Retail sales were flat in the fourth quarter for Canadian Tire Corp. Ltd., as the company’s automotive business continued to offset declines in demand for products such as home improvement and entertainment products.

On Thursday, the Toronto-based retailer reported that comparable sales were up 0.3 per cent across its store banners in the fourth quarter, and down 0.1 per cent at the flagship chain, citing declines in categories it refers to as “playing” and “fixing.”

The results for the 13 weeks ended Dec. 31 – including the all-important holiday period – showed that sales held steady at Canadian Tire CTC-A-T +0.48%increase compared to a strong period the prior year when comparable sales grew by nearly 10 per cent. But the purchasing trends still pointed to an ongoing shift in consumer behaviour across the country, as inflation-weary shoppers continue to spend on essential products such as tires and pet supplies, while cutting back on non-essential expenses.

Comparable sales at Sport Chek were down by 1.6 per cent, as demand waned across categories and especially in outerwear. At Mark’s, sales grew 4.4 per cent as customers continued to stock up on casual clothing and footwear, and industrial items.

Revenue at the company’s financial services segment grew by 14.3 per cent in the quarter on higher interest income and fees related to growth in credit card sales.

Overall, Canadian Tire’s profits were up as revenues increased and gross margins improved in its retail segment. The company reported net income of $562.6-million, or $9.13 per share in the quarter, compared to $535.7-million or $8.40 per share in the same period the prior year.

Total revenue in the 13 weeks ended Dec. 31 grew by 3.9 per cent to $5.3-billion.

At an investor presentation last March, Canadian Tire announced a four-year growth strategy with the goal of growing its comparable sales by 4 per cent on average annually – not including fuel sales at its gas stations – and to improve its e-commerce operations and supply-chain efficiency. For the full year 2022, comparable sales grew by 2.7 per cent. The fourth-quarter report to shareholders acknowledged that the company “is now operating in a more challenging environment in 2023″ than expected at the time the growth strategy was announced, and that some of the assumptions behind those goals “could be challenged” if consumer spending patterns continue to be affected by inflation. “While the company remains committed to achieving its financial aspirations outlined at investor day, by continuing to invest in its building blocks for the longer term, the pacing will be different than originally planned,” the report stated.

The Canadian Press – Canadian Press – Wed Feb 8, 10:24AM CST

TORONTO — Automotive industry leaders say the need for Canada to take action on the electric vehicle transition has taken on significantly greater urgency as money starts to flow in the U.S. from massive government incentives.

Speaking at an electric vehicle conference in Toronto Wednesday, GM Canada president Marissa West says that sense of urgency can’t be understated as the company looks to secure its mineral and manufacturing capabilities for the years ahead.

West says Canada has a significant advantage thanks to renewable energy supplies, but that the speed of project approvals and inconsistent policies between provincial and federal governments are barriers.

Both West and Linamar Corp. chief executive Linda Hasenfratz emphasized the need for government support to balance the funding being provided by the Inflation Reduction Act in the U.S.

The Canadian industry is set to benefit from many aspects of the U.S. act, but West says that areas like manufacturing capacity will especially require the Canadian government to step in.

Unifor President Lana Payne says the urgency comes as manufacturers look to restructure whole supply chains to be closer to home, which along with the shift to electric vehicles creates risks and opportunities for Canadian workers.

This report by The Canadian Press was first published Feb. 8, 2023.

Companies in this story: (TSX:LNR)

Magna International (TSE:MG) fell on Wednesday after CIBC downgraded North America’s largest auto-parts supplier in the wake of the Volkswagen emissions scandal. 

Shares were trading at $61.06, down 2.1%, at 1:07 p.m. in Toronto.

CIBC lowered the stock to “sector perform” from “sector outperform” and cut its target price to $52 from $62.50.

Analyst Todd Coupland noted that Magna doesn’t make diesel engines, but it does make many parts that end up in VW vehicles.

Magna’s VW sales were $4.26bn in 2014, $3.6bn of which were in Europe.

VW’s emissions rigging scandal continues to broaden. Chief executive officer Martin Winterkorn resigned on Wednesday as the automaker admitted that as many as 11 million cars could be affected. 

Since 48% of VW’s European vehicle sales are diesel, Coupland assumes the same ratio applies to Magna. That works out to an estimated $1.75bn of sales in 2014.

European markets higher as investors weigh up economic outlook

European markets were higher Thursday as investors weighed up the economic outlook and interest rate trajectory.

https://www.cnbc.com/2023/02/09/european-markets-live-updates-stocks-data-earnings-and-news.html

Morgan Stanley analyst Keith Weiss described the stakes,

“New Bing features four key innovations (detailed in a company blog post):

1. New Bing runs on a new large language model (LLM) developed with OpenAI, but more powerful than ChatGPT and customized specifically for search. 2. Microsoft Prometheus Model developed as a proprietary method of interacting with the large language model to best support the search modality. This innovation improves relevancy, annotates answers, provides more up-to-date. answers and works to best understand geolocation… 3. Applying AI model to core search algorithm which drives step-function improvement in relevancy, the largest increase in relevancy Microsoft has seen in over a decade. 4. Improved user experience as search, browser and chat are pulled together into a single unified experience; this primes New Bing to answer more complex queries and more seamless enable workflows (e.g. like making travel arrangements). .. With a revenue run rate exceeding $210 billion, Microsoft continually assesses large market opportunities to enable growth going forward, and at a $570 billion TAM [total addressable market], the digital advertising market looks to be an increasingly interesting focal point.”

Brookfield Asset Management Ltd. BAM-A-T -0.57%decrease is looking to buck the trend in a tough market for fundraising with plans to raise significant capital to invest in its areas of focus, including infrastructure, renewable energy and private credit.

The asset manager reported earnings for the first time as a standalone entity on Wednesday after it was spun off from parent Brookfield Corp. in December. The company raised US$93-billion in capital in 2022, including US$14-billion in the fourth quarter, which was its best fundraising year on record.

Even as available capital becomes more scarce while investors grapple with the uncertainty caused by high inflation and spiking interest rates, Brookfield is betting that it can continue to attract flows of institutional money that are increasingly going to only the largest asset managers with the broadest reach. It is also betting that its strength in asset classes that are most in demand because they generate stable income in volatile times will give it an edge.

“We’re increasingly seeing large institutional [limited partners] looking to concentrate their capital amongst a smaller number of managers, but those managers who can offer them a greater diversity of products,” said Connor Teskey, president of Brookfield Asset Management, on a Wednesday conference call.

“We do expect this to continue in the coming years and perhaps this is one of the reasons why we have such a robust and positive outlook for fundraising in 2023 when we know that there are some pockets of weakness for other market participants,” Mr. Teskey said.

Fundraising helped Brookfield Asset Management boost its fee-bearing capital to US1$418-billion, up 15 per cent over the past year. During the fourth quarter, the company closed new funds for its fifth flagship infrastructure fund, which now stands at US$22-billion, and its sixth flagship private equity fund, which reached US$9-billion.

After Brookfield quickly deployed about half of a $15-billion, climate-focused fund that launched in 2021 to make large investments in the global transition to a net zero economy, Mr. Teskey said Wednesday that it is intended to be only the first in a series of such funds. Brookfield plans to bring a second, “meaningfully larger” transition fund to market “sooner rather than later,” he said.

In a letter to shareholders, Brookfield chief executive Bruce Flatt and Mr. Teskey said the company expects to have three flagship funds in the market in 2023. And they predicted that the asset manager’s earnings should “at least double over the next five years.”

Brookfield Asset Management, which was spun off in December, reported higher earnings from fees in the fourth quarter, largely shrugging off the volatility in roiling markets.

Overall profit was down 9.5 per cent to US$504-million in the final three months of the year, including US$84-million earned from the spinoff on Dec. 9 to the end of the year.

But full-year profit was up 3 per cent to US$1.92-billion. And fee-related earnings increased nearly 8 per cent in the quarter to US$576-million, while distributable earnings – which adjust for items such as taxes and share-based compensation – rose 5.5 per cent to US$569-million.

For the full year, fee-related earnings were US$2.1-billion. The company now has approximately US$800-billion of assets under management.

The asset manager’s board declared a quarterly dividend of 32 US cents a share.

Analysts probed the company on Wednesday about its appetite for mergers and acquisitions, but Mr. Flatt said any larger deal would need to “hit a very high test,” adding: “We don’t have any expectations of something happening in 2023.”

On Wednesday, Brookfield Reinsurance – a subsidiary of Brookfield Corp. – announced a US$1.1-billion, all-cash deal to acquire specialty insurer Argo Group International Holdings Ltd., helping expand Brookfield’s U.S. insurance operations. Argo shareholders will have the right to receive US$30 in cash per share at closing, which is a 6.7-per-cent premium to the company’s closing share price on Feb. 7.

Oil prices rose early on Wednesday, extending gains from the previous two days, as the dollar fell after Federal Reserve Chair Jerome Powell sounded less hawkish on interest rates than markets had expected and as U.S. crude stocks surprisingly fell.

Brent crude futures inched up by 11 cents, or 0.1%, to $83.80 a barrel at 0119 GMT, adding to a 3.3% gain in the previous session.

U.S. West Texas Intermediate (WTI) crude futures advanced by 13 cents, or 0.2%, to $77.27 a barrel, after jumping 4.1% in the previous session.

The dollar index was down slightly at 103.29 in early trade, extending losses after Powell’s comments on Tuesday, making oil cheaper for those holding other currencies.

With less aggressive interest rate hikes in the United States, the market is hoping the world’s biggest economy and oil consumer can dodge a sharper slowdown in economic activity or even a recession and avoid a slump in oil demand.

“I think we’re in a reasonably balanced market,” said Westpac senior economist Justin Smirk.

“If we have stronger than expected growth out of the developing world, (oil) prices will be firmer and OPEC will have to step up output. That’s not our core view. We don’t see a big surge in demand,” he said.

Supporting the market, weekly inventory data from the American Petroleum Institute industry group showed crude stocks fell by about 2.2 million barrels in the week ended Feb. 3, according to market sources.

That defied expectations from nine analysts polled by Reuters, who had estimated crude stocks grew by 2.5 million barrels.

However, gasoline and distillate inventories rose more than expected, with gasoline stocks up by about 5.3 million barrels and distillate stocks, which include diesel and heating oil, up by about 1.1 million barrels.

The market will be looking to see if data from the U.S. Energy Information Administration, due at 1530 GMT, confirms the decline in crude stocks.

Canada’s economy loses momentum as rate hikes take hold

The Canadian economy is slowing quickly as the Bank of Canada hikes interest rates to tamp down excessive inflation, the prelude to a potential recession this year.

Real gross domestic product rose 0.1 per cent in November, according to figures published Tuesday by Statistics Canada, with a preliminary estimate showing little change in December. All told, the economy grew at an annualized rate of 1.6 per cent in the fourth quarter, based on that reading for December, which will be updated near the end of February.

The economy is showing resilience as it faces mounting headwinds and financial strain for many households. Growth in the fourth quarter was stronger than what the Bank of Canada and several financial analysts had predicted. During the final months of 2022, employers were continuing to hire workers in droves, which kept the unemployment rate near an all-time low.

There is, however, a clear loss of momentum. The economy grew at annualized rates of 3.2 per cent in the second quarter and 2.9 per cent in the third quarter.

The Bank of Canada expects the economy to stall during the first half of 2023. It has not ruled out a mild recession, an outcome that many analysts on Bay Street are predicting.

“It’s just as likely that we’ll have two or three quarters of slightly negative growth as slightly positive growth,” Bank of Canada Tiff Macklem said at a press conference last week. “So yes, it could be a mild recession. It’s not a major contraction.”

In November, 14 of 20 industrial sectors managed to post growth. Transportation and warehousing rose 1 per cent for the month, highlighted by a 4.6-per-cent surge for air transportation. The finance and insurance sector jumped by 0.5 per cent, following three consecutive monthly declines. The public sector expanded by 0.3 per cent.

At the same time, there was contraction in rate-sensitive industries. Construction fell 0.7 per cent in November as residential building and repairs hit a weak spot.

Retailers fared poorly in November as the industry dropped 0.6 per cent. The declines were particularly large at stores selling food, building materials and general merchandise.

Restaurants and bars had a rough month, posting a 2.9-per-cent contraction.

“There are lots of moving parts here, with some sectors retreating and other industries still bouncing back to something like normal,” Bank of Montreal chief economist Doug Porter said in a note to clients. “But the overriding message is that the economy is just managing to keep its head above water,” he added.

The Bank of Canada is raising interest rates at the fastest pace in a generation, which has taken the benchmark rate to 4.5 per cent from a pandemic low of 0.25 per cent in March, 2022. The central bank is intentionally trying to slow the economy and bring supply and demand into better balance to quell soaring rates of consumer price growth. The annual rate of inflation has eased to 6.3 per cent in December from nearly a four-decade high of 8.1 per cent in June.

At last week’s rate announcement, the Bank of Canada said it was holding its policy rate at 4.5 per cent to assess whether its policies were restrictive enough to knock inflation back to the bank’s 2-per-cent. It cautioned, however, that it would raise rates again if needed.

Bank of Canada delivers quarter-point rate hike, signals pause to further increases

The Bank of Canada increased its benchmark interest rate by a quarter of a percentage point, but said that it expects to hold off further rate hikes, making it the first major central bankto say it would pause monetary policy tightening.

This is the eighth consecutive rate increase, and brings the bank’s policy rate to 4.5 per cent.

“We have raised rates rapidly, and now it’s time to pause and assess whether monetary policy is sufficiently restrictive to bring inflation back to the 2-per-cent target,” Bank of Canada Governor Tiff Macklem said in a news conference.

“To be clear, this is a conditional pause,” Mr. Macklem added. “If we need to do more to get inflation to the 2-per-cent target, we will.”

The bank lowered its forecast for inflation on Wednesday. It also reiterated that it expects the economy to “stall” in the first half of the year, but does not foresee a significant recession.

The widely expected decision marks a turning point for the central bank. Over the past year, it has pushed Canadian borrowing costs rapidly higher to combat runaway inflation. Now, with price pressures easing and the economy slowing, the bank has said that interest rates are likely as high as they need to go.

The bank now expects consumer price index inflation to fall to about 3 per cent by the middle of this year, and to 2.6 per cent by the fourth quarter. It sees inflation returning to the 2-per-cent target in 2024.

The annual rate of inflation remains well above those levels, clocking at 6.3 per cent in December. But that is down from a peak of 8.1 per cent in June. Price pressures continue to ease thanks to a drop in oil prices and improvements in global supply chains, plus the slowing effects on the economy of the bank’s rate increases.

The average price of gasoline, for instance, has fallen from about $2 a litre last summer to about $1.50 in January, the bank noted in its quarterly Monetary Policy Report (MPR), published Wednesday.

“While the Bank did not rule out future rate hikes entirely, the new guidance reinforces our view that the Bank’s next move is likely to be a rate cut, albeit not until later this year,” Stephen Brown, senior Canada economist at Capital Economics wrote in a note to clients.

The expected drop in inflation comes alongside a slowdown in the Canadian economy. The bank expects growth to flatline through the first half of 2023, as higher borrowing costs squeeze Canadians’ finances and weigh on consumer spending and business investment.

“It’s just as likely that we’ll have two- or three-quarters of slightly negative growth as slightly positive growth,” Mr. Macklem said. “So yes, it could be a mild recession. It’s not a major contraction.”

“We do need this period though of essentially no growth to allow supply to catch up,” he added. “But I don’t want to pretend that it’s painless. It’s not painless.”

So far, the Canadian economy has proven more resilient than expected. Unemployment is near a record low and consumer spending has remained relatively robust. But there is “growing evidence that restrictive monetary policy is slowing activity,” the bank said.

Higher interest rates hammered the housing market in 2022, and consumers have begun to cut spending on big-ticket items. The bank expects spending to slow further as homeowners renew their mortgages at higher interest rates and nervous shoppers trim non-essential purchases.

“The rise in borrowing costs is expected to continue to strain many household budgets. Interest payments on household mortgages are estimated to be about 4.5 per cent of disposable income at the beginning of 2023, up from 3.2 per cent at the beginning of 2022,” the bank said in the MPR.

The bank is intentionally using interest rates to slow the economy and inflation. The goal is reducing spending on goods and services to bring overall demand in line with supply, which eases price pressures.

The bank says that the economy remains in a position of “excess demand.” This is most visible in the labour market, where unemployment is low and businesses continue having trouble finding enough workers. This is fuelling wage growth and feeding through into inflation, particularly in the service sector.

The bank has argued that unemployment will need to rise to get inflation back to target.

“With the pace of wage growth no longer increasing, the risk of a wage-price spiral has declined. However, unless a surprisingly strong pickup in productivity growth occurs, sustained 4 per cent to 5 per cent wage growth is not consistent with achieving the 2 per cent inflation target,” the bank said.

There are other risks to the inflation outlook, the bank said. Service prices could prove “stickier” than expected. Oil prices could also rise more than anticipated, depending on what happens with the war in Ukraine and China’s reopening from COVID-19 lockdowns.