Good morning. Key economic reports and earnings across Canada’s key sectors this week will spotlight how a “structural change” is making it difficult for businesses, consumers and central banks to find their bearings. More on what that means below – plus, why Canadians are paying more for snacks.
Programming note: Last week, we asked what you thought about a new title for the Monday edition. Some readers were down with “Five up” – one of its few supporters heralded it as “sort of catchy, I guess” – but more were simply just down on it: “It sounds like an off-brand soda!” First, thank you for the smile. Second, it’s hard to forget about that comparison once it’s in your head. So, we’ll keep this title for now. Thanks to everyone who wrote in, and for reading. High fives.
Up first
In the news
Telecom: There’s a long road ahead for Canada’s largest telecom companies as they prepare to shed non-core assets, pay down debt and fund new areas of growth
Labour: The federal government is giving Canada Post a billion-dollar top-up after it burned through an earlier loan amid strikes. Will it be enough?
Banking: Toronto-Dominion Bank used 60 seconds of Super Bowl airtime in Canada to kick off a refresh of its brand and shake off a money-laundering scandal.
Portrait of a newsletter writer.iStockPhoto / Getty Images
In focus
Spot the difference
A speech by Bank of Canada Governor Tiff Macklem has me looking at the days ahead in a new light.
1. Structural or cyclical? Entering the week, I’d like to be able to say a range of heavyweight earnings and economic reports will leave us with a clear sense of Canada’s footing on streets Bay and Main.
I’d like to be able to say that, but I can’t.
At least I’m in good company. In a speech on Thursday, Macklem described a country facing “structural breaks” that make it challenging for the central bank to forecast the country’s economic trajectory.
The underlying shifts he highlighted include new AI-driven technology, Donald Trump’s walling-off of America, and Canada erecting a barrier of its own to immigration.
As a result, Macklem said, the “heightened uncertainty” that businesses, investors and consumers were already facing is being intensified by a new reality in which “we need to play the new hand we’ve been dealt, not the one we had.”
The trifecta of economic shocks are making it hard for the bank to identify in real time the difference between structural change and short-term fluctuations. “It can be hard to know whether a drop in GDP growth is part of a structural trend or a temporary downturn.”
For Canada, a lot depends on the outcome of the review of the North American free-trade pact, known as USMCA. Until then, we’ll still read the tea leaves as best we can.
2. Capturing the mood – and setting it? The Bank of Canada itself is releasing a slate of economic reports and speeches we’ll be following this week – a survey of business leaders today, a summary of deliberations from its most recent rate decision released on Wednesday, and a speech by deputy governor Carolyn Rogers on Thursday.
In response to the shifts Macklem outlined, the bank has expanded its outreach efforts and examined more granular data to help separate what is cyclical and what is structural.
That’s all to ensure it doesn’t make a mistake with monetary policy. What monetary policy can’t do, Macklem said, is respond to trade friction and the adoption of AI. “And monetary policy certainly can’t influence fertility or immigration rates,” he said.
Which reminds me: Valentine’s Day is on Saturday.
3. Food fight: Market watchers on both sides of the border will be glued to U.S. inflation data on Wednesday for signs of whether tariffs are hitting consumers. (It feels like we’ve been waiting for that to happen for a while now, but businesses have indicated more cost pressure is coming.)
Because of the heavily integrated nature of the supply chains between the two countries, higher prices in the U.S. would push up prices in Canada, Royal Bank of Canada economists Abbey Xu and Nathan Janzen noted on Friday. The BoC has cited restructuring costs to avoid tariffs as a key risk to future Canadian inflation.
That’s structural. Examples of cyclical issues making food more expensive include high global agricultural commodity prices, and low Canadian cattle inventories.
Traders at work on Friday at the New York Stock Exchange. Same, traders. Same.Richard Drew/The Associated Press
4. AI eats AI: In Canada, only a small portion of businesses are embracing artificial intelligence as a significant part of their operations, Macklem said. Just as the internet boosted productivity through new services and business models, the rise of AI has the potential to put the economy on a “higher path” and raise our standard of living.
But the timing of the governor’s plea for more AI spending is also a test of figuring out whether the market’s current posture around technology stocks is just a cyclical shift or something more.
Investors have been punishing shares of companies that have invested heavily in AI because of developments in AI (for all the talk of a bubble, I hadn’t thought about what happens in the reverse) and they’ll will have plenty of opportunity to heap scrutiny on the sector this week.
Cisco Systems and Germany’s Siemens Energy, which report earnings on Wednesday, will serve as a flashpoint for a sector that Barclays described in a research note as undergoing “extreme dispersion.” The market is more prone to selling first and asking questions later when AI giants announce a new technology.
Thomson Reuters Corp. saw its share price drop as part of a broader sell-off of tech stocks that suffered when Anthropic released new AI-backed productivity tools for lawyers. Steve Hasker, the company’s chief executive, said the broader selloff “represents anxiety and not fundamentals.”
(Woodbridge Co. Ltd., the Thomson family holding company and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.)
5. At the bell: Quarterly reports this week from nearly 50 companies listed on the TSX will also show how major players across Canada’s key sectors are navigating those fundamental shifts.
Shopify has been swept up in the “sell software” trend. Manulife, SunLife and Great-West Life face questions over their investments in AI and their U.S. footprints. And Cineplex, no stranger to disruption, has more riding on Project Hail Mary than most.
Bombardier, meanwhile, is caught in Trump’s crosshairs. It might be a prime example of how “structural change” can also be a blip. The U.S. President is threatening to decertify Bombardier jets and to impose a 50-per-cent tariff because Canada had not yet certified General Dynamics’ Gulfstream. But as Amber Kanwar notes in her weekly market setup, markets don’t believe him.
Charted
Snack attack
The Consumer Price Index category of potato chips and other snacks in Canada climbed nearly 8 per cent in December, the last month for which data are available, roughly 3.5 times faster than the U.S. category of snacks. That bites hard.
Quoted
The numbers are in and the message is clear: free trade is dead and it’s never looked healthier.
As the U.S. shoots itself in the foot, John Rapley thanks God for free trade.
Morning update
Global markets were mixed amid some optimism about a rebound in U.S. chip stocks and other beaten-down assets after a volatile week.
Wall Street futures were in the red while TSX futures pointed higher after North American posted strong gains Friday.
Overseas, the pan-European STOXX 600 was flat in morning trading. Britain’s FTSE 100 slipped 0.08 per cent, Germany’s DAX gained 0.14 per cent and France’s CAC 40 gave back 0.07 per cent.
In Asia, the Nikkei closed 3.89 per cent higher after Japan’s ruling party secured a majority in a landslide snap election win. Hong Kong’s Hang Seng rose 1.76 per cent.
The Canadian dollar traded at 73.27 U.S. cents.