly gain since January 2016. Prices for meat were up 1.9% on a year-over-year basis in November after a 0.1% increase in October. Fresh vegetable prices rose 3.8% in the 12 months to November.
Consumer prices for household operations, furnishings and equipment rose 0.9% on a year-over-year basis in November after increasing 0.2% in October. The November increase was driven by growth in the telephone services index (+2.3%) which was partly attributable to a decline in prices in November 2016, which no longer influences the 12-month movement. Furniture prices increased 1.9% month over month, the largest monthly increase since February 2015.
12-month change in the provinces
Consumer prices rose more on a year-over-year basis in every province in November than they did in October. Manitoba (+3.2%) and Saskatchewan (+3.7%) recorded the largest accelerations.
Chart 3: Consumer prices rise at a faster rate in all provinces
The gasoline index contributed the most to the rise in the CPI in every province except for Newfoundland and Labrador, where a lower gasoline price increase was partly attributable to a reduction in the province's gasoline tax which took effect in June 2017.
The CPI in Manitoba rose 3.2% in November on a year-over-year basis, after increasing 1.5% in October. The furniture index rose the most in Manitoba in the 12 months to November. The household equipment index rose 2.6% on a month-over-month basis in November, more than in any other province.
Consumer prices in Alberta increased 2.5% in the 12 months to November, after a 1.3% gain in October. Among the provinces, gasoline (+30.0%) increased the most in Alberta. Electricity prices were up 17.5% in November after increasing 9.3% in October. The November gain was largely attributable to rate decreases in November 2016, which no longer factor into the 12-month movement.
The CPI rose 1.7% in Quebec in November on a year-over-year basis, after increasing 1.0% in October. Food prices increased 1.1% month over month, the largest increase among the provinces. Consumers paid higher prices for fresh vegetables (+5.7%) year over year in November.
Seasonally adjusted monthly Consumer Price Index
On a seasonally adjusted monthly basis, the CPI rose 0.5% in November. This was the largest increase since January 2017.
In November, seven major components increased, while the health and personal care index (-1.0%) declined.
Chart 4: Seasonally adjusted monthly Consumer Price Index
Chart 5: Prescribed medicines and Non-prescribed medicines indexes, annual average, Canada, 1987 to 2016
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171221/dq171221a-eng.pdf
THE GLOBE AND MAIL. BLOOMBERG. DECEMBER 21, 2017. ECONOMY. Inflation pressures build as Canada’s economy keeps rolling
THEOPHILOS ARGITIS
Canadian inflation jumped above the Bank of Canada's 2 per cent target as the nation's red-hot economy begins to show signs of price pressure.
Inflation accelerated to 2.1 per cent in November from a 1.4 per cent rate in October, Statistics Canada reported Thursday in Ottawa.
While the jump was due to a surge in gasoline prices, the increases went beyond energy. A separate report showed retail sales surging in October, adding to evidence the expansion continues to steam ahead.
If the inflation proves sustained, it will pose a challenge for the Bank of Canada. Policy makers have been keen to keep the expansion moving with low interest rates on the expectation price pressures will be muted. The Canadian dollar jumped as much as 0.9 per cent as the reports raise the prospect of earlier rate increases by the central bank.
"All told, some upside beats on retail and inflation leave room for the Bank of Canada to tighten" in the first quarter, Nick Exarhos, an economist at CIBC World Markets, said in a note to investors.
Investors are anticipating the Bank of Canada will move ahead with three more interest rate increases by the end of next year, adding to two rate hikes this year. Inflation last hit 2 per cent in February, and last surpassed the central bank's target in January. The jump in the inflation rate was the biggest one-month increase since 2013.
Persistently weak inflation had been one of the main arguments against further interest-rate increases. But inflation is coming in faster than the central bank had forecast in October, when it predicted it would average 1.4 per cent in the final three months of 2017. Policy makers don't expect a sustained return to 2 per cent inflation until the end of next year.
Shrinking Capacity
At a rate decision this month, the central bank said the faster-than-expected inflation was due to temporary factors. Yet, today's figures suggest that shrinking excess capacity in the economy is beginning to lift inflation.
The average of the Bank of Canada's three key core inflation measures – which exclude volatile items such as energy – rose to 1.7 per cent, the highest level in more than a year.
And today's retail sales figures suggest growth in the final quarter of 2017 remains above the nation's non-inflationary growth rates.
Retail sales increased 1.5 per cent in October, the largest gain since January, Statistics Canada said. Economists surveyed by Bloomberg News forecast a 0.3 per cent gain. The jump represents a comeback for retailers after a recent slowdown in sales had raised worries about consumers paring back in the second half of this year.
The retail sales figures bode well for October gross domestic product data, which will be released Friday by Statistics Canada. Economists forecast GDP growth of 0.2 per cent in October.
REUTERS. DECEMBER 21, 2017. Strong Canadian inflation, retail sales lift bets for rate hike in new year
Leah Schnurr
OTTAWA (Reuters) - Higher gasoline prices lifted Canada’s November inflation rate to its highest level since the start of the year, while consumer spending was unexpectedly strong in October, boosting bets the central bank could raise interest rates early in the new year.
The annual inflation rate increased to 2.1 percent last month from 1.4 percent in October, Statistics Canada said on Thursday, topping forecasts for 2.0 percent.
It was the highest level since January and the first time inflation has hit the central bank’s 2 percent target since February. Underlying inflation also perked up, with two out of three of the Bank of Canada’s core measures rising on an annual basis.
The data, along with a better-than-expected 1.5 percent jump in October retail sales, sent the Canadian dollar higher against the greenback and raised expectations the Bank of Canada could increase rates as early as January after taking two hikes this year.
“These reports do increase the odds of more aggressive tightening from the Bank of Canada in 2018,” said Sal Guatieri, senior economist at BMO Capital Markets.
Bets in the markets of an increase in January rose to 52.8 percent from 37.9 percent ahead of the data, while a March hike was nearly fully priced in.
Governor Stephen Poloz said last week the central bank is increasingly confident the economy will need less stimulus over time.
Consumer prices were up in seven of the eight main consumer price categories, led by a 5.9 percent annual increase in the transportation component as gasoline prices accelerated.
Food prices were up 1.6 percent as consumers paid more for meat and fresh vegetables.
A 3.3 percent increase in motor vehicle sales lifted retail sales. Vehicle sales have been robust this year, putting 2017 on track to hit 2 million for the first time.
Retail sales volumes were also strong, up 1.4 percent, prompting economists at CIBC to lift their forecast for Friday’s October growth data to 0.3 percent. Economists polled by Reuters expect a 0.2 percent increase.
Separate data from payrolls processor ADP showed companies added 59,200 workers to their payrolls in November on gains in education and health care.
The new report, which is jointly developed with Moody’s Analytics, is derived from payrolls data of about 40,000 companies.
The more closely watched Statistics Canada report, which is based on a survey of about 56,000 households, earlier this month showed 79,500 jobs were created in November.
Additional reporting by Nichola Saminather in Toronto; Editing by David Gregorio
BLOOMBERG. 21 December 2017. Canadian Inflation Jumps Above Key Level on Gasoline Prices
By Theophilos Argitis
- Consumer prices rise at 2.1% pace in November on gasoline
- Retail sales surge in October, beating consensus forecasts
Canadian inflation jumped above the Bank of Canada’s 2 percent target as the nation’s red-hot economy begins to show signs of price pressure.
Inflation accelerated to 2.1 percent in November from a 1.4 percent rate in October, Statistics Canada reported Thursday in Ottawa. While the jump was due to a surge in gasoline prices, the increases went beyond energy. A separate report showed retail sales surging in October, adding to evidence the expansion continues to steam ahead.
If the inflation proves sustained, it will pose a challenge for the Bank of Canada. Policy makers have been keen to keep the expansion moving with low interest rates on the expectation price pressures will be muted. The Canadian dollar jumped as much as 0.9 percent as the reports raise the prospect of earlier rate increases by the central bank.
“All told, some upside beats on retail and inflation leave room for the Bank of Canada to tighten” in the first quarter, Nick Exarhos, an economist at CIBC World Markets, said in a note to investors.
Investors are anticipating the Bank of Canada will move ahead with three more interest rate increases by the end of next year, adding to two rate hikes this year. Inflation last hit 2 percent in February, and last surpassed the central bank’s target in January. The jump in the inflation rate was the biggest one-month increase since 2013.
Persistently weak inflation had been one of the main arguments against further interest-rate increases. But inflation is coming in faster than the central bank had forecast in October, when it predicted it would average 1.4 percent in the final three months of 2017. Policy makers don’t expect a sustained return to 2 percent inflation until the end of next year.
Shrinking Capacity
At a rate decision this month, the central bank said the faster-than-expected inflation was due to temporary factors. Yet, today’s figures suggest that shrinking excess capacity in the economy is beginning to lift inflation.
The average of the Bank of Canada’s three key core inflation measures -- which exclude volatile items such as energy -- rose to 1.7 percent, the highest level in more than a year.
And today’s retail sales figures suggest growth in the final quarter of 2017 remains above the nation’s non-inflationary growth rates.
Retail sales increased 1.5 percent in October, the largest gain since January, Statistics Canada said. Economists surveyed by Bloomberg News forecast a 0.3 percent gain. The jump represents a comeback for retailers after a recent slowdown in sales had raised worries about consumers paring back in the second half of this year.
The retail sales figures bode well for October gross domestic product data, which will be released Friday by Statistics Canada. Economists forecast GDP growth of 0.2 percent in October.
— With assistance by Erik Hertzberg
RETAIL TRADE
StatCan. 2017-12-21. Retail trade, October 2017
- Retail sales — Canada: $49.9 billion, October 2017, 1.5% increase (monthly change)
- Source(s): CANSIM table 080-0020: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=0800020&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
Retail sales rose 1.5% to $49.9 billion in October. Higher sales at new car dealers were the main contributor to the gain. Excluding sales at motor vehicle and parts dealers, retail sales increased 0.8%.
Sales were up in 7 of 11 subsectors, representing 79% of retail trade.
After removing the effects of price changes, retail sales in volume terms increased 1.4%.
Chart 1: Retail sales increase in October
New car dealers lead gain
Motor vehicle and parts dealers (+3.3%) recorded the largest gain in dollar terms across all subsectors. The increase was largely attributable to higher sales at new car dealers (+3.9%). Used car dealers (+1.7%) and automotive parts, accessories and tire stores (+1.2%) also posted higher sales. Sales at other motor vehicle dealers (-0.3%) were down for the third time in four months.
Sales rose 1.1% at food and beverage stores, largely due to higher sales at beer, wine and liquor stores (+3.7%). Gains were also reported at supermarkets and other grocery stores (+0.4%) and convenience stores (+2.2%). Receipts at specialty food stores (-0.6%) declined for the first time in five months.
Sales at general merchandise stores (+1.8%) increased for the first time in three months.
After decreasing 1.4% in September, sales at electronics and appliance stores (+1.4%) rebounded in October.
Gasoline stations (-0.6%) posted their first sales decline in three months. In volume terms, retail sales at gasoline stations were down 0.6%.
Sales up in all provinces
Retail sales were up in every province in October. Higher sales in Ontario, Quebec and British Columbia accounted for the majority of the increase.
Ontario (+1.1%) reported the largest gain in dollar terms, increasing for the fourth consecutive month. Retail sales in the Toronto CMA rose 0.7%.
Retail sales in Quebec rose 1.8% in October, led by stronger sales at new car dealers. Retail sales in the Montréal CMA were up 2.2%.
Sales in British Columbia (+2.0%) continued their upward trend in October, rising for the seventh time in eight months. Gains were widespread across most store types. Retail sales in the Vancouver CMA (+1.6%) increased for the ninth time in ten months.
Following two months of declines, retail sales in Saskatchewan grew 3.2%, primarily on the strength of higher sales at new car dealers.
Receipts in Nova Scotia (+2.3%) increased for the fifth time in six months.
E-commerce sales by Canadian retailers
The figures in this section are based on unadjusted (that is, not seasonally adjusted) estimates.
On an unadjusted basis, retail e-commerce sales reached $1.3 billion in October, accounting for 2.6% of total retail trade. On a year-over-year basis, retail e-commerce increased 19.4%, while total unadjusted retail sales rose 7.5%.
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171221/dq171221b-eng.pdf
INTERNATIONAL TRADE
EDC. DECEMBER 21, 2017. Surprise of the Year
By Peter G Hall, Vice President and Chief Economist
"I know enough of the world now, to have almost lost the capacity of being much surprised by anything…” So wrote Dickens in David Copperfield, and it could well describe this past year. Shocks and shock-talk have become so commonplace that it would indeed be a surprise if there were no major surprises. So with a sea of surprises to select from, which one stands out?
This could easily have been the year that mounted the most significant challenge to the post-war geopolitical-economic architecture seen in that 70-year interval. The volley of European elections this year each had significant populist anti-institutional, anti-establishment, anti-1-per-cent, anti-globalization movements that threatened to gain the upper hand, throwing future architecture into limbo. In each case, the status quo gained the upper hand, preserving things…for the moment. Perhaps the surprise is that, unlike the Arab Spring, regimes weren’t toppled.
On this score, no thanks goes to the US and its anti-trade bombast. In a bizarre year of leading-by-tweet and the lingering existential threat of an election-corruption scandal, US protectionism forged ahead with the moral suasion campaign against the international activities of auto-makers and appliance manufacturers, a warning shot to others with similar plans. Actions against Canada’s lumber producers and the vulnerable aerospace sector, not to mention caustic words about the dairy industry, upped the isolationist ante significantly. It all looked that much more serious when in round 4 of the NAFTA renegotiations it seemed that ‘poison pill’ provisions really would scuttle the deal. It’s no surprise that this didn’t happen; America needs the deal too much. What is surprising is that it took the US business lobby so long to get active in support of NAFTA.
So much for Canada’s traditional space. What about the broader world? Oil markets matter to Canada, and two significant events occurred that normally would have shaken the market significantly. First, Qatar was ‘blockaded’ by the its GCC community, and oil prices barely budged. Second, there was a significant regime shift in Saudi Arabia, with dire consequences for certain key leaders. Again, oil prices seemed to yawn.
Africa doesn’t usually top the list of surprises, but something that was not foreseen was the toppling of two long-time leaders. OK, that has happened quite a bit in the past half-century, but rarely in the way it happened this year – both Robert Mugabe in Zimbabwe and Jammeh in The Gambia were removed without a single shot fired.
For a long time – too long – India has sort of been the ‘big engine that wouldn’t’. Lots of potential, but not enough will or energy to overcome the significant internal obstacles to growth. Enter the Modi government, which has brought new policies into play that are helping to make India the China of the current economic cycle. Growth is already superior, and it’s looking sustainably so. Two great verifications of progress occurred this year. First, Moody’s gave India its first sovereign upgrade in 13 years. Second, India climbed more than 30 points on the World Bank’s Ease of Doing Business Index. It still has a long way to go, but that is eye-popping progress that should lead to more.
The long list – and we could add a few more things to it – makes it hard to narrow it down to just one. But when we consider the overall picture, it’s clear that eight years beyond the Great Recession, there is still a lot of disruption going on – political, social, economic, technological and military. In this there is enough uncertainty to keep the global economy in ‘pause’ mode. One inescapable fact is that growth has, after all these years, begun to ramp up. Cynics believe this is a ‘last hurrah’, and are still obsessed with the persistent negative effects of structural fissures brought on by the last decline. Even so, forecasts are, for the first time in seven years, being revised upward. Europe, of all places, is in many ways showing the most verve. And after all these years, confidence appears to be back – not just to average, but to near-record levels. We actually expected this, so what’s the surprise? Perhaps that it occurred in spite of significant disruptions. But maybe the bigger surprise to us is that so many are surprised by the new growth.
The bottom line? Anytime a new wave growth occurs, and especially after such a long lull, I marvel that it almost seems to have a life of its own, quite in spite of ourselves.
EDC. The Globe and Mail. 21 Dec 2017.EDC cancels loan for South African tycoons’ purchase of Bombardier jet
GEOFFREY YORK, JOHANNESBURG
We exercised our contractual rights, and the transaction was terminated.
PHIL TAYLOR, EXPORT DEVELOPMENT CANADA SPOKESMAN
The Canadian government’s export agency, acknowledging a “political-exposure” risk, has cancelled a $41-million (U.S.) deal to help finance the sale of a luxury Bombardier jet to the controversial business tycoons at the heart of South Africa’s biggest corruption scandal.
Export Development Canada, the Crown corporation that provides financial services to Canadian exporters and their clients, has abruptly terminated a loan that had allowed Bombardier Inc. to sell a Global 6000 jet to the powerful Gupta family of South Africa for $52-million.
In recent weeks, the Guptas failed to meet their loan repayment obligations, and the political-exposure risks became a growing factor in the EDC’s monitoring of the loan.
The jet was grounded for two days at a Johannesburg airport last month as the EDC began to take action to recover its money.
Bombardier had enthusiastically pursued the aircraft deal with the Guptas in 2014, recruiting EDC to finance the sale.
The credit agreement was approved in December, 2014, with the crown corporation agreeing to finance 80 per cent of the $52-million purchase price. Leaked e-mails obtained by The Globe and Mail show that Bombardier had also been in the final stages of negotiating the sale of a second luxury jet to the Guptas as recently as last year. The second deal fell apart before it could be finalized, and now the first deal is also in deep trouble.
The aircraft deals with the Guptas have raised questions about due-diligence procedures at EDC and Bombardier. Critics argue that the Crown corporation and the Montreal-based manufacturer have been too willing to turn a blind eye to corruption, and that EDC has been too eager to finance Bombardier deals with any client. Both EDC and Bombardier have insisted that they follow their due-diligence rules strictly and carefully.
The India-born Gupta brothers, who immigrated to South Africa in the 1990s and created a sprawling business empire that ranges from media to mining, have been the subject of hundreds of media reports since 2010 on dubious insider deals between their companies and state-owned enterprises in which Gupta associates had gained influence.
A government inquiry in 2013 found that the Guptas had wrongly used their official connections to obtain the use of a military airport for a planeload of wedding guests who bypassed the normal immigration and customs controls. Another public inquiry in 2016 heard testimony that the Guptas had offered bribes to cabinet ministers and gained influence over cabinet appointments.
The Gupta-owned Bombardier jet has remained active, despite EDC’s efforts to recover its money. This week, the jet was flown from Zurich to an airport in northeastern France, according to flight-tracking websites.
While the Guptas apparently still hold the jet, EDC can now take steps to try to repossess the aircraft, unless the loan is repaid.
The agency has said little about the Gupta financing deal, except that it is now cancelled. “EDC monitored the performance of the transaction,” Export Development Canada spokesman Phil Taylor told The Globe.
“Consistent with EDC’s underwriting principles and policies, we exercised our contractual rights, and the transaction was terminated.”
Asked whether EDC had any concerns about its decision to approve $41-million in financing to Gupta-owned Westdawn Investments to facilitate the Bombardier sale, Mr. Taylor acknowledged for the first time that EDC had been aware of the risks.
“In 2014, we were aware of potential political-exposure risk, but we did not surface any opportunities for the potential risk to manifest within the transaction itself,” he said.
“We felt that the indirect risks, which were speculative in nature but still present within the broader corporate structure and part of EDC’s review, did not present a material risk to the transaction itself at that time.”
Two British-based banks, HSBC and Standard Chartered, recently disclosed that they shut down a number of Gupta bank accounts in 2014 after concerns were raised about transactions by Gupta companies.
Asked why EDC’s due-diligence procedures had failed to notice this, Mr. Taylor confirmed that EDC had been unaware of the action by the British banks, but said it would be “unprecedented for this kind of information to be publicly available.”
Meanwhile, more than a year after selling its first Global 6000 jet to the Gupta family, Bombardier was pushing ahead with a second sale of the same model of luxury jet to another Gupta associate in early 2016, although the deal was ultimately never approved.
The Globe has obtained an e-mail, dated Feb. 19, 2016, in which a Bombardier sales director sought approval from a Gupta associate, Salim Essa, on options for the exterior paint design of a Global 6000 jet.
Mr. Essa has been a partner of the Gupta family for many years, owning shares in several Gupta-controlled companies and acting on behalf of the Guptas in business deals.
Approval of exterior paint designs is normally one of the final steps in an aircraft deal, usually occurring after a purchase agreement is signed.
In an earlier e-mail in June, 2015, the same Bombardier sales director had told one of the Gupta brothers that he was “excited to be able to offer Mr. Gupta a second aircraft to meet their growing travel needs.” He said he was talking to EDC about the possibility of financing the second aircraft.
The Bombardier e-mail in February of 2016 was sent to a senior executive at Oakbay, the main Gupta holding company. The Oakbay executive then forwarded the e-mail to three people: Mr. Essa, Tony Gupta, and Duduzane Zuma, a son of South African President Jacob Zuma and a long-standing partner in several Gupta companies.
The Global 6000 aircraft had a list price of $62.3-million in 2015. Manufactured in Toronto and Montreal, the jet has a range of more than 11,000 kilometres.
Asked about the negotiations to sell a second aircraft to the Gupta companies last year, Bombardier aviation division spokesman Mark Masluch said the company always conducts a “comprehensive review” and a “strict due-diligence process” before any aircraft sale is finalized. “In this specific case, the transaction was never completed, the aircraft never delivered,” he said.
Asked about EDC’s decision to cancel its financing for Bombardier’s first aircraft sale to the Guptas, he said: “We understand that EDC has strict internal policies in place, like Bombardier, to govern its international business.”
The Globe and Mail. 21 Dec 2017. Auto industry pumps brakes on TPP optimism
GREG KEENAN, AUTO INDUSTRY REPORTER
Access to the low-cost supply chains of Asia on a volume basis is structurally out of reach for Canadian manufacturers and the advantage will fall solely to Asian-based assemblers of the Trans Pacific Partnership region.
FLAVIO VOLPE PRESIDENT, AUTOMOTIVE PARTS MANUFACTURERS’ ASSOCIATION OF CANADA
The notion that Canada’s participation in a new Trans-Pacific Partnership trade deal will open a vast new market for Canadian auto-parts producers is incorrect, says Flavio Volpe, president of the Automotive Parts Manufacturers’ Association of Canada.
Subaru, along with Mazda, import the largest percentages of vehicles from Japan into Canada.
Prohibitive fees for shipping across the Pacific Ocean push the costs of most components made in Canada out of reach for markets in Japan and elsewhere in Asia that would be part of such a free-trade deal and small and medium-sized auto-parts companies lack the resources that are essential to win business and open up factories in those markets, Mr. Volpe said.
Nor will sales of Canadianmade vehicles with high Canadian-parts content take off if the current automotive provisions of the TPP are made final in an 11-country agreement, he said.
“Furthermore, access to the low-cost supply chains of Asia on a volume basis is structurally out of reach for Canadian manufacturers and the advantage will fall solely to Asian-based assemblers of the Trans-Pacific Partnership region,” Mr. Volpe said in a memorandum to the association’s members.
His comments are supported by Rob Wildeboer, executive chairman of Martinrea International Inc., Canada’s third-largest auto-parts maker by revenue.
“Putting parts on cars sold in Japan, I just don’t think that’s going to happen,” said Mr. Wildeboer, who noted that he supported the TPP when it included the Americans. But since the United States pulled out of the talks earlier this year, it makes more sense to carve the auto sector out of the TPP until negotiations on the North American free-trade agreement are concluded, he said.
Both he and Mr. Volpe argued that Canada reaching a new deal on NAFTA with the United States and Mexico, then the North American countries negotiating as a bloc with the other TPP countries would make more sense than trying to reach separate deals at the same time.
Automotive trade is also a critical issue in the NAFTA discussions and the concerns raised by the parts makers about the auto provisions of the TPP contributed to the federal government insisting in multilateral talks on the deal last month that further negotiations are necessary.
“Why can’t you have a discussion on TPP and say we’re going to exclude this [auto] industry?” Mr. Wildeboer asked. “Because quite frankly, it’s as important as the cultural industry.”
Japan-based auto makers Honda Motor Co. Ltd. and Toyota Motor Corp. are strong supporters of the TPP, in part because it would eliminate the 6.1-per-cent duty Canada levies on vehicles imported from Japan.
That tariff is being eliminated on vehicles imported by Honda and Toyota rivals in South Korea and Europe because of free-trade agreements that country and continent have signed with Canada.
Mr. Volpe suggested in an interview that Canada can address that concern by granting the two companies an exemption from the levy while negotiations are under way on the TPP.
A tariff exemption for Honda and Toyota on the approximately 40,000 vehicles they import from Japan annually could address their key concern that they are being treated unfairly because they have invested billions of dollars in assembly plants in Canada, while auto makers from South Korea and Europe have not.
“The Japanese have invested here much to our benefit,” Mr. Volpe said.
Granting the exemption to all Japan-based auto makers would reward those companies that have not invested here, he said.
Among major auto makers, Mazda Motor Corp. and Subaru Corp. import the largest percentages of vehicles from Japan into Canada.
He acknowledged that such a move would likely be challenged at the World Trade Organization.
The challenges “might win that complaint, but that complaint might be won in 18 to 24 months and Canada might be forced to back off,” he said. “In the meantime, we’ll have put NAFTA to bed and we’ll go back into TPP discussions.”
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LGCJ.:
