CANADA ECONOMICS

US - CANADA / NAFTA

Global Affairs Canada. May 28, 2018. Foreign Affairs Minister to visit Washington, D.C.

The Honourable Chrystia Freeland, Minister of Foreign Affairs, will visit Washington, D.C., on Tuesday, May 29 and Wednesday, May 30, 2018.

CANADA - CHINA / INTERNATIONAL TRADE / INTELLECTUAL PROPERTY

The Globe and Mail. 28 May 2018. PM urged to probe Huawei’s role in Canada. Security, economic concerns raised over transferral of intellectual property to Chinese telecom giant as it develops 5G technology
ROBERT FIFE
SEAN SILCOFF
STEVEN CHASE

University of Toronto president Meric Gertler, left, welcomes Huawei Technologies CEO Ren Zhengfei to the school in 2017. Chinese telecommunications giant Huawei has committed about $50-million in funds to 13 leading Canadian universities, including U of T.

OTTAWA - Prime Minister Justin Trudeau is being urged to gather security agencies and top policy makers to determine the security threat and economic cost of transferring Canadian intellectual property to Chinese telecommunications giant Huawei Technologies.

Andy Ellis, former assistant director of operations at the Canadian Security and Intelligence Service, said he was alarmed at the extent of the inroads that Huawei has made into Canadian universities with the aim of acquiring leading-edge 5G wireless technology.

A Globe and Mail investigation published Saturday revealed that Huawei has established a vast network of relationships with Canadian universities to create a steady pipeline of intellectual property to aid in the development of next-generation mobile networks. The concerns come in the wake of Ottawa’s decision to block Aecon Group’s takeover by a Chinese state-owned company on national-security grounds, and follows the Liberal government’s attempts since assuming office to improve trade relations with China, possibly leading to a freetrade deal.

Huawei has committed about $50-million to 13 leading Canadian universities, including the University of Toronto, the University of Waterloo, McGill University and the University of British Columbia, to fund the development of 5G mobile technology, which it has used as a basis to file hundreds of patents. Canadian university professors have transferred full rights to their inventions to Huawei in 40 instances.

Mr. Ellis, now chief executive of ICEN Group, said the Prime Minister should assemble a team of deputy ministers and top security officials to examine what − if any − threat that Huawei poses in its drive to scoop up and patent 5G technology that draws heavily on the work of Canadian academics.

“If I was Mr. Trudeau, I would say I want all of you in the intelligence community to tell me the length and breadth of what is going on here and to recommend to me some actions that mitigate it … [and] if we are at risk,” he said in an interview Sunday.

Mr. Ellis shares the view of the U.S. and Canadian security and intelligence establishment that Huawei represents a cybersecurity danger because of its close links to China’s ruling Communist Party. It was recently revealed that Huawei is helping China’s state security apparatus spy on its Uyghur minority. Former top Canadian intelligence officials have warned that Huawei could use 5G technology for espionage, a charge denied by Huawei spokesman Scott Bradley.

A spokesman for Mr. Trudeau on the weekend deferred questions about Huawei to Industry Minister Navdeep Bains. His department said on Sunday that the National Sciences and Engineering Research Council grants to academics “are awarded through an independent peer-reviewed process to ensure excellence and impartiality.” It added that businesses partnering and co-funding the research “must demonstrate economic, social or environmental benefits for Canadians. Canadians can rest assured that our government will never compromise national security and will always listen to the advice of public-security officials.”

The office of Public Safety Minister Ralph Goodale said federal departments work together to ensure that there are no risks to Canada’s industry, and added that half the National Sciences and Engineering Research money that went to Huawei-affiliated research projects was handed out by the former Harper government.

David Campbell, a former CSIS China analyst, said some research universities may plead ignorance or practice willful blindness when it comes to potential national-security threats involving China, especially if it could affect funding.

“Academics in general are a trusting lot who strongly believe sharing information is a fundamental value of academic inquiry. So you have a recipe for some severe naiveté about what technologies might be filtering out of universities,” said Mr. Campbell, now a professor at Brigham Young University−Idaho.

He suggested that Canada may do well to follow the example of U.S. security agencies, which provide advice to leading American universities on national-security threats that need to be on their radar.

The Globe investigation also raised concerns about the extent to which Huawei is benefiting from Canadian university researchers – whose salaries and research are largely funded by governments – to build its 5G patent warchest. Several observers called on the government to enact changes to ensure Canada captures more of the economic value from research that it helps to fund.

“There should be a concerted policy led by the Canadian government to ensure that Canadian intellectual-property rights and security risks are protected,” said Conservative MP Tony Clement, a former industry minister. “We’re a great country, we have great minds, but if you don’t protect that, you become just a feeding mechanism for other powers to suck us dry.”

Ottawa patent prosecutor Natalie Raffoul said “the big question to be asking is, ‘How is this benefiting Canada?’ ” She suggested that Ottawa develop a framework that lays out “a certain amount of IP ownership remains in Canada, or at least profit-sharing remains with the Canadian entity” that participated in the research. This should come with strings-attached agreements through its research-granting agencies, ensuring that if research is transferred to a foreign entity, then the benefits are recouped through compulsory licensing.

Not everyone shares this assessment. Vivek Goel, vice-president of research and innovation with University of Toronto, whose institution retains IP rights to research commercialized by Huawei under its deal with the firm, said concerns about Huawei overly benefiting from Canadian research are overblown. “The IP that gets generated is just a small part really of what the big benefit for Canada is,” he said, adding that Canada also gets “resources to train people in very advanced fields” through relationships with foreign industry partners.

Mr. Goel further warned that if Ottawa puts in too many constraints about transferring ownership of university research “it will actually wind up making it less valuable” to potential investors. He added “it would be unfortunate if we took a stance of building a wall around Canada and leaving global industry out. We’re too small a market and we don’t have enough capital [domestically] to develop the intellectual property.”

However, McGill University law professor Richard Gold said universities “continue with the model of taking public monies to finance research and transfer intellectual property at pennies on the dollar to foreign firms. At the same time, these universities claim they need more public financing because they contribute to innovation in Canada. They cannot have it both ways … We should welcome foreign investment in our research enterprise, but must ensure that the bulk of the benefits do not flow outward when Canadians are footing most of the bill.”

CANADA - ISRAEL / INTERNATIONAL TRADE

Global Affairs Canada. May 28, 2018. Minister Champagne welcomes modernized Canada-Israel Free Trade Agreement

Montréal, Quebec - Canada’s relationship with Israel is based on strong economic, cultural and social ties. Israel is a long-time trading partner, and Canada’s free trade agreement with Israel has contributed to better opportunities for businesses and economic prosperity for hard-working Canadians.

Today, the Honourable François-Phillippe Champagne, Minister of International Trade, and Eli Cohen, Israel’s Minister of the Economy and Industry, announced the signing of the modernized Canada-Israel Free Trade Agreement (CIFTA). Minister Champagne underlined the importance of the agreement as an engine of growth and prosperity for both countries.

Canada and Israel have modernized the original CIFTA to include progressive elements, such as dedicated chapters on labour, the environment, trade and gender, and small and medium-sized enterprises (SMEs), as well as provisions on corporate social responsibility. New provisions will also help to make the dispute-settlement mechanism more efficient, effective and transparent.

The modernized CIFTA also includes further tariff reductions and eliminations for agricultural and agri-food products, which will provide improved access for Canadian exporters to the Israeli market. Better access for service suppliers in sectors where Canadians excel will help create more opportunities for established and first-time exporters and generating new jobs at home.

Quotes

“A strengthened economic partnership with Israel will help create better market access opportunities for Canadian businesses and eliminate tariffs in many sectors. New progressive elements on gender, on small and medium-sized enterprises and on corporate social responsibility, as well as labour and environmental protections, will help ensure that the benefits that flow from trade are more widely shared. Today’s signing of the modernized Canada-Israel Free Trade Agreement marks another milestone in our growing trade relationship while contributing to the growth and prosperity of both countries.”

- François-Philippe Champagne, Minister of International Trade

"In 1997, Israel became the third country to sign a free trade agreement with Canada. Since then, the trade between Canada and Israel has increased significantly. Today we are witnessing a historical step in the trade relations between the two countries with the signing of the upgraded agreement. The upgraded free trade agreement between Canada and Israel will open new opportunities for Israeli exports to this significant market."

- Eli Cohen, Minister of the Economy and Industry of Israel 

Quick facts

• The original Canada-Israel Free Trade Agreement came into effect on January 1, 1997.
• Since 1997, Canada’s two-way merchandise trade with Israel has more than tripled, reaching $1.7 billion in 2017.
• Canada’s agriculture and agri-food exports to Israel, including lentils, chickpeas and canola seeds, totalled $56.8 million in 2017.
• The inclusion of progressive elements, including chapters on labour, environment, gender and SMEs, is a first for Israel in a free trade agreement.

FULL DOCUMENT: https://www.canada.ca/en/global-affairs/news/2018/05/minister-champagne-welcomes-modernized-canada-israel-free-trade-agreement.html

US - CHINA

REUTERS. MAY 28, 2018. China rejects U.S. charge of 'forced technology transfer' at WTO
Tom Miles

GENEVA (Reuters) - China told the World Trade Organization’s dispute settlement body on Monday that U.S. accusations that Beijing forced companies to hand over technology as a cost of doing business in China were groundless.

U.S. President Donald Trump has accused China of stealing American ideas and announced a plan for a $50 billion tariff penalty against Chinese goods.

Both sides launched legal complaints at the WTO over the issue earlier this year.

“There is no forced technology transfer in China,” Chinese Ambassador Zhang Xiangchen told the meeting, according to a copy of his remarks provided to Reuters.

“According to the U.S.’s view, China forces the U.S. companies to transfer technologies by imposing joint venture requirements, foreign equity limitations and administrative licensing procedures,” Zhang said.

“But the fact is, nothing in these regulatory measures requires technology transfer from foreign companies.”

Zhang said the U.S. argument involved a “presumption of guilt”. The U.S. Trade Representative believed U.S. firms in China faced an obligation to hand over technology, while failing to produce a single piece of evidence.

Some of its claims were “pure speculation”, he said, adding that the USTR saw Chinese M&A activity as a Chinese government conspiracy.

“DILIGENCE AND ENTREPRENEURSHIP”

Technology transfer was a normal commercial activity that benefited the United States most of all, he said, while Chinese innovation was driven by “the diligence and entrepreneurship of the Chinese people, investment in education and research, and efforts to improve the protection of intellectual property.”

Legal experts say Washington needs WTO backing to implement its tariffs as far as they relate to WTO rules, while China has rejected the tariff plan wholesale and resorted to WTO action to stop it.

Under WTO rules, if disputes are not settled amicably after 60 days, the complainant can ask for a panel of experts to adjudicate, escalating the dispute and triggering a legal case that takes years to settle.

The United States, which launched its complaint on March 23, could have used the dispute meeting on Monday to take that step. China could do so at next month’s meeting.

But since the dispute erupted, U.S.-China trade policy has been the subject of high-level bilateral talks. Trump tweeted cryptically that “our trade deal with China is moving along nicely” but that it probably needed a “different structure”.

The United States put China’s technology transfer policies on the agenda of Monday’s meeting, without elaborating. A copy of the U.S. remarks was not immediately available.

Reporting by Tom Miles; Editing by Catherine Evans and Gareth Jones

INTERNATIONAL TRADE

REUTERS. MAY 28, 2018. Germany seeking deal to end EU-U.S. trade dispute

BRUSSELS (Reuters) - Germany is seeking to end a dispute between the United States and the European Union over President Donald Trump’s decision to impose high tariffs on steel and aluminum imports, Economy Minister Peter Altmaier said on Monday.

Altmaier said he would discuss the issue with European Trade Commissioner Cecilia Malmstrom and U.S. Commerce Secretary Wilbur Ross at a meeting of the Organization for Economic Co-operation and Development (OECD) in Paris this week.

“We need to try to avoid higher tariffs,” Altmaier said. Trump imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum in March but the European Union has been granted exemptions until June 1.

Reporting by Peter Maushagen; Writing by Joseph Nasr; Editing by Catherine Evans

AVIATION

The Globe and Mail. 28 May 2018. Bombardier bets on a business aircraft turnaround with the unveiling of two luxury jets. Company counting on business aircraft to help drive turnaround effort as it shifts its focus
NICOLAS VAN PRAET

BOMBARDIER

Bombardier surprised an industry event in Geneva on Sunday with its new Global 6500 luxury jet. The company has been secretly testing it and the Global 5500 at its facilities in Wichita, Kan., since the beginning of the year.

In a surprise move aimed at improving its competitive position against Gulfstream and other rivals, Bombardier Inc. is launching two new large-cabin luxury jets as it bets on a recovery in business aircraft.

The Canadian plane and train maker has been secretly testing the two jets, which will be known as the Global 5500 and Global 6500 aircraft, since the beginning of the year at its facilities in Wichita, Kan. The company unveiled the existence of the planes at an industry event in Geneva on Sunday evening. It plans to get them into service by the end of next year.

“[There are] a lot of shocked faces … tonight to say the least,” Bombardier spokesman Mark Masluch said by phone from Europe. “We’re hoping that we have a winner here with these two products when we have a full rebound of the market.”

Alain Bellemare, Bombardier’s chief executive, is counting on the Global line of business jets to help drive his five-year turnaround effort as the company cedes control of its C Series commercial airliner to Airbus SE and shifts its focus to luxury aircraft and trains.

The company expects its marquee Global 7000 plane, the world’s biggest purpose-built private jet, to help increase its business jet sales by US$3-billion to US$8.5-billion by 2020. Margins on Bombardier’s private jets should range between 8 per cent and 10 per cent by that time, the company estimates.

Adding two new private jet models is something Bombardier needed to bring the overall quality of the Global aircraft portfolio closer to the level of the flagship 7000, Mr. Masluch said. The new planes improve on the existing Global 5000 and 6000 models by offering up to 600 nautical miles of additional range and 13-per-cent better fuel burn, according to Bombardier. They also offer better performance when operating in hot weather and high altitude conditions, the manufacturer says. The interiors of the new jets, meanwhile, will feature many of the high-end finishes to come in the Global 7000. That includes Bombardier’s patented Nuage seat, which luxury journal Robb Report says distinguishes itself particularly with its innovative reclining system. List price for the Global 5500 starts at US$46-million while the 6500 starts at US$56-million.

There is no change to manufacturing sites for the new aircraft and no significant additional capital spending to come beyond what has already been disclosed to the market, Mr. Masluch said. Development costs for the new jets are “already mostly behind us,” he said. The jets will share a production line with the current 5000 and 6000 planes.

“It’s a pretty impressive and necessary response to Gulfstream’s 500/600 line,” Richard Aboulafia of the Teal Group aerospace consultancy said of Bombardier’s moves. “It’s also impressive that they’ve been working on it this long while keeping it under wraps. This shows the company is now able to give priority to its business jet unit.”

Manufacturers are hoping new products will rekindle demand for private jets after the worst down-cycle for luxury aircraft since the 1980s. The five major business jet makers plus Boeing Co. and Airbus delivered 113 private jets in the first quarter of 2018, down 5.8 per cent year-overyear, according to a monthly analysis of the market published May 22 by JP Morgan analyst Seth Seifman.

“With used jet inventory levels approaching ever-lower levels, a new bizjet cycle should be upon us – if macro conditions co-operate,” Mr. Seifman said.

Rolls-Royce Holdings PLC will deliver a new engine called Pearl specifically for the new Global planes, Bombardier said Sunday. Certification of the engine from regulatory authorities has already been obtained. The aircraft will also feature a modified wing.

In all, Bombardier will offer six different models in its Global jet family. The Global 7000 is expected to be rechristened as the Global 7500 to maintain consistent marketing as the 500-series of planes are sold as the top-of-theline products. A Global 8000 will round out the portfolio.

“This is a progressive investment in business jets,” said Chris Murray, an analyst with AltaCorp Capital in Toronto. “[It allows Bombardier to] maintain a competitive product offering at the higher end of the market, which looks to be the most robust and profitable section of the industry.”

REUTERS. MAY 27, 2018. Bombardier launches longer-range variants of Global business jets
Allison Lampert

MONTREAL (Reuters) - Canada’s Bombardier Inc on Sunday announced two new longer-range variants of its existing large-cabin Global business jets, which the company expects to generate higher revenues during a time of recovering appetite for corporate planes.

The Global 5500 and 6500 jets are expected to offer 13 percent improved fuel burn and longer ranges compared with the plane-and-train-maker’s existing Global 5000 and 6000 aircraft. The jets will also have new wings, interiors, and Rolls Royce engines, among other upgrades, Bombardier spokesman Mark Masluch said.

The 5500 and 6500, which have the same bodies as Bombardier’s current Globals, will be manufactured at the company’s existing Canadian production lines.

The new jets are expected to receive certification in 2019, ahead of delivery by the end of next year and will drive a “premium price,” Masluch said by phone from Geneva, ahead of the EBACE business jet show.

The Global 5500, which lists for $46 million, has a range of 5,700 nautical miles and can connect Sao Paolo and Paris, while the Global 6500, which lists for $56 million, has a range of 6,600 nautical miles, can connect Hong Kong and London, Bombardier said.

Bombardier’s larger cabin planes compete against General Dynamics Corp’s Gulfstream, whose G650 business jets will continue to have unmatched flight range at the top end of the pure business jet segment until the largest Global enters service this year.

While a hefty supply of used aircraft has prompted planemakers to lower production volumes of new corporate aircraft in recent years, some forecasters expect business jet sales to pick up between 2019-2027, in line with global GDP growth.

Revenues from sales of the 5500 and 6500 will be part of Bombardier’s five-year turnaround plan that leans heavily on delivery of its flagship, Global 7000 business jet to achieve a 25 percent jump in total company revenues to $20 billion by 2020, compared with 2017.

Total revenues from Bombardier’s business aircraft are expected to grow to $8.5 billion in 2020, up from $5 billion in 2017.

Masluch said that most of the investments in developing the new variants are “already behind us.”

Bombardier considered bankruptcy in 2015, after facing a cash-crunch because of heavy spending on both the CSeries commercial plane and the ultra-long-range Global 7000, which will be renamed the Global 7500.

Reporting by Allison Lampert; Editing by Lisa Shumaker

REUTERS. MAY 28, 2018. U.S., EU again at odds over Airbus subsidies at WTO

GENEVA (Reuters) - The European Union told the World Trade Organization’s dispute settlement body on Monday that it had acted within days of a WTO ruling to bring its funding of planemaker Airbus into line with WTO rules, a trade official who attended the meeting said.

But a U.S. representative at the meeting said that it was hard to give credence to the EU’s assertion and called for serious discussions to resolve the long-running trade dispute, although Washington was prepared to seek countermeasures if necessary, the official said.

Reporting by Tom Miles; editing by Stephanie Nebehay

ECONOMY

The Globe and Mail. 28 May 2018. BoC seen holding rates steady amid raft of economic uncertainties. Calendar: Trump’s auto tariff threat further complicates NAFTA talks, economist says
MICHAEL BABAD

Much is at play as the Bank of Canada, which is monitoring the impact of its earlier rate increases, ponders when to move again.

THE WEEK AHEAD

From housing to trade to the broader economy, there’s more than enough uncertainty to stay Stephen Poloz’s hand this week.

The Bank of Canada Governor, senior deputy Governor Carolyn Wilkins and their colleagues are expected to hold their benchmark overnight rate steady at 1.25 per cent on Wednesday, choosing to wait until July, at the earliest, to begin tightening again.

“With much uncertainty remaining and a third consecutive quarter of soft growth, we anticipate the BoC will hold policy rates steady,” said Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist.

“However, our expectation that housing will at least stabilize in Q2 and that the data will turn more positive underpin our call for the next rate hike to come in July.”

Much is at play as the Bank of Canada, which is monitoring the impact of its earlier rate increases, ponders when to move again. Here are the big issues:

THE ECONOMY

Canada’s economy has downshifted, and Statistics Canada will highlight this Thursday, a day after the central bank decision, with a look at first-quarter growth.

Economists expect that reading to show gross domestic product expanded at a soft annual pace of between 1.5 per cent and 2 per cent.

“The central bankers will likely have had a preview peek at the Q1 GDP data when they make their rate announcement on Wednesday,” said CIBC World Markets chief economist Avery Shenfeld.

“We now look for an even 2-percent real GDP pace, which nicely tops the last BoC projection,” he added. “But there’s no reason for Governor Poloz to rush to judgment. The average pace over the last three quarters will still have been below 2 per cent, and core inflation has yet to breach the bank’s target for [overall inflation].”

Of course, Mr. Shenfeld’s projection is on the high side.

Royal Bank of Canada economists, for example, expect to see 1.8 per cent, which, they noted, would be half of a percentage point above the central bank’s forecast of 1.3 per cent.

That “would still mark a third straight quarter of growth at or slightly below the 1.8 per cent the bank estimates as the economy’s underlying ‘potential’ growth rate,” RBC said.

“With the economy assumed to be at or close to capacity, growth close to potential is desirable as it prevents the economy from slipping into excess demand and potential inflationary pressures.”

All in all, RBC and other observers expect the central bank to signal an increase in its key rate, but with no stated timeline.

TRADE FEARS

Already, Canadian, U.S. and Mexican negotiators have missed a socalled congressional deadline to strike a new North American freetrade agreement.

And the central bank has already flagged NAFTA as a key uncertainty, and now come added threats of tariffs on a few fronts.

First, there’s President Donald Trump’s latest threat, a tariff of up to 25 per cent on auto imports, after his administration launched a probe under national security provisions.

Then there’s the fact that the exemption from U.S. tariffs on steel and aluminum runs out on Friday, and “a rate hike just days before tariffs could be imposed would look quite bad,” BMO’s Mr. Reitzes said.

As for the Bank of Canada’s policy statement Wednesday, added CIBC’s Mr. Shenfeld, “no doubt, the BoC will also include a reference to trade uncertainties, which have only gotten messier as the U.S. now waves the threat of auto tariffs.”

Mr. Trump threatens a lot of things, of course, but even a bark adds to uncertainty whether or not it’s followed by a bite.

“President Trump’s latest threat may ultimately prove to be another negotiating tactic in the ongoing NAFTA saga, particularly since such a visible price increase is unlikely to be popular among voters,” said Toronto-Dominion Bank senior economist Brian DePratto.

“But, it adds yet another challenge to already difficult negotiations,” he said. “Not only does the auto file remain murky, there have been few signs of progress in other contentious areas, such as dispute resolution.”

HOUSING SLUMP

Home sales have tumbled in the wake of provincial government measures to cool off the Vancouver and Toronto area markets and, most recently, new mortgage qualification rules from Canada’ s commercial bank regulator. Mortgage rates have also increased, adding even more pressure.

“With sales yet to stabilize, it’s hard to imagine the BoC will opt to tighten policy further and increase the downside risk to housing,” Mr. Reitzes said in a lookahead to the rate decision.

“Recall that pundits have been calling for a housing crash for the better part of a decade; governor Poloz doesn’t want to be remembered as the governor who caused a housing crash.”

Indeed, Canadians have been walking a fine line, having driven up home prices and borrowing to finance that. Thus, the Bank of Canada’s balancing act.

“Perhaps what is most on the bank’s mind is the gargantuan debt load that the Canadian household sector carries on its balance sheet,” said David Rosenberg, chief economist at Gluskin Sheff + Associates.

“It’s like a ball and chain that can really only be serviced adequately out of current incomes if rates stay low,” he added.

“But the bank has already raised rates three times since the oil crisis ended, and the reality is that the local bond market is highly correlated with U.S. Treasuries – where yields across the curve have been on a discernible upward trajectory. Hence, the recent bond-induced rise in Canadian mortgage rates.”

MONDAY: TAKING STOCK

It will be a slow start to the week, given U.S. markets are closed for Memorial Day.

But watch for how other exchanges fare after Europe’s losses last week on political concerns in Italy, with Canadian stocks also down, though by less than 0.5 per cent.

“As U.S. indices are searching for direction, still consolidating after the early-year blowout and subsequent correction, we’re all acutely aware that the S&P 500 is closing in on the longest postwar bull market on record, now more than nine years old and within shouting distance of that laid down through the 1990s,” BMO senior economist Robert Kavcic said.

TUESDAY: BANKS, BOOKS AND POT

Here’s where it picks up, with Bank of Nova Scotia, Canna Royalty Corp., Indigo Books & Music Inc. and others releasing quarterly results.

Markets will also get the latest reading on U.S. home prices.

WEDNESDAY: MORE BANKS

Before Mr. Poloz and his colleagues take the stage, Statistics Canada will lay some groundwork with its first-quarter measure of the current account balance.

Economists expect we’ll see a fatter deficit of $18-billion or more, an increase of almost $2billion.

“Transportation bottlenecks were largely to blame for a slowdown in goods exports, while firming domestic demand later in the quarter supported healthy growth in imports,” Royce Mendes of CIBC said. “The deficit will be at the wider end of the range seen postcrisis, another headwind to the Canadian dollar.”

The day also brings quarterly results from BMO and National Bank of Canada.

Plus, the Federal Reserve’s Beige Book of regional economic conditions, the first of two reports this week that may suggest where the U.S. central bank is headed. The GDP report may, as noted, highlight a weak first quarter, but economists believe the first three months were weighed down by January, and that the March showing will be better, and point to stronger days ahead.

“The Canadian economy woke up in 2018 with a bit of a hangover,” CIBC’s Mr. Mendes said. “But, after a brief decline in January, economic activity appears to have perked back up.”

“Our forecast of a 0.2-per-cent advance in March reflects positive readings on manufacturing, retailing and wholesaling, but also the potential drag from earlier than expected maintenance at an oil production facility.”

On the earnings front, watch for Lululemon Athletica Inc. and Costco Wholesale Corp.

India, meanwhile, is expected to report first-quarter economic growth of 7.5 per cent from a year earlier, a pickup from the fourthquarter pace of 7.2 per cent, “with the strength of industrial production growth, various consumer indicators and soft survey data in Q1 all suggesting that underlying conditions have improved,” Shilan Shah of Capital Economics said. “However, we remain skeptical about how useful the GDP data are as a gauge of the health of the economy.”

FRIDAY: JOBS

Consider it akin to the Fed getting its ducks in a row as it heads into its mid-June meeting.

After Wednesday’s release of the Beige Book, markets will weigh whether Friday’s U.S. jobs report will nudge the U.S. central bank into another rate hike soon.

Economists expect to see May job creation of between 180,000 and 200,000 positions, with unemployment holding at 3.9 per cent. “We expect a strong U.S. employment report to keep the Fed on track for a June hike,” Capital Economics said.

Also expected are manufacturing purchasing managers index readings from across the globe.

ENERGY

The Globe and Mail. BLOOMBERG. 28 May 2018. Saudi-Russia policy shift sets stage for tense OPEC meeting
GRANT SMITH

When Saudi Arabia and Russia announced a new policy to revive oil production last week, one thing was missing: most of the other partners in their grand coalition.

With oil supplies tightening and prices soaring, the two countries agreed to restore some of the output they halted as part of an accord with 22 other producers, drawn from the Organization of Petroleum Exporting Countries and beyond. The trouble is, officials from several countries in the agreement, both inside OPEC and outside, said they disapproved of the proposal to raise output and saw difficulties in reaching a consensus when they meet in Vienna next month.

“It might be a contentious meeting,” said Ed Morse, head of commodities research at Citigroup Inc. in New York.

The matter is particularly sensitive because Russia and the Saudis are proposing raising production to make up for losses from other members, notably a worsening slump in Venezuelan supply and a potential drop in Iran as renewed U.S. sanctions kick in. Those countries have nothing to gain from looser output caps, and plenty to lose if oil prices extend Friday’s steep decline. Most countries in the agreement weren’t consulted about the Saudi-Russia policy to revive output. Suhail Al Mazrouei, United Arab Emirates Energy Minister and current holder of OPEC’s rotating presidency, said the group as a whole will decide whether to adjust output.

“No decisions made by two countries or three countries are going to be taken,” he said in an interview in St. Petersburg, Russia, on Friday after meeting with his Saudi and Russian counterparts. “We respect all the member countries.”

Saudi Arabia and Russia could go ahead with their plan without the blessing of their cohorts. Because they’re the only countries capable of increasing production significantly, the impact on the market would be almost as great if they chose to go it alone.

“If the rest are not on board, Saudi will do it alone, so it’s not much of a choice,” said Roger Diwan, an analyst at consultant IHS Markit Ltd. in Washington.

Yet the success of the 24-country alliance that agreed to the supply cuts seems to be valuable to the kingdom, and so they may prefer a more diplomatic route by seeking consensus. If so, it would be a tough sell.

Winners, Losers Though they’re not always enforced, OPEC’s rules do require policy changes be approved by all members – many of which would lose out in this case. Outside the Arab members in the Persian Gulf, most countries aren’t able to boost supplies and would face lower revenue if prices slide further. U.S. oil futures fell 4.5-percent to US$67.50 a barrel in New York on Friday. That’s the biggest drop in almost a year, erasing most of the gains for May.

In Venezuela, which lobbied hard to set up the 2016 accord, output has plunged to the lowest level since the 1950s as a spiraling economic crisis batters its oil industry. Losing further earnings could accelerate its financial collapse.

Iran, a long-standing political antagonist of Saudi Arabia, faces the prospect of losing customers to its rival as renewed U.S. sanctions – imposed after President Donald Trump quit an agreement on the country’s nuclear program – force buyers to reduce purchases. It could be that the production increases aren’t substantial enough to need much consultation within the group, according to Helima Croft, chief commodities analyst at RBC Capital Markets LLC. The lower end of the range the producers are discussing – a return to levels agreed at the outset of the deal – is just a few hundred thousand barrels a day above current output.

If history is any guide, OPEC’s other members will eventually line up behind Saudi Energy Minister Khalid Al-Falih. In June, 2011, countries such as Iran opposed the kingdom’s push to increase the organization’s production quota. At the group’s next meeting six months later, the Saudi proposal was adopted.

REUTERS. MAY 27, 2018. Oil hits multi-week lows as OPEC and Russia look to raise output
Ahmad Ghaddar

LONDON (Reuters) - Oil prices extended losses on Monday as Saudi Arabia and Russia said they may increase supplies while U.S. production gains show no sign of slowing.

Brent crude futures LCOc1 stood at $75.22 a barrel at 1526 GMT (11.26 a.m. ET), down $1.22 from the previous close. The contract touched a three-week low of $74.49 earlier in the session.

U.S. crude futures were at $66.49, down $1.39, after hitting a six-week low of $65.80.

The spread between the two contracts CL-LCO1=R reached $9.38 a barrel, its widest since March 2015.

Trading was light due to public holidays in the United States and United Kingdom.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Russia began withholding 1.8 million barrels per day (bpd) of supplies in 2017 to tighten the market and prop up prices that in 2016 fell to their lowest in more than a decade at less than $30 a barrel.

Prices have soared since the start of the cuts last year, with Brent breaking through $80 this month, triggering concerns that high prices could crimp economic growth and stoke inflation.

“The pace of the recent rise in oil prices has sparked a debate among investors on whether this poses downside risks to global growth,” Chetan Ahya, chief economist at U.S. bank Morgan Stanley, wrote in a weekend note.

To address potential supply shortfalls Saudi Arabia, the de facto leader of OPEC, and top producer Russia have been in talks about easing the cuts and raising oil production by 1 million bpd.

Russian Energy Minister Alexander Novak said a return to October 2016 production levels, the baseline for the current supply pact, was one option for easing curbs.

“Given that our crude balance is short some 825,000 bpd over (the second half of the year), a gradual increase of about 1 million bpd would probably limit stock draws to quite some extent,” Vienna-based consultancy JBC Energy said.

Meanwhile, surging U.S. crude production showed no sign of abating as drillers continued to expand their search for new oilfields to exploit.

U.S. energy companies added 15 rigs looking for new oil in the week ending May 25, bringing the rig count to 859, its highest since 2015, in a strong indication that American crude production will continue to rise.

U.S. crude output C-OUT-T-EIA has already surged by more than 27 percent in the past two years, to 10.73 million bpd, ever closer to Russia’s 11 million bpd.

Reporting by Rod Nickel in Winnipeg, Manitoba and Ahmad Ghaddar in London; Additional reporting by Henning Gloystein in Singapore; Editing by David Goodman and Tom Brown

REUTERS. MAY 28, 2018. U.S. record oil exports bite into Russia, OPEC market share in Asia
Florence Tan

SINGAPORE (Reuters) - Record crude oil volumes exported from the United States will be heading to Asia in the next couple of months to take another piece of the market away from Russia and producers in the Organization of the Petroleum Exporting Countries (OPEC).

The United States is set to export 2.3 million barrels per day (bpd) in June, of which 1.3 million bpd will head to Asia, estimated a senior executive with a key U.S. oil exporters.

Data from the Energy Information Administration shows U.S. oil exports peaked at 2.6 million bpd two weeks ago. [EIA/S]

The record outbound volumes come as U.S. crude production hit all-time highs, depressing U.S. prices to discounts of more than $9 a barrel below Brent crude futures on Monday, the widest in more than three years and opening an arbitrage for excess supplies to other markets. WTCLc1-LCOc1

The difference in the key benchmarks was a chance for Asian refiners to reduce light crude imports from the Middle East and Russia after Brent and Gulf prices touched multi-year highs, traders in Asia said.

“We’re diversifying a lot to other regions. If Saudi Aramco still doesn’t reduce prices next month and ADNOC (Abu Dhabi National Oil Company) follows, we will increase our U.S. crude purchases,” a Southeast Asian oil buyer said.

CHINA BUYS AMERICAN

In Asia, China - led by Sinopec (600028.SS), the region’s largest refiner - is the biggest lifter of U.S. crude. The company, after cutting Saudi imports, has bought a record 16 million barrels (533,000 bpd) of U.S. crude, to load in June, two sources with knowledge of the matter said.

India and South Korea are the next biggest buyers in Asia, each lifting 6 million to 7 million barrels in June, sources tracking U.S. crude sales to Asia said. Indian Oil Corp (IOC.NS) bought 3 million barrels earlier this month via a tender, while Reliance Industries (RELI.NS) purchased up to 8 million barrels, the sources said, although it wasn’t clear if Reliance’s cargoes would all load in June.

The sources declined to be named due to company policies.

South Korea’s purchases are driven by its top refiners SK Energy [SKENGG.UL] and GS Caltex [GSCAL.UL].

Taiwanese state refiner CPC Corp [CHIP.UL] has also snapped up 7 million barrels to be lifted in June and July.

U.S. exports to Thailand will increase to at least 2 million barrels. State oil company PTT PCL (PTT.BK) is 1 million barrels of WTI Midland, while Thai Oil (TOP.BK) and Esso Thailand (ESSO.BK) bought at least 500,000 barrels of Bakken crude each, said traders with knowledge of the country’s crude deals.

China Petroleum & Chemical Corp
6.92
600028.SSSHANGHAI STOCK EXCHANGE
-0.04(-0.57%)
600028.SS

600028.SSIOC.NSRELI.NSPTT.BKTOP.BK

Reliance declined to comment. PTT, Thai Oil and Esso Thailand all did not respond to requests for comment.

But even if Asia and Europe are keen to take more U.S. crude, the record volumes are straining export infrastructure in the United States, limiting its ability to pump and ship more oil.

“Tight (shale) oil’s been eating OPEC’s lunch for the last few years. The lack of infrastructure will temporarily cede market share back to OPEC,” R.T. Dukes, head of U.S. Lower 48 oil supply at Wood Mackenzie said in a note last week.

Reporting by Florence Tan; Additional reporting by Jessica Jaganathan in SINGAPORE, Promit Mukherjee in MUMBAI and Chayut Setboonsarng in THAILAND; Editing by Tom Hogue

INFRASTRUCTURE

The Globe and Mail. 28 May 2018. OPINION. Canada’s infrastructure players need to get on the same page
DAG DETTER, Advises governments on public commercial assets

Most cities aren’t utilizing all the available funding tools but instead waste a potential source of funding through suboptimal and outdated governance and management structures.

For as long as we can remember, the public sector has been crying out about a “mountain of demand” for infrastructure investments. For as many decades, the private sector has been concerned that its “wall of money” − all the pensions and insurance money that we as individuals have contributed in the hope of a decent return on our savings − cannot find enough long-term investment projects. Something seems amiss between the people we have appointed to manage our taxes and those who are set to manage our savings.

The global need for infrastructure investment has reached the towering figure of almost $60-trillion for the next 15 years, which would require an increase in infrastructure investment of almost 1 per cent of global GDP by 2020.

In the meantime, intermediaries have come up with a whole range of financial tools aimed at bridging this gap between supply and demand such as PPPs, concessions, leasing and privatizations. But these have only scratched the surface, it seems − like a modern version of the mythical Sisyphus, who was condemned to roll a boulder to the top of a hill, only to have it invariably roll down again to the bottom of the hill. Moreover, these tools have created a public backlash and aggravated taxpayers due to the risk of an undue transfer of public wealth to the private sector.

Is the root of the problem to be found in the fact that the two sides speak very different languages? The private sector uses an incomplete version of accrual accounting invented some 700 years ago which allows for the construction of a balance sheet and the pursuit of net worth as the measurement of its efforts. The public sector still uses inherently myopic single-entry bookkeeping, invented 10,000 years ago, with a focus on the budget and the fiscal space it allows politicians to spend the tax money during the mandate period of a political cycle. The public sector is concerned about funding − the taxes and user fees that actually pay for an investment. The private sector often talks about financing, which is leverage that will eventually increase the public-sector debt burden. Although financing is both substantial and essential, it only concerns the cost of design and construction of an infrastructure investment. The lion’s part, or some four-fifths of the cost of a typical infrastructure investment during its lifetime, is maintenance. This cost will have to be funded from the government budget and will compete with funding education, social welfare, social housing and health care.

The alternative would be to unlock the “hidden goldmine” that can be found in every city or metro area. This is the vast amount of real commercial assets owned by local government that could generate a significant positive future cash flow – if consolidated and professionally managed by an independent government-owned holding company.

Because of the fragmented ownership and control and incomplete, inaccurate and opaque accounting, most cities aren’t utilizing all the available funding tools but instead waste a potential source of funding through suboptimal and outdated governance and management structures.

The largest part of the portfolio of public commercial assets is real estate: As much as a quarter of the total real estate by market value in a city or county is often publicly owned. Judging by some of the asset maps that have been created for local governments including Boston and Pittsburgh, the real estate alone would have an indicative valuation of the same magnitude as its GDP. In addition, some local governments across Canada own and operate utilities such as water and sewage, affordable housing or other assets. All these real public commercial assets are in great need of funding.

The key is to consolidate the portfolio of commercial assets within an independent institution − an Urban Wealth Fund (UWF) − at arm’s length from short-term political influence, independent of the political cycle and with the appropriate capacity to manage the portfolio professionally. Properly set up, such an institution with its independent balance sheet, would use the same accounting methods, have the same performance measure and would in short be capable of speaking the same language as the private sector.

Unlike the typical private-sector approach to infrastructure, the UWF would adopt a planning horizon that encompasses maintenance costs and running costs over the entire life of the project – often measured in decades. With transparent, accountable professional management, incentivized for the long term and structured to span the life cycle of the assets instead of the political mandate, it would be capable of unlocking the hidden value of the entire portfolio of commercial public assets and fund infrastructure investments or other public programs from the returns it generates.

Properly designed and implemented, a UWF can act as an investor in and manager of commercially viable new projects, including investments in commercially viable infrastructure, without requiring funding from taxpayers. Dealing with the private sector on an equal footing, it would have the capacity to help provide more attractive rates of return on the massive wealth behind the “wall of money” while controlling the risk of an undue transfer of public wealth to the private sector.

Professional management of public commercial wealth in UWFs would end the futile Sisyphean efforts of local governments and allow them to double their total spending on infrastructure and maintenance.

This would truly be a new way to deliver upgraded transportation, power, water, flood defenses and communications − a true bridge between the public and private sectors, inducing the public and the private sectors to speak a common language, to the benefit of society as a whole.

Dag Detter is speaking at the CanInfra Summit at The Globe and Mail Centre in Toronto on May 28-29. CanInfra is a private-sector initiative to elevate the national conversation on transformational infrastructure, and includes the CanInfra Ideas Contest, led by the Boston Consulting Group (BCG) with other sponsors including Brookfield Asset Management. The Globe is the media sponsor. For more details, please visit caninfra.ca.

TOURISM

Innovation, Science and Economic Development Canada. May 27, 2018. Minister Chagger celebrates the start of Tourism Week 2018 in Ottawa. Tourism Week celebrates Canadian tourism’s record-setting 2017

Ottawa, Ontario - Canada enjoyed its best tourism year ever in 2017, breaking old records. Now more than ever, it’s clear that #TourismMatters.

As Tourism Week 2018 gets under way, the Honourable Bardish Chagger, Leader of the Government in the House of Commons and Minister of Small Business and Tourism, today congratulated Canada’s tourism industry for making 2017 a historic year.

In 2017, tourism made a significant and record-breaking contribution to the Canadian economy: revenues from domestic and international travellers reached $97.4 billion. These revenues help support Canadian businesses and good middle-class jobs across the entire country.

The first quarter of 2018 is off to a promising start, with Canada enjoying its best first quarter ever for tourism. In the first three months of this year, the number of overnight visits by international travellers hit a record high of 3.1 million. In addition, China overtook the United Kingdom as the number-one source of international tourists to Canada—the first time it has topped the list.

This is very good news as we celebrate the Canada-China Year of Tourism this year. Our government has committed to doubling the number of Chinese visitors by 2025. The Canada-China Year of Tourism offers a tremendous opportunity to strengthen the people-to-people ties that connect our two countries and to grow Canada’s tourism sector, which supports 1.8 million jobs from coast to coast to coast.

Throughout the coming week, Minister Chagger will join tourism industry stakeholders and representatives from the Tourism Industry Association of Canada (TIAC) and other tourism associations for a number of events in the nation’s capital that celebrate Canadian tourism.

Tourism Week supports the goals of Canada’s Tourism Vision, the Government of Canada’s ambitious plan to grow the tourism sector and create good middle-class jobs for many years to come. Minister Chagger launched Canada’s Tourism Vision one year ago, and the progress achieved to date has been remarkable: the number of international tourists to Canada grew by 4.4 percent in 2017. Thanks to collaboration throughout the federal government, as well as with Destination Canada, the provinces and territories, and the many hard-working small business owners who welcome international visitors, Canada is well on its way to achieving the tourism vision.

Quotes

“2017 was the best year ever for Canadian tourism. Tourism is a powerful economic driver in our communities. It accounts for one in ten Canadian jobs and is the leading employer of our youth. Our government knows that tourism matters. We are already seeing the results of the New Tourism Vision that we announced last year. From coast to coast to coast, we’ve seen incredible success in 2017 and an incredible start to 2018 as we celebrate the Canada-China Year of Tourism. Congratulations to all the members and partners of the Canadian tourism industry for an incredible year!”

– The Honourable Bardish Chagger, Leader of the Government in the House of Commons and Minister of Small Business and Tourism

“As Canada’s tourism industry enters the high season, TIAC is pleased to kick off Tourism Week, a nationwide celebration in which industry and stakeholders come together to celebrate the importance of tourism and discuss ways to strengthen our industry. Tourism currently contributes $97.4 billion to the economy, makes up 2 percent of Canada’s GDP and is responsible for supporting 1.8 million jobs in every area of the country. Throughout this week, members of our association and tourism businesses across Canada will engage in collaborative activities and policy discussions to help us reach the goals of Canada’s Tourism Vision and continue to move Canada’s tourism sector forward.”

– Charlotte Bell, President and CEO, Tourism Industry Association of Canada

Quick facts

• The theme of this year’s Tourism Week—an annual event organized by the Tourism Industry Association of Canada—is “Tourism Matters.” With an all-time high of 20.8 million tourists visiting Canada in 2017, Canada’s tourism industry has much to celebrate as, more than ever, tourism matters in our communities.
• Tourism directly accounted for $41.2 billion of Canada’s GDP in 2017, an increase of 6.3 percent over 2016.
• Tourism is Canada’s number one service export, with international revenues reaching $21.3 billion in 2017.
• Canada was also recognized internationally by The New York Times, Lonely Planet, National Geographic Traveler and other influential travel media as the top spot to visit in 2017.
• Support for tourism in Budget 2018 includes $11 million for the 2018 Canada-China Year of Tourism.
• Budget 2018 also includes investments in other key areas such as parks, Indigenous heritage and culture, and Canada's regional development agencies.

FULL DOCUMENT: https://www.canada.ca/en/innovation-science-economic-development/news/2018/05/minister-chagger-celebrates-the-start-of-tourism-week-2018-in-ottawa.html

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LGCJ.: