Briefing highlights
- The revival of the S&P/TSX
- TransCanada kills Energy East
- Markets at a glance
- Bombardier braces for trade ruling
- Canada’s trade deficit widens
'Impressive'
A laggard for some time now on the world stage, the Toronto stock market is suddenly in the midst of an impressive rebound.
"After treading water for most the year," the S&P/TSX is making a comeback," said National Bank chief economist Stéfan Marion, referring to the composite index.
The index, added David Rosenberg, chief economist at Gluskin Sheff + Associates, has rallied by "an impressive" 5 per cent in less than a month, eclipsing the S&P 500 by 200 basis points.
"And the chart pattern is powerful, with the TSX having convincingly broken a downtrend that had been in place since February - closing higher in 14 of the last 17 sessions," he added in a report Wednesday, thus excluding what happened yesterday.
The composite is now up by more than 2.5 per cent on the on the year.
"Interestingly, S&P/TSX earnings revisions have turned positive in the past month, a turn that contrasts with slightly downward revisions for the U.S. S&P 500," National Bank's Mr. Marion said.
"Importantly, the upward revisions in Canada are relatively widespread, with seven of the 11 main S&P/TSX sectors showing improved 12-month forward earnings," he added, noting that financial stocks are "leading the charge" with the strongest upward revisions in six years.
"We remain overweight in financials as this sector is set to benefit from higher interest rates in a strong economy."
Behind the sudden power of the index is that "two of the three hottest sectors" in the U.S., financials and energy, carry a weighting of just above 20 per cent in the S&P 500, but almost 55 per cent in the TSX, Mr. Rosenberg said.
So where do we go from here?
"Indeed, looking at a five-day relative strength index, the current uptrend is so strong that it has only been matched or exceeded 2.8 per cent of the time dating back to 1977 (the launch date of the composite)," Mr. Rosenberg said.
"It is also worth pointing out that historically these uptrends have led to continued periods of strong performance."
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TransCanada kills Energy East
TransCanada Corp. has pulled the plug on its controversial $15.7-billion Energy East pipeline proposal, after slowing oil sands growth and heightened environmental scrutiny raised doubts about the viability of the project, The Globe and Mail's Shawn McCarthy reports.
In a terse statement, TransCanada said it has reviewed the "changed circumstances" and would be informing the National Energy Board that it would no longer proceed with the project, including the related Eastern Mainline, a natural gas pipeline that complemented the crude-carrying Energy East.
It will take a hit in its fourth-quarter earnings.
"As a result of its decision not to proceed with the proposed projects, TransCanada is reviewing its approximate $1.3-billion carrying value, including allowance for funds used during construction (AFUDC) capitalized since inception and expects an estimated $1-billion after-tax non-cash charge will be recorded in the company's fourth quarter results," it said.
"TransCanada stopped capitalizing AFUDC on the project effective Aug. 23, 2017, as disclosed on Sept. 7, 2017. In light of the project's inability to reach a regulatory decision, no recoveries of costs from third parties are expected."
It will take a hit in its fourth-quarter earnings.
"As a result of its decision not to proceed with the proposed projects, TransCanada is reviewing its approximate $1.3-billion carrying value, including allowance for funds used during construction (AFUDC) capitalized since inception and expects an estimated $1-billion after-tax non-cash charge will be recorded in the company's fourth quarter results," it said.
"TransCanada stopped capitalizing AFUDC on the project effective Aug. 23, 2017, as disclosed on Sept. 7, 2017. In light of the project's inability to reach a regulatory decision, no recoveries of costs from third parties are expected.
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Bombardier in spotlight
Bombardier Inc. shareholders, not to mention management and the federal government, are bracing for today's Round 2 of America vs. Canada.
The U.S. Department of Commerce has already hit the Canadian plane maker with preliminary countervailing duties of 220 per cent. Up next, and expected late today, is its finding on anti-dumping levies.
The rulings follow complaints by Boeing Co. that Bombardier is being subsidized, and there are fears of a broader impact.
"The latest preliminary trade ruling by the U.S. against Canada is the worst so far and we fear it could set back progress on forging a new NAFTA deal," said David Madani, senior Canada economist at Capital Economics.
"If the ruling is upheld, it will certainly hurt the already struggling domestic aerospace industry and wider Canadian economy."
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Trade deficit widens
Canada's trade picture is growing gloomy.
The merchandise trade deficit widened in August to $3.4-billion, from July's $3-billion, as exports fell for the third month in a row, Statistics Canada said today.
Exports fell 1 per cent, while imports were flat, The Globe and Mail's David Parkinson reports.
"Exports have fallen 10.6 per cent since the record high posted in May," the federal agency noted.
"After a rough two months, it got uglier for Canadian exports in August," said Nick Exarhos of CIBC World Markets, adding today's reading is "a negative" for August economic growth.
"That supports our call for a 2-per-cent or so growth pace for the third quarter, and for the Bank of Canada's 'monitoring' of the economy to translate into a pause in interest rates."
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