Additional rate cut may be necessary if US-China trade war persists, former top Fed official says - CNBC

An additional interest rate cut may be necessary if the ongoing trade war between the U.S. and China persists, former top Federal Reserve official Donald Kohn told CNBC on Thursday.

The rate cut would act as a sort-of "cushion" for the U.S. economy as the trade dispute weighs on business and consumer confidence, the former vice chairman of the Federal Reserve Board said in a interview with "Closing Bell. "

U.S. stocks closed sharply lower Thursday after President Donald Trump said the U.S. would impose 10% tariff on another $300 billion worth of Chinese goods, effective Sept. 1. Trump's announcement, made via Twitter, ratcheted up a trade fight that has carried on for more than year and a half.

A day before, the Fed, as expected, cut rates for the first time in more than a decade. Fed Chairman Jerome Powell later suggested that trade tensions influenced the decision on rates.

Kohn, who was vice chairman between 2006 and 2010, agreed with the Fed's decision to cut rates. Kohn said Thursday that as a central bank official, he believed part of his responsibility was to provide the U.S. economy "some cushion and offsets" to "shocks that came from other places."

"In a situation like this, it seemed to me there was very little cost to lowering interest rates," said Kohn, who is now a senior fellow at the Brookings Institution.

As of Thursday evening, the market sees an 81% probability that there will be a rate cut at the Fed's September meeting, according to the CME FedWatch tool.

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August 02, 2019 at 04:28AM

Metro Vancouver’s red-hot housing market gets official alarm downgrade, but affordability still an issue - CityNews Vancouver

VANCOUVER (NEWS 1130) – The real estate market in Metro Vancouver appears to have cooled to the point experts aren’t as worried about the bubble bursting.

According to the Canada Mortgage and Housing Corporation, the region’s housing market has dropped from a high degree of vulnerability to a moderate one for the first time since 2016.

“While home price growth over the past few years significantly outpaced local income growth, these imbalances have narrowed based on growth in economic fundamentals and lower home prices in different segments of the resale market,” Senior Specialist Eric Bond explains.

What this means is the market is at less risk of a sudden drop, or disrupting the economy, which isn’t a bad thing.

“Fundamentally, we’d rather have the slow decline over multiple years than, sort of, some rapid, really disruptive drop,” real estate expert Tsur Somerville with UBC’s Sauder School of Business explains.

However, a slow decline also means housing prices won’t match average incomes for awhile.

“Expensive Westside homes have come down the most, and suburban condos have come down the least,” he notes.

“The biggest risk in Vancouver — for quite some time — is a correction in housing prices because they’re so unaffordable,” Somerville adds.

Elsewhere in B.C., the CMHC notes Victoria’s market is at a high risk, but how fast prices are going up and over evaluation are seeing some improvements.

Meantime, a moderate degree of vulnerability remains at the national level, but imbalances between house prices and housing market fundamentals have narrowed over the past year while certain markets are at higher risk.

It says Toronto, Hamilton and Victoria continue to have a high degree of vulnerability, but overheating, price acceleration and overvaluation show signs of abating in all three markets.

Edmonton, Calgary, Saskatoon, Regina and Winnipeg have moderate vulnerability, but evidence of overbuilding remains.

Ottawa, Quebec City, Halifax, St. John’s, N.L., Montreal, Moncton, N.B., all have low overall vulnerability, but overheating persists in Montreal and Moncton.

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August 01, 2019 at 10:34PM

SNC-Lavalin says it 'did not deliver' on promises, cuts dividend as shares fall - The Globe and Mail

Shares in SNC-Lavalin Group Inc. fell further on Thursday after the troubled Canadian engineering company cut its dividend again, unveiled a steep second-quarter loss and conceded it “did not deliver” on past promises to investors.

Pension fund giant Caisse de dépôt et placement du Québec, SNC-Lavalin’s biggest investor, said it was closely tracking the situation.

In his first conference call exchange with analysts and investors on Thursday as SNC-Lavalin’s interim chief executive officer, Ian Edwards failed to stem concern about SNC-Lavalin’s prospects. The company’s stock, which was already trading at lows not seen in 14 years, dropped further after the call, closing down another 9.4 per cent to $18.92 in Toronto trading.

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“I think people are just fed up,” said David Taylor of Taylor Asset Management in Toronto, which owns SNC-Lavalin shares, adding that investor confidence in management and the board has been badly shaken. “My only hope is that the largest shareholders … take action.”

SNC-Lavalin shares have dropped in seven of the past nine trading sessions since last Monday, when the company took the market by surprise and said 2019 financial results would come in “significantly lower” than anticipated. Management blamed higher costs on infrastructure and resource projects.

It was SNC-Lavalin’s third profit warning since January, and prompted a rare public comment from the Caisse, which called out “the current unacceptable trend of the business” and urged “decisive and timely” action from the SNC-Lavalin board. The Caisse holds a stake of about 20 per cent in SNC-Lavalin.

On Thursday, Caisse spokesman Maxime Chagnon said: “We note the company’s intention to address the current performance trend. We will continue to monitor the situation and follow the company’s decisions closely.”

Pressure is mounting on SNC-Lavalin after the company reported a $2.1-billion loss for the second quarter. Mr. Edwards has set a new course in which the company will take on less risky work amid unprecedented legal challenges.

In the new CEO’s strategic shift, SNC-Lavalin will stop bidding on construction contracts that it executes for a lump sum and instead do more consulting services work and focus on its nuclear operations. The idea is to retreat to parts of the business where profits are higher while gradually getting out of fixed-price contract work, which it says is riskier because the builder agrees to absorb cost overruns.

SNC-Lavalin is pulling out of bidding on several major Canadian infrastructure projects for which it has been shortlisted, altering competition for billions of dollars worth of contracts in Canada. The projects include Vancouver’s $2.8-billion SkyTrain Broadway extension, Edmonton’s new Valley Line West light-rail line and Montreal’s Lafontaine tunnel modernization.

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One of the main investor worries is that problems with some fixed-price contracts will generate further losses in the months ahead. The company on Thursday disclosed 11 big lump-sum contracts it intends to complete by 2024, and mandated a new manager to oversee that effort.

“Investors can no longer stomach the volatility around the [lump-sum] contracts,” even if they are being closed out, National Bank of Canada analyst Maxim Sytchev said in a research note. The biggest question is whether there could be incremental write-downs on SNC-Lavalin’s portfolio of legacy contracts, he said.

Other developments also weighed on SNC-Lavalin shares on Thursday, including the company’s decision to cut its quarterly dividend for the second time this year to $0.02 a share from $0.10, and profit contraction in its engineering services. SNC-Lavalin has called engineering services, which includes consulting work, its “high-performing and growth” area and the one it will focus on in the years ahead. The company said it would generate positive operating cash flow in the second half of the year, but provided limited information about how that will be achieved.

SNC-Lavalin reported a net loss of $2.1-billion or $12.07 a share for the second quarter on revenue of about $2.3-billion. That compares with a profit of $83-million or $0.47 a share for the same quarter last year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from its main engineering and construction business were negative $151.8-million, in line with the profit warning last week. The company had a backlog of work awarded but not yet completed of $15.7-billion at the end of June, up 3 per cent from the same time last year.

The loss for the quarter was due to a non-cash charge worth $1.8-billion linked to SNC-Lavalin’s resources business, which was also previously disclosed. The company is weighing its options for the resources unit, including a sale.

“This was a really tough and disappointing quarter,” Mr. Edwards said on the call Thursday morning, acknowledging the company has not met the recent financial forecasts it provided to investors. “We did not deliver. This is unacceptable and it’s unacceptable to me, and it is unacceptable for our stakeholders, who place their trust in the company to do what we say we will do. This is why in the past seven weeks, I have taken decisive action and we’ll continue to do so for the long-term success of the company.”

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Premier François Legault’s Coalition Avenir Québec government has vowed to try to protect SNC-Lavalin as a strategic asset to the province in the event of a hostile takeover bid, a possibility that increases as the company’s stock price drops. The government has signalled it would work in concert with the Caisse in that effort.

SNC-Lavalin is still waiting on a decision by an Ontario judge before it can receive expected after-tax proceeds of $2.6-billion from the sale of its 10-per-cent stake in Ontario’s Highway 407 toll road. The judge is ruling on the rights of existing shareholders to buy the stake.

The reset by Mr. Edwards, who took over in early June after the sudden departure of Neil Bruce as CEO, comes just weeks after the company confirmed to investors it would post adjusted EBITDA in its main engineering and construction business of $900-million to $950-million for 2019. That forecast has since been dropped.

SNC-Lavalin’s problems have multiplied since October, when it announced federal prosecutors would not negotiate a deal to settle bribery and fraud charges against the company. Its effort to get a settlement called a deferred prosecution agreement became a political crisis for the Trudeau government.

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August 02, 2019 at 06:00AM

Stock market news: August 1, 2019 - Yahoo News

Capital One hacking holds important lessons for Singapore - The Business Times

MONDAY'S announcement by US bank Capital One that data on some 106 million customers in America was stolen by a software engineer has shaken up the banking industry. This is one of the biggest ever data breaches.

The hacker, 33-year-old Paige Thompson from Seattle, went by the moniker "...

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August 01, 2019 at 04:50AM

Vancouver market no longer 'highly vulnerable' as price acceleration eases: CMHC - BNNBloomberg.ca

OTTAWA -- The Canada Mortgage and Housing Corp. has lowered the vulnerability rating of Vancouver's housing market to "moderate," marking the first change in three years as prices have eased.

The federal agency says in a report that "evidence of price acceleration" in Vancouver has eased to low, prompting a downrating after 12 consecutive quarters of being flagged as "highly vulnerable."

"While home price growth over the past few years significantly outpaced levels supported by fundamentals, these imbalances have narrowed through growth in fundamentals and lower home prices in different segments of the resale market," CMHC said in its latest Housing Market Assessment report.

The agency said a moderate degree of vulnerability remains at the national level, but imbalances between house prices and housing market fundamentals have narrowed over the past year. However, certain markets such as Toronto and Victoria are at higher risk.

Nationally, the inflation-adjusted average price decreased 5.6 per cent in the first quarter of 2019 from the same period a year earlier, the fifth-consecutive decline on a year-over-year basis, CMHC said.

CMHC warns on homeownership risks

The head of the Canada Mortgage and Housing Corporation is speaking out on the risks facing the housing market, and swung back at critics of the recently-announced incentive for first-time buyers in an interview with Amanda Lang. Evan Siddall encouraged Canadians to take a cue from other major cities where renting is the norm. CTV’s Chief Financial Commentator Pattie Lovett-Reid and Kash Pashootan, CEO and chief investment officer at First Avenue Investment, join Paul Bagnell to discuss Siddall’s remarks.

In the previous quarter's report, CMHC lowered its rating for Canada's overall housing market from to moderate from high vulnerability -- where it had stood for 10 consecutive quarters -- as mortgage stress tests introduced last year made it harder for homebuyers to qualify and eased price acceleration.

The Canadian Real Estate Association's latest market forecast released in June projects that the national average price will drop 0.6 per cent by the end of this year to roughly $485,000, compared to the 4.1 per cent drop recorded in 2018.

However, the pattern is split between the eastern and western parts of the country. For example, while average prices are forecast to fall in British Columbia, Alberta and Saskatchewan, higher prices are expected in Ontario, Quebec and the Maritimes.

Dropping housing prices are a particularly welcome sight in Vancouver, which was cited in January as the second-least affordable major housing market in the world out of 91 markets by urban planning company Demographia. Vancouver came second to Hong Kong, but was less affordable than the likes of San Francisco and London, U.K.

The latest statistics from the Real Estate Board of Greater Vancouver showed that the benchmark price of a home in Metro Vancouver dropped to $998,700 in June, the first time it fell below the $1 million mark since May 2017.

The Bank of Canada in May also said that housing prices in the key markets of Vancouver and Toronto have cooled, but imbalances in real estate markets are still an important vulnerability for the overall financial system.

CMHC's bases its vulnerability assessment on several criteria including price acceleration, overvaluation, overbuilding, and overheating. It examines the degree of vulnerability and is intended to identify imbalances in the housing market.

Toronto, Hamilton and Victoria continue to have a high degree of vulnerability, but overheating, price acceleration and overvaluation show signs of abating in all three markets.

Edmonton, Calgary, Saskatoon, Regina and Winnipeg have moderate vulnerability, but evidence of overbuilding remains.

Ottawa, Quebec City, Halifax, St. John's, N.L., Montreal, Moncton, N.B., all have low overall vulnerability. However, overheating persists in Montreal and Moncton while overbuilding remains in St. John's, CMHC added.

For the second consecutive quarter, moderate evidence of overvaluation continues to be the only sign of vulnerability for Canada as a whole, said CMHC's chief economist Bob Dugan.

"Imbalances between house prices and housing market fundamentals have narrowed with declining home prices in the resale market and a growing pool of potential first-time homebuyers," he said in a statement. "This dynamic contributes to closing the overvaluation gap."
 

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August 01, 2019 at 11:05PM

Capital One Data Breach - WHIZ