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Canadian Government to Buy Trans Mountain Pipeline; Italy Challenged by Increasing Political Risk

Published May 29, 2018
  • Italy’s two-year bond yields have risen over 2.5%, despite trading below 0.3% yesterday morning as the unfolding political crisis has weighed heavily on the euro-area. The euro is facing pressure this morning, dipping as far as $1.1544 at time of writing. The heightened caution surrounding Italy is an all too familiar echo of the Greek crisis. Major uncertainty remains in a euro-skeptic alliance developing within the newly formed Italian government and the likelihood of euro break-up rhetoric forming. Spanish Prime Minister Rajoy also faces similar political opposition with a vote of no-confidence in Parliament on Friday, signalling the increasing likelihood of early elections in Spain.
  • The Canadian government is aiming to purchase the Kinder Morgan Canada Ltd. Trans Mountain oil pipeline and the expansion project. Buying the pipeline has become increasingly probable and is now the most realistic option for the Canadian government. The deal could be announced as soon as today as Prime Minister Trudeau’s cabinet is due to meet in Ottawa. This purchase would mark a stunning development for Trudeau’s government as it effectively nationalizes Canada’s high profile infrastructure project. The project has been surrounded by legal uncertainty and rising protests from environmental groups and the province of British Columbia.
  • Canadian Pacific Railway workers are set to strike Tuesday night, potentially forcing the railroad to shut down its freight service and leaving commuters with the prospect of delays in the country’s three largest cities. The unions representing train operators and signalling workers the Teamsters Canada Rail Conference and the International Brotherhood of Electrical Workers gave the railway notice over the weekend that they plan to strike as of 10 pm EDT Tuesday.
  • Canadian Foreign Minister Chrystia Freeland is travelling to Washington today in an attempt to reach a deal on the updating of NAFTA that could be eligible to be passed before Congress this year. The meetings that will take place both on Tuesday and Wednesday will occur with US trade representative Robert Lighthizer. Currently, the US has exempted Canada and Mexico from tariffs on steel and aluminum, however, these exemptions are set to expire Friday.
  • Bank of Canada Governor Stephen Poloz shall be entering a rate decision tomorrow where he is expected to once again refrain from lifting borrowing costs, even as the economy shows signs of strength. The cautious stance is primarily driven by a number of uncertainties with NAFTA and a resilient housing market. Most economists are expecting the Bank of Canada will return to a hiking path in July, followed by one more increase at the end of the year.
  • US President Donald Trump and Japanese Prime Minister Shinzo Abe are planning to meet together prior to the “hopeful meeting” between Trump and North Korea’s Kim Jong Un,  which may occur at the G-7 conference in Quebec June 8-9. This comes as the US has decided not to implement new major sanctions aimed at North Korea while US representatives attempt to revive the summit. South Korean President Moon Jae In is “considering the possibility” of traveling to Singapore for a three-way summit with Kim and Trump next month.