The Canadian economy contracted unexpectedly in the second quarter, falling short of market expectations on sharp declines in home resale activities and exports amid a spring resurgence in Covid-19 cases.
Meanwhile, preliminary data for July suggest the economy also contracted in that month, despite a much lower Covid-19 caseload and the continued easing of economic restrictions in most regions of the country. The weak economic data could have an impact on Canada's national election campaign, with Canadians set to vote next month after Prime Minister Justin Trudeau called a snap election.
Canada's gross domestic product, or the broadest measure of goods and services produced in the economy, contracted at a 1.1% annualized rate in the second quarter to 2.071 trillion Canadian dollars, or the equivalent of $1.643 trillion, Statistics Canada said Tuesday. Market expectations were for a 2.5% annualized advance in the quarter, according to economists at TD Bank.
The second-quarter contraction followed a 5.5% annualized gain during the previous three-month period.
"Canada's economy couldn't power through another tough Covid wave without losing some ground," CIBC Capital Markets economist Royce Mendes said. A cooling off in home resales and a large drop in exports more than offset advances in residential construction and business investment, he said.
Time to Switch Tracks Again in Canadian Rail Battle -- Heard on the Street
It's time for this railroad's board to punch its ticket.
Kansas City Southern, the smallest major freight railroad in the U.S., has been the subject of a bidding war between two Canadian rivals. Its shares fell Tuesday because of an unwelcome regulatory decision, but things turned out nearly as well as they could have for its shareholders.
Having agreed in March to be bought by Canadian Pacific Railway Ltd., it switched to a higher bid containing more cash by that company's larger domestic rival, Canadian National Railway Co. It then stuck with Canadian National after receiving a counteroffer from its original suitor earlier this month while shrewdly delaying its shareholder vote until this Friday.
A decision Tuesday by the U.S. Surface Transportation Board not to approve the voting trust that Canadian National was to use to purchase the shares makes its next decision obvious: KCS should snap up the $1 billion break fee it is now owed by Canadian National and go back to its original suitor with its improved bid. Canadian Pacific applied under a more lenient set of rules and already has had its voting trust approved by the STB. While that doesn't guarantee that the agency will ultimately give the green light to an eventual merger, KCS's shareholders can still get paid while the bureaucrats dither.
In theory Canadian National can appeal the STB's decision or even proceed without a voting trust and further sweeten its offer, but KCS's shareholders would be foolish to take that risk, which would be the equivalent of exchanging a bird in the hand for 1.1 in the bush. Without a trust, the only financial surety it can get is yet another break fee. And the STB's unanimous decision not to approve the trust, along with tougher talk in general from the Biden administration on competition matters, makes a deal a long shot without serious concessions.
Market Talk:
Canada's Conservative Party Blames Trudeau for Weak 2Q GDP Data
The leader of Canada's Conservative Party, which is vying to replace the governing Liberals in an election this fall, said Tuesday that dismal 2Q GDP data released earlier in the day offers evidence of Prime Minister Justin Trudeau's poor economic management. Statistics Canada said the economy unexpectedly shrank at a 1.1% annualized rate in 2Q, well below expectations for a 2.5% advance. "Under Justin Trudeau, Canada's economy is getting worse, not better," Conservative Party leader Erin O'Toole said during a campaign appearance. Canadians are due to vote in a national election on Sept. 20.
Expected Major Events for Wednesday
00:30/JPN: Aug Japan Manufacturing PMI
05:00/JPN: Aug Auto sales
06:00/RUS: Aug Russian Manufacturing PMI
06:00/GER: Jul Retail Trade
06:00/UK: Aug Nationwide House Price Index
07:45/ITA: Aug Italy Manufacturing PMI
07:50/FRA: Aug France Manufacturing PMI
07:55/GER: Aug Germany Manufacturing PMI
08:00/GER: Aug Brandenburg CPI
08:00/ITA: Jul Unemployment
08:30/UK: Aug CIPS / Markit Manufacturing PMI
11:00/US: 08/27 MBA Weekly Mortgage Applications Survey
12:15/US: Aug ADP National Employment Report
13:30/CAN: Aug Canada Manufacturing PMI
13:45/US: Aug US Manufacturing PMI
14:00/US: Aug ISM Report On Business Manufacturing PMI
14:00/US: Jul Construction Spending - Construction Put in Place
14:00/US: Jul Metropolitan Area Employment & Unemployment
14:30/US: 08/27 EIA Weekly Petroleum Status Report
15:00/US: Aug Global Manufacturing PMI
20:00/US: Aug Domestic Auto Industry Sales
23:50/JPN: Aug Monetary Base
All times in GMT. Powered by Kantar Media and Dow Jones.
Expected Earnings for Wednesday
Asana Inc (ASAN) is expected to report for 2Q.
Basic Energy Services (BASXQ) is expected to report for 2Q.
Brown-Forman Corp - B Share (BFA,BFB) is expected to report $0.38 for 1Q.
C3.ai Inc (AI) is expected to report for 1Q.
Campbell Soup (CPB) is expected to report $0.41 for 4Q.
ChargePoint Holdings Inc (CHPT) is expected to report for 2Q.
Chewy Inc (CHWY) is expected to report for 2Q.
Conn's (CONN) is expected to report $0.74 for 2Q.
Copart Inc (CPRT) is expected to report $0.92 for 4Q.
Core & Main Inc (CNM) is expected to report for 2Q.
Costco Wholesale Corp (COST) is expected to report.
Culp Inc (CULP) is expected to report $0.13 for 1Q.
D-Box Technologies (DBO.T,DBOXF) is expected to report for 1Q.
Daktronics (DAKT) is expected to report $0.18 for 1Q.
Dycom Industries Inc (DY) is expected to report $0.70 for 2Q.
Five Below (FIVE) is expected to report $1.14 for 2Q.
Greif Inc - A Share (GEF,GEFB) is expected to report $1.52 for 3Q.
Itafos is expected to report for 2Q.
Laurentian Bank of Canada (LB.T,LRCDF) is expected to report $1.02 for 3Q.
Major Drilling Group International Inc (MDI.T,MJDLF) is expected to report $0.12 for 1Q.
Nutanix Inc (NTNX) is expected to report $-0.98 for 4Q.
Okta Inc (OKTA) is expected to report $-0.84 for 2Q.
Phreesia Inc (PHR) is expected to report for 2Q.
QAD Inc (QADA,QADB) is expected to report $0.12 for 2Q.
Raven Industries Inc (RAVN) is expected to report $0.21 for 2Q.
Rex American (REX) is expected to report for 2Q.
Ryan Specialty Group Holdings Inc (RYAN) is expected to report for 2Q.
Semtech (SMTC) is expected to report $0.43 for 2Q.
Smith & Wesson Brands Inc (SWBI) is expected to report for 1Q.
Sportsman's Warehouse Holdings Inc (SPWH) is expected to report $-0.16 for 2Q.
Veeva Systems (VEEV) is expected to report $0.74 for 2Q.
Vera Bradley Inc (VRA) is expected to report $0.26 for 2Q.
VersaBank is expected to report for 3Q.
Volt Information Sciences Inc (VOLT) is expected to report $0.01 for 3Q.
eGain (EGAN) is expected to report $0.02 for 4Q.
nCino Inc (NCNO) is expected to report for 2Q.
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ANALYST RATINGS ACTIONS
Alliance Data Systems Raised to Buy From Neutral by B of A Securities
BancorpSouth Bank Raised to Strong Buy From Outperform by Raymond James
Cadence Bancorp. Raised to Strong Buy From Outperform by Raymond James
Digital Turbine Raised to Buy From Hold by Canaccord Genuity
DSP Group Cut to Hold From Buy by Lake Street
DSP Group Cut to Hold From Buy by Needham
DSP Group Cut to Market Perform From Outperform by Cowen & Co.
Funko Raised to Buy From Hold by Jefferies
GoodRx Holdings Raised to Overweight From Equal-Weight by Barclays
Textron Raised to Outperform From Market Perform by Cowen & Co.
Tyler Technologies Raised to Buy From Neutral by BTIG
Zymergen Cut to Neutral From Buy by UBS
This article is a text version of a Wall Street Journal newsletter published earlier today.
(END) Dow Jones Newswires
09-01-21 0606ET
