Canada’s economy grows for 7th consecutive month

ECONOMICS COLUMNIST

Canada’s economy extended its growth streak to a seventh straight month in August, as a recovery in oil sands production outweighed a summer slowdown in several other key sectors.

Statistics Canada reported Wednesday that real gross domestic product rose 0.1 per cent month over month in August, a slight slowdown from July’s 0.2-per-cent pace. On a year-over-year basis, the economy grew 2.5 per cent.

August’s result was a touch stronger than economists’ expectation of a flat reading for the month. However, only eight out of 20 industry sectors posted gains. It was largely fuelled by a 0.9-per-cent rebound in the mining and oil and gas extraction segment, reflecting the return of production at the giant Syncrude oil sands facility, which had been shut down by a power outage for parts of June and July.

Manufacturing, construction, and retail and wholesale trade all posted declines.

“The main story here is that the growth was not well distributed,” said Douglas Porter, chief economist at Bank of Montreal, in a research note. “The growth was heavily concentrated in a few specific sectors … with the details underwhelming.”

August’s result suggests that the Canadian economy likely grew at about a 2-per-cent annualized rate in the third quarter, economists said – a solid if unspectacular pace, and a significant slowdown from the second quarter’s 2.9 per cent. Nevertheless, it is a bit above the Bank of Canada’s recent estimate of 1.8 per cent. After a strong run of growth this year that has eaten up most of the economy’s spare capacity, the third-quarter pace is likely sufficient to keep capacity tight in many sectors – supporting the case for the central bank to continue raising interest rates.

“Business surveys are increasingly reporting that capacity constraints, not lack of demand, are the most pressing concern at the moment in much of the country,” said Royal Bank of Canada senior economist Nathan Janzen said in a research note.

GDP in the services-producing industries, which make up about 70 per cent of the economy, was up 0.1 per cent in August, led by a 1-per-cent surge in the finance and insurance sector. Statscan attributed the growth in the sector to brisk activity in the bond and equity markets. The real-estate sector also had a strong month, up 0.3 per cent, reflecting a firming of home resales across much of the country, the agency said. But retail trade dipped 0.2 per cent in the month, its third straight decline, and wholesale trade slipped 0.1 per cent.

GDP in goods-producing industries was essentially unchanged month over month. The rebound in oil-and-gas extraction was partly offset by a 0.6-per-cent drop in manufacturing, amid downtime at some auto plants. The construction sector fell 0.4 per cent, its third straight decline, reflecting a slowdown in the building of new homes.

Economists were split Wednesday on whether the August GDP numbers might tilt the Bank of Canada toward another interest-rate hike at its next rate decision in early December, or whether the central bank would hold off until January. The bank raised its key rate last week, by one-quarter of a percentage point to 1.75 per cent, and suggested that it might pick up the pace of rate increases if the economic data warranted.

The financial markets were similarly split after the GDP report, pricing in about a 50-50 chance of a December hike, although they have fully priced a quarter-point increase by January.

“Some of the August weakness looks likely to reverse in September, and the lifting of uncertainty delivered by the [proposed United States-Mexico-Canada Agreement] should contribute to an above-trend pace of expansion thereafter,” said Toronto-Dominion Bank senior economist Brian DePratto in a research report. “Combine a healthy economic outlook with the [Bank of Canada’s] tilt towards hawkishness that accompanied last week’s rate hike, and you have the recipe for further monetary tightening.”

“The [Bank of Canada] governor [Stephen Poloz] has made it clear that every rate decision is ‘live’, which could bring a December hike into play. However, GDP is only slightly outperforming the [central] bank’s forecast, and core inflation is still largely on target. Thus, we remain comfortable in our view that the next hike is most likely to come with the January decision,” Mr. DePratto said.

Text of Bank of Canada interest rate announcement

OTTAWA _ The Bank of Canada raised its key interest rate target Wednesday. Here’s the text of the central bank’s announcement:

The Bank of Canada today increased its target for the overnight rate to 1.75 per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1.5 per cent.

The global economic outlook remains solid. The US economy is especially robust and is expected to moderate over the projection horizon, as forecast in the Bank’s July Monetary Policy Report (MPR). The new US-Mexico-Canada Agreement (USMCA) will reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment. However, trade conflict, particularly between the United States and China, is weighing on global growth and commodity prices. Financial market volatility has resurfaced and some emerging markets are under stress but, overall, global financial conditions remain accommodative.

The Canadian economy continues to operate close to its potential and the composition of growth is more balanced. Despite some quarterly fluctuations, growth is expected to average about 2 per cent over the second half of 2018. Real GDP is projected to grow by 2.1 per cent this year and next before slowing to 1.9 per cent in 2020.

The projections for business investment and exports have been revised up, reflecting the USMCA and the recently-approved liquid natural gas project in British Columbia. Still, investment and exports will be dampened by the recent decline in commodity prices, as well as ongoing competitiveness challenges and limited transportation capacity. The Bank will be monitoring the extent to which the USMCA leads to more confidence and business investment in Canada.

Household spending is expected to continue growing at a healthy pace, underpinned by solid employment income growth. Households are adjusting their spending as expected in response to higher interest rates and housing market policies. In this context, household credit growth continues to moderate and housing activity across Canada is stabilizing. As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated.

CPI inflation dropped to 2.2 per cent in September, in large part because the summer spike in airfares was reversed. Other temporary factors pushing up inflation, such as past increases in gasoline prices and minimum wages, should fade in early 2019. Inflation is then expected to remain close to the 2 per cent target through the end of 2020. The Bank’s core measures of inflation all remain around 2 per cent, consistent with an economy that is operating at capacity. Wage growth remains moderate, although it is projected to pick up in the coming quarters, consistent with the Bank’s latest Business Outlook Survey.

Given all of these factors, Governing Council agrees that the policy interest rate will need to rise to a neutral stance to achieve the inflation target. In determining the appropriate pace of rate increases, Governing Council will continue to take into account how the economy is adjusting to higher interest rates, given the elevated level of household debt. In addition, we will pay close attention to global trade policy developments and their implications for the inflation outlook.

Information note

The next scheduled date for announcing the overnight rate target is December 5, 2018. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on January 9, 2019.

France’s AXA sells insurance assets in Ukraine to Canada’s Fairfax

REUTERS

AXA Insurance and AXA Insurance Life will continue to operate and fulfill all their obligations without any changes.

French-based AXA Group, represented in Ukraine by AXA Insurance and AXA Life Insurance, has sold its Ukrainian assets to Canada’s Fairfax Financial Holding Limited. Read also A third of businesses expect Ukraine investment climate to improve – EBA “AXA Group has entered into an agreement with Fairfax Financial Holding Limited (Canada) to sell all its insurance operations in Ukraine. Under the terms of the agreement, Fairfax would acquire a 100% of the non-life entity (AXA Insurance) and the life entity (AXA Life Insurance) in Ukraine,” the company’s press service said on October 23. As reported,

AXA Insurance and AXA Insurance Life will continue to operate and fulfill all their obligations without any changes. “It’s time to make a step forward, which will open up new opportunities for the company and each of its clients. With the new owner, we won’t only keep our leading positions, but also continue to develop the entire Ukrainian insurance market,” the press service added.

The new owner’s headquarters is based in Toronto, Canada, it said, adding that it has been engaged in insurance and investment management since 1985. “The company is listed on the Toronto Stock Exchange (FFH: CN). Its market capitalization is estimated at $15.1 billion. The holding operates in 40 countries across the world,” the report said. UNIAN memo. AXA Insurance, which is the leading insurance company in Ukraine, has been operating since 2007. AXA Insurance started working in the Ukrainian market in July 2013.

 

As tech changes the insurance industry, what should investors look for?

In the past few years, some big changes have been unveiled in one of the world’s most traditional industries.

John Hancock, one of the oldest and largest North American life insurers, recently announced it will stop underwriting traditional life insurance. Instead, the 156-year-old insurer, owned by Canada’s Manulife Financial, will sell only interactive policies that track fitness and health data through wearable devices and smartphones.

Prudential Financial said it will go straight to consumers with its insurance and investment products for the first time in its 143-year history, offering products through its website rather than selling exclusively through its large network of advisers and employer-sponsored programs.

And Manulife recently announced it will contribute $400,000 to the Artificial Intelligence Institute at the University of Waterloo for research in disability claim prediction as well as fraud detection and language comprehension in customer service.

These developments in the past month are only a few examples of the sea change in the insurance industry, showing how established companies are turning to technology to find new ways to expand business in light of online startups and rivals that are challenging the established order.

Consulting firm Accenture says about two-thirds of insurers have begun using artificial intelligence-based “virtual assistants.”

“Millennials and other younger people have large purchasing power,” John Barnidge, a Sandler O’Neill analyst, told Reuters, adding that they do not value insurance agent relationships as much as previous generations.

So, what does this shift toward a growing demand for online sales mean for the bottom lines of insurance companies – and what are the best ways for investors to play the trend?

“I’ve frequently described the insurance industry as being behind the technology curve, but we’re seeing significant advances,” says Meyer Shields, managing director at investment firm Keefe, Bruyette and Woods in Baltimore.

As one example, he points to the use of increasingly sophisticated data analysis to vary price rates in personal auto insurance. Other examples include artificial intelligence applications to augment underwriting decisions, and the use of drones to evaluate insured property damage.

As far as specific companies leading the way in using these techniques, Mr. Shields singles out auto insurer Progressive (PGR-NYSE) as a leader in data analysis, with cutting-edge capabilities in data-driven insurance pricing. He says commercial insurers Travelers (TRV-NYSE) and The Hartford (HIG-N) are both very strong at utilizing technologies to improve outcomes in lines of business such as worker compensation. He also points to global insurer Chubb (CB-NYSE) for its advanced use of artificial intelligence and technology-based distribution.

Mr. Shields says his firm’s overall investment thesis for the insurance sector is that commercial casualty rates are likely to rise, while personal and commercial auto rate increases will decelerate, and property insurance rate increases will probably reverse course. As a result, he favours the commercial insurers that should see underwriting margin expansion in coming quarters – AIG (AIG-N) and The Hartford are the firm’s top picks in that space.

Keefe Bruyette also likes insurance brokers such as Arthur J. Gallagher (AJG-NYSE)and AON PLC (PLC-NYSE) as they expect rising rates combined with economic growth driving faster revenue growth, margin expansion and improving cash flows.

Canadian insurers are also taking a lead in this technology revolution. Manulife’s (MFC-TSX) move in this direction has caught the attention of Meny Grauman, head of institutional equity research at Cormark Securities in Toronto. He’s impressed with their push toward a ‘vitality’-based business.

As well, both Manulife and Sun Life (SU-TSX) rely on their Asian units for a significant part of their growth. Mr. Grauman considers that region as being more advanced in its use of technology in the insurance industry. He notes that in China it is possible now to buy life insurance and process claims over the popular WeChat messaging app. “That kind of thing doesn’t exist yet in North America,” he says.

While he appreciates the technological edge of Manulife and Sun Life, Mr. Grauman’s top pick in the sector is Industrial Alliance (IAG-TSX). He likes the Quebec-based insurer’s strong track record of performance, and the development of its wealth advisor and distribution networks. He feels the company is set to rebound from concerns over a chief executive officer transition and a couple of “not so strong” quarters. “It’s underappreciated,” he says.

The tech revolution in insurance has also caught the eye of Gordon Reid, president and CEO of Goodreid Investment Counsel in Toronto. Here in Canada, he notes Manulife’s plan to spend $1.5-billion on technology, with 30 per cent directed toward “changing the client experience.” He is impressed as well with Sun Life’s use of “nudges’ – that is, the process of using technology to encourage plan members to enrol in money-saving options. He also notes Great-West Life’s (GWO-TSX) use of its MPower division to allow other operators to outsource record keeping and administration.

In the United States, Mr. Reid points to the innovative work in the Optum division of United Health (UNH-NYSE). Optum bills itself as a “health-care intelligence” firm, using data, analytics and expertise to deliver services in the most effective ways possible. His top pick in the sector is Indianapolis-based insurer Anthem Inc. (ANTM-NYSE). His firm initially recommended the company’s shares for its client portfolios on a valuation basis, due to its low stock-price-to earnings ratio. “Today the theme is scale, and the resulting action has been industry consolidation,” he says.

He notes Anthem’s purchase of the hospice operator Aspire, Cigna’s purchase of Express Scripts and drugstore chain CVS buying insurer Aetna. “All of this is intended to vertically integrate, allowing more touchpoints with the patient,” he says. And while that can come in many forms, including face-to-face contact, new technologies are increasingly playing a key role.

Survey: Paying With Taps And Apps Leaves Some Feeling Disconnected From Their Money

With mobile apps on your smartphone, and tap-and-go debit and credit cards, it’s never been faster or easier to pay for things. This has led to some of us feeling disconnected from our money, according to new research commissioned by MARU in partnership with Tangerine Bank.

“Apps and taps for payment are becoming such a way of life that some Canadians feel they’re not as strongly connected to their money,” said Mark Nicholson, Vice President of Client Experience at Tangerine. “One in five (20 per cent) of our survey respondents, feel that way. And on top of the lost connection to money, a large majority of Canadians with a bank account – 71 per cent – wish they could save more money each month, and almost half (47 per cent) say they’re worried about their financial future.”

Younger Canadians are especially concerned, with 70 per cent of those age 18-24 saying they’re worried about their financial future (compared to a 46 per cent average for all other age groups). Thirty per cent of younger respondents, age 18-24, say they’re unsure that they’ll be able to pay off their debts, versus just 17.5 per cent among other age groups.

Among some of the other findings, the national survey found that only 37 per cent set a budget every month and stick to it. When asked where their monthly spending goes, respondents listed phone, internet, TV, transportation, utilities and rent as part of their monthly spending.

To help Canadians focus on saving and keep better track of their spending, Tangerine has introduced two new features on its mobile app and online banking: Goals and Left to SpendGoals lets users establish one or multiple savings priorities, like a vacation or a new car, set up regular contributions, and provides real-time updates on progress being made. Left to Spend monitors regular expenses like rent or mortgage payments, car payments, insurance etc., and calculates how much disposable income you have “left to spend” in each month or pay period.

“Debt remains an issue, with loan and debt payments taking the third largest chunk of monthly spending (20 per cent), after rent or mortgage payments and other types of spending such as groceries. So we think it’s more important than ever to offer features like Goals and Left to Spend to help Canadians better keep track of their everyday spending to help with their long term financial goals,” said Nicholson.

The survey found almost three-quarters of Canadians (71 per cent) use online banking to track their spending, with almost one-third (27 per cent) using mobile banking apps.

“Information is power, especially when it comes to managing spending and achieving savings goals,” said Brenda Rideout, President and CEO. “While technology makes it easier to spend than ever before, it also empowers Canadians to manage their money. These new features are designed to make it easier for Tangerine Clients to keep fully up to date on spending and saving.”

On a positive note, the survey found that Canadians are finding ways to save. According to the survey, four in ten Canadians save money most months, with a similar number saying they save money every single month. Typical monthly savings are up to $250, with retirement, emergencies and vacations making up the top three things Canadians are saving for.

ABOUT THE SURVEY
From August 31st to September 4th 2018 Maru/Blue executed an online survey of 1,000 randomly selected Canadian adults with an active bank account who are Maru Voice Canada panelists. Among them were respondents in the following age groups: 18-24 (n=33), 25-34 (n=222), 35-44 (n=176), 45-54 (n=233), and 55+ (n=336). For comparison purposes, a probability sample of this size has an estimated margin of error (which measures sampling variability) of +/- 3%, 19 times out of 20. Discrepancies in or between totals are due to rounding.

ABOUT TANGERINE BANK
Tangerine is a direct bank that delivers simplified everyday banking to Canadians. With over 2 million Clients and close to $38 billion in total assets, we are Canada’s leading direct bank. Tangerine offers banking that is flexible and accessible, products and services that are innovative, fair fees, and award-winning Client service. From no-fee daily chequing and high-interest savings accounts, a Credit Card, GICs, RSPs, TFSAs, mortgages and mutual funds through its subsidiary, Tangerine Investment Funds Ltd., Tangerine has the everyday banking products Canadians need. With over 1,000 employees in Canada, our presence extends beyond our website and Mobile Banking app to our Café locations, Pop-Up locations, Kiosks and 24/7 Contact Centres. Tangerine was launched as ING DIRECT Canada in 1997. In 2012 it was acquired by Scotiabank, and operates independently as a wholly-owned subsidiary.

Tangerine was recently selected as ‘Best of Show’ winner at the 2018 Finovate Fall Conference for their Left to Spend and Goals features. Finovate brings together more than 1,200 financial services professionals, investors and Fintech enthusiasts to celebrate the cream of the crop in the Fintech world.

SOURCE Tangerine

 

Canada Post strike averted for now as union says it will remain at bargaining table

Ottawa – The union representing thousands of Canada Post workers says it will stay at the bargaining table, averting a potential strike by mid-week.

The Canadian Union of Postal Workers said Monday it would not issue a 72-hour notice of job action, giving the Crown agency’s negotiators an opportunity to address the union’s demands, which include higher wages and better working conditions.

Both sides have been bargaining for separate collective agreements over the past nine months.

Negotiators were facing a Wednesday deadline of 12:01 a.m. eastern time for a possible strike or lockout after conciliated talks failed to reach a deal earlier this month.

While the two sides continue talking, the union warns its members may still face a work stoppage if there is no progress in bargaining.

A spokeswoman for Canada Post said Monday that both sides were working hard to reach negotiated agreements.

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