Why the Federal Reserve Is Poised for Its First Rate Cut Since the Crisis - The New York Times

The Federal Reserve on Wednesday is widely expected to cut interest rates for the first time in more than a decade, even as the economic expansion in the United States reaches record length, unemployment hovers at historic lows and consumers keep spending.

Uncertainty around global growth and persistently low inflation are behind the expected move, because both pose major threats to the health of the economy at a time when the central bank has limited ammunition to fight off a downturn. It will be what’s called an “insurance cut” — one that central bankers are making to keep growth chugging along.

Inflation – a key indicator – has been too sluggish.

Inflation

+1.6%

Core P.C.E.

(excludes food

and energy)

+1.4%

P.C.E.

2008-9 global

financial crisis

June

’19

+1.6%

Core P.C.E.

(excludes food

and energy)

+1.4%

P.C.E.

2008-9 global

financial crisis

June ’19

+1.6%

Core P.C.E.

(excludes food

and energy)

+1.4%

P.C.E.

2008-9 global

financial crisis

June

’19

Annual change in personal consumption expenditures (P.C.E.) price index | Source: Bureau of Economic Analysis

The Fed’s main jobs are to maintain maximum employment and stable inflation. Officials have long aimed for 2 percent as the sweet spot for price gains. A little inflation is good, because it provides a buffer to keep prices from sinking during times of slow growth. Outright deflation is dangerous because it causes consumers to hoard cash, knowing that goods and services will be cheaper tomorrow.

The problem? Inflation hasn’t hit the goal sustainably since the Fed formally adopted it in 2012.

Stubbornly low inflation has also bumped up the risk that expectations for future inflation will drift lower.

Inflation Expectations

July

’19

July ’19

July

’19

A measure of expected inflation (on average) over the five-year period that begins five years from today. | Source: Federal Reserve Bank of St. Louis

That could create a self-fulfilling prophecy, because businesses expecting low inflation may set their prices accordingly.

While slow price gains might sound great, they can make it harder for employers to lift wages. Beyond that, the Fed’s policy interest rate incorporates price increases, so weak inflation leaves the Fed with less room to cut rates should the economy slump.

Policymakers want to get ahead of a global economic slowdown.

Concerns over the trajectory of the global economy have been building. The trade war, a slowdown in China and a weakening that spans many advanced economies might all be adding to the rising anxiety.

Global Economic Policy Uncertainty Index

Greater uncertainty

Sept. 11, 2001

terrorist attacks

U.S. invasion of Iraq

2008-9 global

financial crisis

Eurozone crises,

U.S. debt-ceiling crisis,

China leadership transition

European

immigration

crisis

Brexit

referendum

Trump elected

U.S. president

June

’19

Political turmoil in Brazil,

France and South Korea;

U.S. trade wars

Political turmoil in Brazil,

France and South Korea;

U.S. trade wars

Trump elected

U.S. president

Greater

uncertainty

Brexit

referendum

Eurozone crises,

U.S. debt-ceiling crisis,

China leadership transition

2008-9 global

financial crisis

Sept. 11, 2001

terrorist attacks

European

immigration

crisis

U.S. invasion

of Iraq

June ’19

Political turmoil in Brazil,

France and South Korea;

U.S. trade wars

Trump elected

U.S. president

Greater

uncertainty

Brexit

referendum

Eurozone crises,

U.S. debt-ceiling crisis,

China leadership transition

2008-9 global

financial crisis

Sept. 11, 2001

terrorist attacks

U.S. invasion

of Iraq

European

immigration

crisis

June ’19

Greater uncertainty

Sept. 11, 2001

terrorist attacks

U.S. invasion of Iraq

2008-9 global

financial crisis

Eurozone crises,

U.S. debt-ceiling crisis,

China leadership transition

European

immigration

crisis

Brexit

referendum

Trump elected

U.S. president

June

’19

Political turmoil in Brazil,

France and South Korea;

U.S. trade wars

A G.D.P.-weighted average of national indexes of the frequency of newspaper articles in each country that discuss economic policy uncertainty. | Source: Scott Baker (Northwestern Univ.), Nick Bloom (Stanford Univ.) and Steven Davis (Univ. of Chicago)

At a time when inflation is already low and interest rates do not have much room to fall, policymakers want to get ahead of any shocks that could disturb American growth.

Manufacturing is one area where growing concerns could be bleeding into real economic activity. Indexes that track production across many advanced economies are either slowing or contracting. While services make up a growing share of G.D.P., factory progress is a good economic warning signal: It slows down earlier than other industries when activity weakens. Fed officials have been watching the sector apprehensively.

Purchasing managers’ indexes

Economic

conditions in:

June ’19

June ’18

Contracting

New Zealand

Netherlands

Switzerland

South Korea

Euro Zone*

Czech Rep.

Economic

conditions in:

June ’19

June ’18

Contracting

New Zealand

Netherlands

Switzerland

South Korea

Euro Zone*

Czech Rep.

June ’18

Economic conditions in:

June ’19

Contracting

New Zealand

Netherlands

United States*

United Kingdom

Switzerland

South Korea

Euro Zone*

Czech Republic

A measure of manufacturing including output, orders, stocks and other factors. *Data through July, all others through June. | Source: IHS Markit, via FactSet

Unemployment is often low right up until a recession, so it is a poor guide for Fed policymakers.

While inflation, global uncertainty and hints of slowing economic activity have pushed the Fed to the brink of a cut, there are good reasons that officials are not yet predicting an all-out rate-cutting cycle that returns the policy setting to near-zero. Consumers are still spending, the labor market is growing and output remains strong.

But all of those data points respond to economic weakening with a delay.

Unemployment

Recessions

Underemployment

(Includes unemployed and

people interested in working,

but not actively applying*)

Unemployment rate

Recessions

Underemployment

(Includes unemployed and

people interested in working,

but not actively applying*)

Unemployment rate

Recessions

Underemployment

(Includes unemployed and

people interested in working,

but not actively applying*)

Unemployment rate

Recessions

Underemployment

(Includes unemployed and

people interested in working,

but not actively applying*)

Unemployment rate

*Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percentage of the civilian labor force plus all persons marginally attached to the labor force. | Source: Bureau of Labor Statistics

The unemployment rate does not turn decisively higher until just before, and sometimes a few months after, the beginning of a recession. As a result, central bankers seem to think this is the time to get moving — waiting and watching can come later, once the economy has a little bit of added juice to fall back on.

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https://www.nytimes.com/interactive/2019/07/31/business/economy/federal-reserve-interest-rates.html

2019-07-31 16:00:28Z
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Sobeys announces plan to remove all plastic bags in 2020 - Global News

Sobeys has announced they plan to remove all plastic bags from their 255 locations across Canada by the end of January 2020.The grocery store chain based in Stellarton, N.S., announced the plan in a press release on Wednesday, calling it the first step in “removing unnecessary plastic from all retail.”Story continues below“This is a first step, and we plan to make meaningful progress every year to take plastic out of our stores and our products,” stated Michael Medline, president and CEO of the chain’s parent, Empire Company Limited, in the release.“We decided to act now instead of taking years to study and only make long-term commitments. We’re taking action now, making a tangible difference today and into the future.”READ MORE: ‘It’s detrimental to our environment’: Moncton student urges plastic bag planThe chain added that the move will take away 225 million plastic grocery bags from circulation every year.The retailer also committed to launching programs to reduce plastic in other areas of the stores, including the introduction of reusable mesh produce bags in its produce aisles and incorporating additional reusable bag campaigns.Both Prince Edward Island and Newfoundland and Labrador have announced plans to move forward with a province-wide ban on plastic bags. Halifax Regional Council passed a motion in January to have staff draft up a plastic bag ban bylaw.The draft bylaw is due by the end of the year.WATCH: Halifax one step closer to plastic bag ban with draft bylaw on the way

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July 31, 2019 at 06:18PM

Bank of Canada unlikely to follow any Fed interest rate cut - CBC News

A massive security breach at Capital One exposed six million Canadians’ personal data. Here’s what we know - Toronto Star

Canada’s Office of the Privacy Commissioner said Capital One has been in contact about the incident and the two are “engaging” but did not say whether it would launch an investigation.

“Given the number of people impacted and the nature of the incident, it certainly raises significant privacy concerns,” spokeswoman Anne-Marie Cenaiko said in an emailed statement.

The incident has already spurred a lawsuit seeking class-action status in the U.S., filed in federal court in Washington, D.C. Tuesday by Kevin Zosiak, a Connecticut resident who said he is a Capital One credit card customer whose personal information was compromised. It is likely to herald many similar actions including in Canada, said Ann Cavoukian, Ontario’s former Privacy Commissioner who is currently leading Ryerson University’s Privacy by Design Centre of Excellence.

The incident also exposed the data of roughly 100 million U.S. clients, including about 140,000 Social Security numbers and 80,000 linked bank account numbers.

Most of the information obtained was on consumers and small businesses who applied for a credit card from 2005 through early 2019 and included names, addresses, postal codes, phone numbers, dates of birth and income.

Capital One said affected individuals will be notified through a “variety of channels.” Impacted Canadians will also receive free credit monitoring and identity theft insurance.

“Based on the current information provided by Capital One Financial, there is no indication at this time that this issue impacts any of our businesses’ credit cards or card applications,” said a spokeswoman for HBC, in an email.

A spokesman for Costco Canada directed all questions from The Canadian Press to Capital One.

The Capital One compromise is one of the biggest-ever breaches to impact Canadians — six million is a large chunk of the country’s population, said David Masson, director of enterprise security for cybersecurity firm Darktrace.

“These were economically active members of the Canadian population. So if you strip out young people, those who have retired, this ... figure becomes even more statistically significant.”

Finance Minister Bill Morneau said he has asked the Office of the Superintendent of Financial Institutions, to investigate the breach and ensure that “appropriate steps” are taken to protect Canadians.

“We are deeply concerned by the unacceptable breach at Capital One... Affected Canadians should contact Capital One immediately. We are working on this vigilantly,” he said on Twitter on Tuesday.

He added that Public Safety Minister Ralph Goodale is also in touch with his counterparts in the U.S. about the matter.

The financial services regulator is “monitoring the situation closely,” said OSFI spokesman Colin Palmer.

“When incidents like this occur, OSFI stays in close contact with the financial institution to ensure everything is being done to address the situation as quickly as possible,” he said in a emailed statement.

A spokeswoman for the RCMP said the breach is being investigated by the Federal Bureau of Investigation in the United States, and that Canada’s federal police force is “prepared to assist upon request.”

Capital One said that it was unlikely that the information was used for fraud, but Masson said that once data has left secure channels, there is always the possibility of compromise.

“If that information has gone somewhere else, it is now possible for somebody else to use the exact same information to obtain a credit card, bank account, a loan, a mortgage, a financial instrument,” he said.

“That’s why it’s so serious. In the modern world, that kind of data is almost effectively currency that can be bought and sold, particularly on the dark web.”

In addition to credit card application data such as phone numbers, email addresses, dates of birth and self-reported income, the hacker was also able to access credit scores, credit limits and balances, as well as fragments of transaction information from a total of 23 days in 2016, 2017 and 2018.

“While I am grateful that the perpetrator has been caught, I am deeply sorry for what has happened,” said Capital One CEO Richard Fairbank in a news release. “I sincerely apologize for the understandable worry this incident must be causing those affected and I am committed to making it right.”

Capital One said it could not provide information on several questions posed by The Canadian Press, including how many and which branded credit cards were affected and how many of those had their SIN compromised.

The company said it was in the process of notifying impacted customers, but would not elaborate on how or when it would contact consumers.

Under new federal privacy rules that came into force in November, organizations are obligated to report a breach involving personal information under its control if there is a “real risk of significant harm” to an individual. Organizations must also notify the persons impacted and detail, among other things, the circumstances, the personal information compromised and steps the firm has taken to reduce harm.

The security breach is just the latest in a string of data hacks that have affected Canadians in recent years, including at U.S. companies such as Uber and Equifax.

In Canada, Desjardins Group revealed a data breach in June that saw the leak of names, addresses, birthdates, social insurance numbers and other private information from roughly 2.7 million people and 173,000 businesses.

In May, Freedom Mobile confirmed that it had been the victim of a security breach, but said the number of customers potentially exposed to the breach numbered 15,000. Researchers at vpnMentor, who discovered the breach and alerted the company, claimed that up to 1.5 million customers had been potentially affected.

With a file from Michael Lewis

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July 31, 2019 at 11:28AM

CannTrust hires Greenhill to explore sale after pot breach - Article - BNN - BNNBloomberg.ca

CannTrust Holdings Inc. (TRST.TO) hired Greenhill & Co. to explore a sale after a regulatory breach led the Canadian pot company to fire its chief executive officer and erased almost $500 million in market value.

Greenhill will act as financial adviser to a special committee of CannTrust’s board, which will review potential alternatives including a sale, a strategic investment or a business combination, CannTrust said in a statement Wednesday. The special committee was appointed to review the breach after regulators from Health Canada found the company grew cannabis in unlicensed parts of its greenhouse in Pelham, Ontario.

CannTrust fired CEO Peter Aceto and asked chairman Eric Paul to step down last week after a report that executives were aware of the unlicensed growing several months before Canadian regulators unearthed the breach. The stock has plunged by more than half since the revelations, cutting the market value to about $425 million.

CannTrust rose 6 per cent to $3.01 at 9:37 a.m. in Toronto.

The sixth-largest pot producer in Canada by revenue has also halted all sales and shipments of its cannabis products to medical and recreational markets while Canadian regulators assess the situation.

It may not be easy to find a buyer for the company, as it faces potential suspension or cancellation of its cannabis license as a penalty for violating federal growing rules. Several law firms are also seeking to launch class-action lawsuits on behalf of investors.

“While we believe CannTrust’s physical assets may still be of value to other Canadian licensed producers, we do not anticipate the company being acquired in the near term given the uncertainty surrounding the penalty expected to be levied by Health Canada,” Canaccord Genuity analyst Derek Dley wrote in a note last week.

Interim CEO Robert Marcovitch told BNN Bloomberg TV that the company is working “transparently” with Health Canada and the Ontario Securities Commission.

“We have not sat on our hands and we want to know the facts,” said Marcovitch, who is also a director. “As we continue to gather them, as we continue to have a level of confidence, we will act.”

CannTrust filed a response July 17 to Health Canada’s non-compliant inspection report, and the government agency “will thoroughly review the information submitted,” according to Health Canada spokesman Eric Morrissette. Health Canada continues to test samples of CannTrust product that were produced at the Pelham greenhouse.

The Vaughan, Ontario-based company said that the special committee’s review may not result in any transaction. It hasn’t set a timeline for the conclusion of its review.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.

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July 31, 2019 at 07:21PM

Posthaste: Some oilsands mines breakeven at $10, S&P cuts Canadian GDP forecast and why the Fed is cutting rates - Financial Post

Good morning!

If you believe the surveys coming out of Wall Street, the U.S. Federal Reserve will cut interest rates by 25 bps at 2 p.m. ET today, but the market is already looking ahead, and wondering whether it will be a case of one and done, or will the Fed Chair Jay Powell signal that more cuts are on the way.

There are concerns whether a cut is even necessary given that the U.S. has already racked up 121 months of economic expansion — the longest in its history.

Is this Powell’s way of managing Donald Trump, who is pushing the Fed for a big rate cut?

Fed policymakers “are responding primarily to risks, and most of the risks to which they are responding are coming out of the administration,” one analyst told Reuters.

Despite expectations of more benign interest rates globally, S&P Global Ratings, says Canada’s housing market imbalances remain a key vulnerability for the economy with elevated price-to-income multiples squeezing home affordability.

S&P identified Canada’s housing issues as among the four major credit risks in North America. The other three are: geopolitical and trade disputes clouding world growth, mature credit cycle and volatile liquidity and cybersecurity.

The ratings agency said it is revising its Canada’s GDP growth expectations to 1.2 per cent this year, from 1.5 per cent previously, as sentiment remains tentative amid unresolved trade tensions and as global GDP slows.

While strong job gains and income growth should fuel a rebound in consumer spending, “we don’t see a pick-up until the second quarter and heavy debt burdens will likely restrain the boost to GDP from household purchases,” the ratings agency said.

A whack of Canadian earnings out today, including Encana Corp., Kinross Gold and Molson Coors Brewing Co.

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

• Statistics Canada to release gross domestic product by industry results for May
• Prime Minister Justin Trudeau delivers remarks to Liberal candidates for the 2019 federal election
• Notable Earnings: Encana Corp., MEG Energy Corp. Seven Generations, Athabasca Oil Corp., CGI Inc., Molson Coors Brewing Co., Genworth MI Canada Inc., Torstar Corp., Kinross Gold Corp., Rocky Mountain Dealership Inc., Great-West Lifeco Inc.

Canadian oilsands may no longer be the world’s most expensive oilfields. A new report by the Canadian Energy Research Institute shows total operating costs have been decreasing year-on-year for most existing projects, in-situ and integrated and stand-alone mining.

“From 2014, when oil prices crashed, to 2018, total operating costs for both oil sands mining and in-situ producers fell on average by 40 per cent, and in some cases, operators slashed costs in half,” CERI said in its report.

SAGD producers achieved a 48 per cent cost reduction between 2014 and 2018, and a year-on-year reduction of seven per cent in 2018 as compared to 2017. Integrated and stand-alone mining projects’ operating costs on average declined by 32 per cent.

At least four of the oilsands projects in the table had operating costs below $10 last year, and another three were breaking even at $30 per barrel, compared to average Western Canada Select oil prices of US$45.64 this year, CERI data shows.

That’s better than the average of US$26 per barrel in costs for fields across the world that are already in production.

High upfront capital costs still make new bitumen projects expensive, with Rystad Energy noting that it may cost an average of US$83 to achieve break even on a new project, compared to US$46 for U.S. shale oil.

— Yadullah Hussain at yhussain@postmedia.com — @YAD_FPEnergy
With files from The Canadian Press, Thomson Reuters and Bloomberg

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July 31, 2019 at 10:02PM

Apple proves it can cure its iPhone addiction - CNBC

A girl reacts as she tries an iPhone X at the Apple Omotesando store on November 3, 2017 in Tokyo, Japan.

Getty Images

If you had told any serious Apple observer two years ago that the company's stock would jump after reporting a sales decline for the iPhone, they would've called you nuts.

But that's where we were Wednesday morning after Apple reported in its fiscal third-quarter earnings that iPhone sales fell 12% versus the year-ago quarter. In fact, iPhone sales made up less than half of the company's revenue for the quarter for the first time since 2012. (In the past, iPhone revenue made up as much has two-thirds of Apple's sales.)

That shift proves Apple is kicking its addiction to the iPhone. It's no longer tying its destiny to just one device, but an expanding ecosystem of digital services and hardware accessories that can spur growth and deliver strong results as iPhone sales decline. And in the years to come, there are plenty of opportunities to continue the trend.

Let's take a look at the stats:

Apple booked $25.99 billion in iPhone revenue during its fiscal third quarter. That's down 12% from the year-ago quarter, and 48% of Apple's overall revenue of $53.8 billion. It's also the first time the iPhone made up less than 50% of quarterly sales since 2012.

The wearables business, which includes AirPods, Apple Watch and Beats headphones, brought in $5.53 billion. That's a whopping 48% higher from the year-ago quarter. And the category is now bringing in more revenue than the iPad or Mac businesses. Apple's CFO, Luca Maestri, also said Tuesday that the category's growth is accelerating over 50%.

Apple's new darling, the services business, also showed strong growth. It's up 13% versus the year-ago quarter with $11.46 billion in revenue. (Apple CEO Tim Cook said the growth was as high as 18% if you account for a one-time lawsuit settlement and foreign exchange rates.)

The iPad and Mac businesses are steady. Thanks to a slew of recent upgrades to Macs and iPads, these two businesses were slightly up versus the year-ago quarter. They may not look as exciting as the hyper growth in wearables and services, but they function as an engine of stability for Apple. Plus there are more upgrades expected for Macs and iPads this fall.

Add all of that together, and you have what looks like an increasingly diversified business with more promising growth on the immediate horizon.

That's especially true for the services segment, which is expected to ramp up even more in the second half of this year with the introduction of new products like the Apple Card, Apple Arcade gaming service and Apple TV+ video streaming service. Don't be surprised to see a slew of new services beyond that related to health care, transportation and more.

Still, there are also the obvious caveats. Apple's businesses outside the iPhone remain anchored to the device, which is why the company touts its active iPhone user base instead of the number of units it sells. Each one of those nearly 1 billion users is an opportunity for Apple to grab more sales from services and accessories.

But Apple has showed a willingness to tear down its so-called walled garden and put its digital services on third-party products like Samsung TVs and Amazon's Echo speakers. Cook hinted during Tuesday's earnings call that the trend will continue. And iPhone users remain extremely loyal, even if they're not upgrading as often as they used to. A robust services business only increases the stickiness of the iPhone.

As Tuesday's results showed, the iPhone may be Apple's most important and profitable product, but the company has found a way to diversify and grow without relying solely on it.

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https://www.cnbc.com/2019/07/31/apple-earnings-prove-it-can-cure-its-iphone-addiction.html

2019-07-31 14:17:51Z
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