Good morning. U.S. President Donald Trump says he may not reach a new trade deal with Canada ahead of a deadline on Friday. What we’re watching in the run-up to that target is in focus today, including the Bank of Canada’s rate decision and the higher costs landing on U.S. consumers.
Up first
In the news
Trade: The U.S. and EU have agreed to a deal that includes a 15 per cent tariff on all European goods entering America.
Housing: Ottawa is facing scrutiny over the launch of Build Canada Homes, a new entity it hopes will be key to housing affordability.
Development: Indigenous-led companies are weighing the economic potential of controversial new federal legislation that could streamline major projects against fears it could sidestep treaty land rights.
U.S. President Donald Trump shakes hands with European Commission President Ursula von der Leyen yesterday in Scotland.Evelyn Hockstein/Reuters
In focus
On our radar this week
We might hear a lot of noise about Aug. 1, but a handful of industries are bearing the brunt of Trump’s list of grievances with Canada.
1. The hold steady
Stubborn inflation and rising costs linked to the trade war are expected to keep the Bank of Canada from cutting interest rates on Wednesday.
Canada’s annual inflation rate rose to 1.9 per cent in June, up slightly from 1.7 per cent the month before. Core inflation measures remain around 3 per cent, suggesting underlying price pressures have not eased.
- Higher shelter costs and tariff-related increases in clothing, furniture and other durable goods were key contributors. Grocery prices rose at a slower pace than in May, but that’s hardly cause for a commemorative stamp.
- The bank is also weighing recent labour force data that showed the economy added 83,000 jobs last month and the unemployment rate fell to 6.9 per cent.
- Holding the policy rate at 2.75 per cent this month would give the central bank more time to make sense of these mixed signals, how cost pressures are evolving – and how Canada’s trade negotiations with the U.S. are shaping up.
The U.S. Federal Reserve is also expected to remain on hold when it announces its decision later on Wednesday.
Read more from economic policy reporter Mark Rendell here.
2. Metal mettle
Steel: Algoma Steel Group Inc.’s second-quarter earnings report tomorrow promises to keep the spotlight on the Canadian industry’s ability to survive Trump’s most punitive tariffs.
Algoma CEO Michael Garcia told The Globe and Mail last week that his company is seeking up to $600-million in loans from Ottawa to bolster its liquidity as the sector nears the two-month mark since Trump doubled taxes on imports of foreign metals to 50 per cent.
For steelmakers in Canada, that tax effectively walls off the crucial U.S. market. Algoma, which employs 2,800 people in Sault Ste. Marie, Ont., and has an outsized exposure to U.S. tariffs, has seen its output to the country shrink to about 40 per cent from 60 per cent before the trade war. The company is selling the metal at a loss in the U.S. owing to contractual commitments.
But trying to sell more domestically has also been a challenge, steelmakers say. Even after Prime Minister Mark Carney twice acted in recent weeks to restrict cheap foreign metals, some industry leaders say they cannot effectively compete on home turf.
The lion’s share of Canadian aluminum, meanwhile, is being redirected to Europe. After shipping about 94 per cent of the $14-billion worth of the metal to the U.S. last year, more than half is now heading overseas.
- Magna as a mirror: Magna International, Canada’s largest auto parts manufacturer, reports earnings on Friday. With facilities and countries around the world, the Ontario company makes for a useful indicator of how tariffs on metals are affecting the auto industry.
3. The ‘deadline’
Trump has threatened to increase tariffs on all imports of Canadian goods to 35 per cent on Aug. 1. The deal announced yesterday between the EU and the U.S. might provide a glimpse of what’s in store – the framework mirrors key parts of the accord with Japan — but time is not on Canada’s side.
Carney and his team of negotiators have said they won’t accept any agreement just to reach a particular date. And before he set flight for a golf course in Scotland on Friday (does Air Force One get Paramount?), Trump said there might not even be a negotiation with Canada – just more tariffs.
Tariffs wouldn’t be good for consumers on either side of the border. But the universal levy Trump imposed in May has covered goods that fall outside of the United States-Canada-Mexico Agreement – exemptions the White House likely intends to keep in place.
- About half of Canada’s exports were compliant this month, Derek Holt, head of capital market economics at Bank of Nova Scotia, wrote in a note to clients.
- Estimates show that that number could easily rise to 80-90 per cent as companies focus on compliancy changes.
Friday, then, might come and go with a “meh.” But in a world that feels just one more episode of South Park away from civil war, we aren’t discounting anything on the upside or down.
4. Eye on earnings
Liftoff? Other notable quarterly reports this week include Canadian aviation leaders Air Canada and Bombardier, which analysts say are benefiting from a strengthening travel market and easing tariff-related risks.
Air Canada, which reports tomorrow, is flying more passengers – especially on international routes – as demand picks up, RBC said in a recent report.
Bombardier, which reports on Thursday, just landed a major jet order and is generating more profit with each delivery as demand for its premium aircraft remains strong.
Energize: Later this week, Cenovus Energy Inc., TC Energy and Enbridge will capture a snapshot of how Canada’s largest oil producers and movers are reacting to a more hostile U.S. trading partner. The market in Asia is growing, but China is importing more from Russia and its economic growth is on shaky ground, CIBC analysts said in a report on Friday.
5. More reading on the trade war:
- Adrian Morrow: Harsh, informal, wide-ranging. How Trump’s trade talks have changed.
- Tony Keller: As Trump’s tariff walls rise, Canada’s negotiating leverage is shrinking.
- The editorial board: Trump’s tariff shakedown takes shape.
Charted
Make Inflation Hot Again
Evidence is mounting that tariffs are starting to bite American shoppers. Official inflation data released last week for June showed U.S. inflation climbed at an annual rate of 2.7 per cent.
And a new tool tracking the cost of thousands of goods by their country of origin shows how the steep tariffs on imports from China in particular are driving prices higher.
Bookmarked
On our reading list
Bidding adieu: Auction sales fall in the first half, raising fears of an art market shift.
Getting pumped: Social media is serving up big muscles and normalizing steroid use.
Going grunge: As Clueless turns 30, its costume designer reflects on 90s style: “I had to make grunge look less dude-like.”
Morning update
Major stock markets in Europe made some gains while the euro fell in early trading on Monday as investors eyed the U.S.-EU trade deal with cautious relief. Wall Street and TSX edged up.
Overseas, the pan-European STOXX 600 was up 0.55 per cent. Britain’s FTSE 100 dipped 0.07 per cent, Germany’s DAX was up 0.28 per cent and France’s CAC 40 was up 0.27 per cent.
In Asia, Japan’s Nikkei fell back more than one per cent after hitting a one-year high last week, while Hong Kong’s Hang Seng rose 0.7 per cent.
The Canadian dollar traded at 72.85 U.S. cents.