/Posthaste: Why CannTrust may lose its licence altogether, Saudis turn the screws on Iran and U.S. Fed’s cash blast

Posthaste: Why CannTrust may lose its licence altogether, Saudis turn the screws on Iran and U.S. Fed’s cash blast


Good morning!

Is it the calm before the storm?

Markets are subdued ahead of the U.S. Federal Reserve’s meeting, which is widely expected to result in a rate cut. But members of the Federal Open Market Committee remain divided and future rate cuts may not be as forthcoming as the market is anticipating.

Oil prices, meanwhile, continue to pull back after Saudi Arabia assured customers that full production will resume by month end. However, the kingdom is also expected to provide ‘material evidence‘ today which would point to Iranian involvement in the attacks on Saudi oil facilities, raising oil’s risk premium.

“Under any scenario, the heightened risk premium marks a stunning reversal for the market,” said Roger Diwan, vice president, IHS Markit. “The combination of weak demand fed by macroeconomic fears and the potential for a U.S.-Iran détente unlocking significant volumes of oil currently under sanction had weighed on the market. Now an enduring increase in the market’s risk premium is justified.”

For now, the risk premium has evaporated, with U.S. crude futures trading down just under one per cent to US$58.89.

Canaccord Genuity cut its price target for CannTrust Holdings Inc. to $2 (from 42.5 previously) after Health Canada suspended its license, and argues that things can still get worse for the company.

“We had previously expected a full suspension and revocation of all CannTrust licenses,” Canaccord analyst Derek Dley said in a note to clients yesterday. “And while today’s news results in only a suspension, we note there is still significant uncertainty regarding the company’s prospects, and our previous view may in fact turn out to be correct.”

Health Canada has provided CannTrust a path that, if implemented, could  remove the suspension of CannTrust’s licenses.

“Conversely, this could be step one in the eventual removal of CannTrust’s licenses, which we believe remains a distinct possibility,” Dley noted.

Move over millennials with your hoodies, empty-nest Boomers are leading the way when it comes to entrepreneurship, according to a new RBC small business poll.

The bank’s latest survey shows around 42 per cent of small business owners are Boomers compared with 24 per cent who are millennials.

“Among Canadians who have thought about starting a business, empty nesters are the most likely (46 per cent) to actually have started or purchased one,” according to the 2019 RBC Small Business poll.

The Boomers’ motivation is primarily to channel their rich experience to supplement their retirement income. However, millennials have also caught the entrepreneur bug. Around 70 per cent of millennials have thought about owning a business – an increase of seven points from 2018 – and 53 per cent of millennial non-business owners are currently participating in the side gig economy, RBC poll shows.

 

Here’s what’s you need to know this morning:

 

  • Statistics Canada to release the consumer price index for August at 8:30 a.m. ET
  • U.S. Federal Reserve interest rate decision at 2 p.m. ET
  • St. Francis Xavier University President Dr. Kevin Wamsley and former Prime Minister Brian Mulroney will officially open the Brian Mulroney Institute of Government (BMIG) and Mulroney Hall, in Antigonish, Nova Scotia
  • The Canadian Sporting Arms and Ammunition Association announces the results of the recently published Economic Footprint Analysis of Angling, Hunting, Trapping and Sport Shooting in Canada completed by the Conference Board of Canada
  • Scotiabank hosts its 23rd annual back-to-school conference in Toronto
  • The UNITE summit in Calgary
  • Corporate Event: Alimentation Couche-Tard AGM in Laval, Que.

A 1.3 per cent decline in Canadian manufacturing sales in July suggests bleak prospects for the economy going forward, say analysts.

“No matter how one slices it, this is a pretty bleak report and the underlying signals suggest that further damage likely lies ahead,” said a Scotiabank note, adding that inventories are getting completely out of hand, which points to more production weakness ahead.

Sales fell in 11 out of the 21 industries, with the drop mostly concentrated in durable goods (-2.9 per cent). Indeed, primary metals (-7.3 per cent) and transportation equipment (-3.4 per cent) contributed the most to the decline.

TD Group says while the data was disappointing, the outsized drop in volumes should be interpreted with caution.

“Some payback was to be expected after surges in June (primary metals), and there are also some temporary factors at play (maintenance in motor vehicle production plants),” TD noted. “Nevertheless, manufacturing sales and economic activity in general look set to experience a slowdown in Q3 following a strong Q2.”

But manufacturing makes up about 10 per cent of the Canadian economy, and it’s possible that the rest of the economy can do the heavy lifting amid low interest rates, high employment and rising wages (for some).

“Retail spending numbers this Friday will be our next clue as to the extent that offset is developing,” an RBC Capital Markets note stated. “For now, we continue to expect a 1.8% increase in Q3 Canadian GDP.”

 

— Please send your news, comments and stories to yhussain@postmedia.com. — Yadullah Hussain @Yad_fpenergy

With files from The Canadian Press, Thomson Reuters and Bloomberg

 

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