Five questions for Canada after the shutdown in the U.S.

As we awaited the start of a new session of Parliament, here are five things to watch:

Deficit reduction timeline

The deficit in FY18 was Canada’s smallest in a decade. It will likely fall this year for the first time since 2014. To get the budget back into balance by 2020-21, the government needs a plan to reduce the deficit by $11.8 billion over five years. As long as the spending does not exceed revenues, no deficits will be allowed. And there must be a disciplined strategy in place, ensuring the run-up to a provincial election is not a “reprieve” to increase spending.

Liberals fail to pass budget bill

With tax increases on so-called well-to-do Canadians and infrastructure spending not scheduled to begin until after this year’s election, the Liberals are under enormous pressure to get spending under control — or risk a backlash against their policies. That will likely mean laying off more civil servants or some other measure to cope with falling revenue and higher spending. Regardless, sticking to the 2019 budget will not guarantee passage of the government’s omnibus budget bill, C-73.

LME next week

The floor of the London Metal Exchange is usually a small space and talk of it has been keeping a lot of traders on the alert. On July 18, the last of an unprecedented three four-week trading week at LME will end. Even though the trading ring will not be set up for this year, the expectation is that the opening bell will ring. And if that happens, the 28th-largest market in the world will be open for another five days of trading, which will be filled with news that will affect the price of commodities.

British moves back into recession

With industrial production falling in April and continuing to fall in May, Statistics Canada will issue a preliminary report on Canada’s second-quarter Gross Domestic Product before the start of Parliament. That report will likely be met with a fair amount of skepticism, as most expected the GDP data would be better. But without a stronger growth number, much of the strong gains seen last year will likely be reverse.

Canada reports foreign cash

Every few months, the Bank of Canada reports the amount of foreign direct investment in Canadian securities, such as bonds, stocks, and funds. Canadians continue to sell bonds and buy Canadian stocks. However, that could change, with the government seeking to be more aggressive in cracking down on foreign capital flowing in and out of the country. Over the last three months, the report has shown a net outflow of $18.6 billion in Canadian capital. The government will likely want to continue with its efforts to reduce capital outflows, especially with the July 15 decision by the central bank to raise its policy rate. That will come on the heels of the Bank of England lifting its key interest rate Tuesday, further clouding the outlook for Canadian investors.

Security events

The timing is tentative. The July 25 swearing-in of new provincial leader Andrew Scheer, as well as the July 27 ceremony to swear in the new members of Parliament (elected federally this spring) will likely be eclipsed by the July 22 start of the Southern Interior Accord, which is meant to keep the wolves from Canada’s wild rivers. The eight-month-long process of creating the accord was a significant victory for environment groups, led by David Suzuki. And while the accord has been far-reaching and contentious for many, including Indigenous groups, the focus on the program would certainly translate into more public attention on environmental policy.

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