US malls bordering Canada offering specials to lure Canadians as loonie dives

The low loonie or Canadian dollar began to fall against the U.S. dollar last fall. Before its fall Canadians often went on shopping trips across the border to buy many items at lower prices.

Although the loonie has recovered slightly to around 76 cents U.S., it is still too low to entice Canadian shoppers to travel to the US. The loss of Canadian shoppers has had a detrimental effect on malls that previously had made extra profits from the Canadian trade. Stephen Fine, president of the resource site CrossBorderShopping, said: "They're really noticing the decrease in Canadian Shoppers now." Some malls are using special deals to lure Canadian customers back. The deals range from gifts, to at-par exchange. Some start this Victoria Day weekend.

Statistics Canada reports that 977,686 Canadian autos made same day trips to the U.S. this March, a decline of 15 percent from last year. Overnight trips declined by almost as much at 13 percent.

Bells Fair, a Mall in Bellingham, Washington, just south of Vancouver B.C., has 18 retailers including the Gap, JCPenny and Macy's that are accepting the loonie at par until Remembrance Day in November during Canadian long weekends, including Victoria Day weekend. General manager of the mall,Rene Morris, said: "I just thought, how can we help our Canadian shoppers?They want to come, but the loonie is low." Morris estimates that she has lost about 25 percent of her Canadian customers compared to about two years ago when the loonie was above 90 cents U.S. She said the whole community is feeling the decline. Parking lots are no longer full of the blue and white B.C. licence plates. She said she had to do a lot of convincing to get retailers to accept the plan but once she got Macy's to sign up, many more joined. Hotels are also joining in, offering special rates for Canadians. The Sheraton Four Points will offer room rates at par on the weekend.

In other areas of Canada near the U.S. border are offering deals. Walden Galleria in Buffalo has joined with a nearby Hampton Inn to offer shoppers rooms at par plus a $20 gift certificate. The offer will continue until the end of June. Other retailers in the Galleria are offering Canadians discounts of up to 25 percent. Shoppers in Toronto and other southern Ontario cities near the border will probably be lured by the offers. A retail outlet in Niagara Falls NY, right on the border is offering a $20 Visa gift card with every $200 spent up to a maximum of $100 in gift cards. Marketing manager Meghan Ayers said: "There's a direct correlation to Canadian traffic when the loonie declines. We're incentivizing Canadians to cross the border." Fine of CrossBorderShopping thinks that the deals and warm summer weather will entice more Canadians to shop in the U.S.

The diving loonie is also having a negative effect on snowbirds. Snowbirds are Canadians, many of them retired, who travel south, mostly to the southern U.S., in order to avoid harsh Canadian winters. Grace Tenhoeve, 71, used to be a regular snowbird, escaping Canadian winter's in Waterdown, Ontario, every year and staying in Florida. This year she has decided she just cannot afford to go:"When the dollar dropped I said, You know what, I'm not going,...I'm not that rich." She lives alone on a fixed income.

As with retailers on the borders, those in other areas of the U.S. who earn a considerable amount of their income from Canadians are giving big discounts to attract them back..Scottsdale, Arizona, is one of the cities trying to entice Canadians to return. Rachel Pearson of the city's visitors bureau brags: "Scottsdale loves Canadians, so come on down." Canadians are the biggest group of international visitors. Some businesses are accepting the loonie at par. The city even has catchy ads running in Canada such as: "Get some loonie love in Scottsdale." The ads also appear on line. Deals include meal vouchers, up to 25 percent off accommodation, and discounts on boat tours, shopping and spas.

Last November and October car trips to the U.S. declined by 23 percent compared to the year before. Plane trips were down 6.3 percent The higher US dollar has had the result that sales of all-inclusive trips to Mexico and the Caribbean have jumped more than ten percent.

Places such as Kissimmee, Florida, are trying to counteract the decline in Canadian visitors. On the website of Alexander Holiday Homes we hear; "The Canadian exchange rate being so low is causing many to hesitate traveling to Florida this year. We have the solution!" The solution is a 30 percent discount. Myrtle Beach in South Carolina has a number of hotels and tourist attractions that offer Canadians discounts of up to 65 percent. Nearly a million Canadians visit Myrtle Beach each year. The director of marketing with Vacation Myrtle Beach Resorts running 14 resorts notes the chain offers discounts of 25 percent for Canadians staying at hotels for at least a week. He said that the chain did not want to weaken any ties to people who had been returning for years.

Tenhoeve has decided to stay put. She a community indoor pool where the water temperature is 88 degrees Fahrenheit. She claims she does not need to go to Florida. As the appended video shows, some Canadians are taking advantage of the high U.S. dollar by selling off homes they bought when the U.S. housing market dropped drastically.

2015 was a dismal year for oil prices, the loonie, and Canadian stock markets

On the final trading day of the 2015 on Thursday, the S&P/TSX composite in Toronto was at 13,009, a loss of 132 on the day and off 11 percent from a year ago. This is the worst performance since 2011.

The TSX peaked on April 15 at 15,524 but since then has dropped 16 percent. The Canadian economy has struggled with output flat or even down some months. In the U.S. stock markets performed better than in Canada but turned in a mixed performance. The Dow Jones dropped 2.2 percent over the year, and the S&P 500 less than one percent. The Nasdaq actually gained 5.7 percent.

Oil has suffered an even more dramatic decline in price. A barrel of West Texas intermediate dropped by 38.6 percent during 2015. This is the worst performance since the financial crisis back in 2009. At the close, the price was up marginally at $37.05. For some producers, oil prices are already below the "marginal cost of supply." With producing giants such as Saudi Arabia refusing to cut back production, higher-cost producers will cease expanding production and in some cases even stop production. The situation is ripe for takeovers by larger companies with cash to buy companies struggling to survive and starved for cash. While no one knows how low oil prices could go, Goldman Sachs made headlines by suggesting last week that WTI could go as low as $20 a barrel. Many analysts see this as an overly pessimistic estimate and see the price as close to a bottom now with demand beginning to increase. A year and a half ago oil was priced at over a $100 a barrel. Oil and gas revenue for 2015 was expected to be about $91 billion about 40 percent below 2014.

In May of 2015 oil surplus hit two million barrels each day. In August oil storage reached a level not seen in 80 years. The Canadian Association of Petroleum Producers(CAPP) reported that there had been layoffs of 35,000 in Alberta.

Suncor CEO Steve Williams said:"There is not a sudden moment when we realized prices were going to be lower for longer. There is consensus now that prices are going to be low and for much longer than people anticipated."Some auction houses in Alberta are seeing their business boom as companies sell off equipment to keep cash flowing.

Scotiabank Economics has lowered its price forecast for oil prices next year after the recent OPEC meeting that failed to announce any production cut. The prediction is for WTI to be from $40 to $45 a barrel for 2016 and only $45 to $50 for 2017. Scotiabank said that in the short term WTI could fall as low as $30 dollars a barrel. Common forecasts put the price as flat until rising demand and falling output will raise prices. A long term forecast by the International Energy Agency puts the price of oil back at about $80 a barrel by 2020.

The loonie dives in tandem with oil prices as it dropped 16 percent relative to the US dollar over the year. This is close to the 18.6 percent the loonie lost during 2008. On Thursday the loonie was trading at 72.34 cents on the U.S. dollar. While the lower loonie may help some of our export businesses especially to US markets, it has resulted in higher prices for goods imported from the US such as fresh fruit and vegetables. Canadian tourists and snowbirds will find it will cost them more Canadian dollars on their journeys.

One area where prices are on the rise is in the housing market, especially "hot" areas such as Vancouver and Toronto. Also rising are Canadian household debt levels. As interest rates remain low, Canadians are often enticed into buying while they are still able to afford monthly payments. It is quite possible that 2016 could see a property value crash, especially in overheated markets. In areas hit by low oil prices some realtors are already closing up shop.

In 2016, the Canadian Real Estate Association forecast home prices to increase by 1.4 percent compared to the 7 percent in 2015. However, larger price increases are expected to continue in areas such as Vancouver and Toronto. One factor is that the low loonie makes these properties attractive to foreign buyers. Job growth has been relatively strong in these cities and demand for housing increases as workers migrate away from provinces such as Alberta. The inflow of immigrants will also increase demand.

Low interest rates may entice more Canadians to take on more debt, even though the ratio of household debt to income is now 164 percent compared to about 100 percent in the late 1990s. Over the past year household debt in Canada rose to $1.88 trillion. Mortgage debt rose by $74.7 billion or 5.9 percent. If jobs are lost or interest rates increase many households will find it impossible to cope with their debt loads. The enclosed video is from March of this year.

Six Canadian Banks earn almost $35 billion over last fiscal year

- In a year that has seen a weak economy, slumping development in the energy sector and consumers cautious and debt-ridden, five of the six main Canadian banks had fiscal year earnings better than last year with Scotibank being the single exception.

Three of the six banks also increased their dividends. Total earnings of the six for the fiscal year was almost $35 billion. The Royal Bank was the top earner with $10 billion in profit compared to $9 billion last year.

One of the ways the banks increased their profits was by curbing expenses. This often involves trimming staff and running the operations with fewer workers. TD cut 1,594 jobs this year. Scotiabank dropped 1,140 staff since last July.but this did not increase the profits for this year which dropped to $7.21 billion from$7.30 billion last year. Royal Bank also cut 528 full time jobs but did it mostly by not replacing retirees rather than laying off existing staff.

Some of the increase in profits has nothing to do with the Canadian economy but rather that some Canadian banks have large U.S. operations, and with the low Canadian dollar, U.S. earnings are worth more in Canadian dollars. Some Canadian banks have expanded to such a degree into the U.S. that in the case of TD, it has more branches in the U.S. than Canada. TD had the second highest earnings with $8.02 billion this year as compared to $7.88 last year.

Loan volumes have been rising and deposits growing. The banks also saved money by not passing along the full half percentage point in the loan rate that the Bank of Canada introduced earlier this year. The banks lowered their rate by only 0.30 percent, keeping the other 0.20 per cent for themselves or 40 percent of the total drop in the rate. What many consumers no doubt noticed is bank fees are continuing to increase as well.

Still, banks face problems in the west. particularly in Alberta where there have been many layoffs. The Royal Bank has added eight energy sector companies to its watch list. Equifax, the credit monitoring agency, says loan delinquencies were rising in every province with a large energy component. The economic outlook for 2016 is not that robust and forecasts have been trending downward,

The banks also face pressure to introduce new digital technology to compete with competition from giants such as Apple and Google. Janice Fukakusa, CFO of RBC, said: "We're continuing to invest in our digital channels … and also to invest in automating and simplifying our processes." David Beattie, a bank analyst at Moody's Investor Services, said"They're getting to the point where they're really doing some substantive changes to the way they run their businesses,Digitization is doing that anyway, but the pressure of low interest rates and spread compression and low revenue growth is just making it all that more critical."

The Royal Bank(RBC), with the largest profits, showed an increase in profits of 11,3 percent from last year. In the fourth quarter of this year ending on October 31, it earned $2.59 billion, also up by 11 percent from 2014. The RBC profit per common share was $1.74 in the fourth quarter above estimates by analysts. For the full year it was $6.73. The stock pays a dividend of 79 cents per share, an amount unchanged. Dave McKay, president and CEO of RBC, said: "We had record earnings of $10 billion in 2015, reflecting the strength of our diversified business model and our ability to execute our growth strategy in a changing environment," RBC operations in the U.S. and the Caribbean were profitable this year whereas last year they suffered losses. Not surprisingly there are signs that all will not be well in Alberta. Mark Hughes, risk officer for the RBC, said:"We've noticed a slight — and I would stress the word slight — upward trend in auto and credit card delinquencies in Alberta and while they haven't translated into writeoffs, we are monitoring the performances of these portfolios,"

The Toronto-Dominion Bank(TD) saw its profits increase by 5.3 percent in the fourth quarter to $1.84 billion even though it had heavy restructuring costs. The bank claims its Canadian retail operations experienced growth in loans, deposits, and insurance earnings. At the same time, credit performance was also strong. TD's U.S. banking operations had a net income of $486 million, which was 14 percent above that of last year. In part this was due to the weak loonie. The TD president and CEO, Bharat Masrani, said; "Results for the year reflect good earnings performance from all businesses, driven by good organic growth, strong credit quality, favourable currency translation and positive operating leverage."

Although CIBC profits showed a drop in profits for the fourth quarter, it also reduced its workforce — but by just 124 positions in the fourth quarter. For the entire fiscal year ending Oct. 31, CIBC performed better than in 2014. The bank had $3.59 billion of net income and $7.92 billion of revenue, up from $3.22 billion of net income and $7.5 billion of revenue last year. Victor Dudig, CEO and president said:"In 2015, all three of our strategic business units delivered strong performance,Looking to 2016, I am confident that our client-focused strategy and our investment in innovation and process improvements will add long-term value for our shareholders."

CIBC increased that dividend, paid quarterly, from $1.13 to $1.15.

Bank of Canada surprises markets with rate drop

In a surprise move, Canada's central bank, the Bank of Canada, reduced the overnight lending rate by a quarter of a percentage point. The reason given was the threat to the economy of plunging oil prices.

The move by the Bank reduced the lending rate from 1.0 percent to 0.75 percent. The Bank governor Stephen Poloz said: "The drop in oil prices is unambiguously negative for the Canadian economy. Canada's income from oil exports will be reduced, and investment and employment in the energy sector are already being cut." While the overall effect of the drop in oil prices may be negative, the impact will vary from province to province. With its huge oil resources, Alberta will suffer a significant drop in income from royalties and a decline in economic activity in the oil patch, but other provinces with industries that use oil welcome the lower prices for inputs. Consumers, airlines, truckers, and cabbies will be cheering the downward trend in fuel prices.

 The Toronto Stock Market (TSX) was up almost 300 points not long after the announcement. No doubt the reduced rate will be expected to boost consumer demand and help raise the level of economic activity. Almost no economists had been predicting the rate cut at this time but more were suggesting it could happen in the future. 

The rate decrease, follows upon a recent downgrading of both global growth and Canadian growth in the World Economic Outlook for 2015 published by the IMF. The forecast reduced global growth rates by 0.3 percent to 3.5 percent in 2015 and 3.7 percent in 2016. Canada's growth was downgraded 0.1 percent to 2.3 percent for 2015 and even more 0.3 percent for 2016 to just 2.1 percent. The drop in oil prices by about 50 percent since September 2014 was cited as the main reason for the IMF downgrade. In June of last year oil was at $105 US a barrel but now is well below $50 a barrel. The Bank of Canada also downgraded its prediction for Canada's growth in 2015 from 2.4 percent to 2.1 percent even lower than the IMF prediction, although contrary to the IMF, it sees a rise to 2.4 percent in 2016. 

The Bank made its projection on the assumption that oil prices will average about $60 dollars a barrel over the next two years. Derek Burleton, an economist at TD Bank said: "It is a significant move. It does show the Bank of Canada is worried about the big drop in the price of oil ... and what kind of uncertainty that poses in the next few quarters. I don't think they are panicking but I do think they're concerned about some of the uncertainty the recent slump in the price of oil does create for the economy." BMO economist, Michael Gregory, said: "Today’s BoC rate cut smacks of being a one-time 'insurance' move but in his presser, Governor Poloz indicated that if the world changes again (adversely for Canada) the Bank could take out more insurance."  

The Bank predicts that the lower oil and energy prices will reduce inflation at least temporarily but over the projected two year period will again approach the target two percent level. The Canadian dollar, the loonie, is trending much lower. BNN reports: Charles St-Arnaud, senior economist at Nomura Securities International Inc., said the drop in crude will prompt the central bank to lower its growth forecast by 0.5 percent.The loonie depreciated 1.4 percent to $82.55 cents US in Toronto Tuesday, at one point touching its weakest level since April 2009. Nomura forecasts it will reach 80 cents US by the middle of the year. The lower loonie will help Canadian exporters but imports from the US will rise in price and the flow of shoppers across the border may slow considerably as the loonie declines in value against the US dollar.

Loonie dives on jobs report and oil price decline..

The Canadian economy does not seem to be weathering the economic storms as well as some people thought. The declining oil price will hurt our energy stocks but on the other hand it will help the consumer and companies that depend upon fuel and petroleum products. Also, the declining dollar may eventually help exporters a little. But at the same time the price of our imports will go up and cross-border shopping will be less attractive.



Loonie dives on jobs report, oil

VIRGINIA GALT
Globe and Mail Update
August 8, 2008 at 9:51 AM EDT
The Canadian loonie dove to 93.62 cents (U.S.) Friday morning from Thursday's close of 94.97 cents within minutes of Statistics Canada's report that the Canadian economy lost 55,200 jobs in July.
The currency was battered by the “one-two punch combination of the shockingly weak jobs report and crude oil continuing to retreat…and there is no sign of any let up in that regard,” said Patricia Croft, chief economist at Phillips Hager & North.
The employment report – marking the biggest job loss in 17 years – “really caught people off guard,” Ms. Croft said in an interview.
“Canada has been considered a bastion of economic stability, unlike the U.S., the U.K., Europe, Japan, which are already in recession or heading that way. Canada, until recently, has held up quite well, but this jobs report is a sign that it's our turn now,” she said.

The Royal Bank said in its morning commentary that a sharp rally in the U.S. dollar, falling crude oil prices and a weak Canadian employment report “all served to conspire against the Canadian dollar.”
Bank of Nova Scotia currency analysts noted that the Canadian jobs report came on the heels of a Statistics Canada's announcement Thursday that the value of building permits issued in June was down by 5.3 per cent, with declines in both the residential and non-residential sector. Economists had forecast a decline of 1 per cent.
“We're starting to see surprises in Canadian economic indicators coming in on the downside,” Ms. Croft said.
“But the key is the employment report. It's all about the consumer, and consumer confidence is driven by the employment outlook and by income, of course. There are signs now that what had been a very solid support for Canadian consumers is …fraying around the edges.”
The U.S. dollar, meantime, is at a five-month high. “There's a very strong correlation between the U.S. dollar and oil,” Ms. Croft said.