Everything You Need to Know on Friday: Bank of Canada Deputy Governor Says Bar for Using QE Again Will Be Very High

Good morning mooers! Here are things you need to know about today's market:

● S&P/TSX 60 Index Standard Futures are trading at 1,290.80, down 0.38%

● Bank of Canada deputy governor says bar for using QE again will be very high

● Tiff Macklem says things are going to be difficult if productivity doesn't grow

● Crude oil prices decline amid outlook for higher interest rates, strong demand projections provide support

● Bank CEOs push back on MP calls to reduce oil and gas funding

Today, the Canadian dollar is trading at 72.71 cents US, a slight decrease from Thursday.

S&P/TSX 60 Index Standard Futures are trading at 1,290.80, down 0.38% from previous close.

A senior Bank of Canada official says the unusual measures it took during the pandemic helped boost the economy, but the bar for using quantitative easing again will be very high.

The comments came Thursday in a speech in Ottawa to the Canadian Association for Business Economics as the central bank works to rebuild trust with the public and be transparent in how it works.

With its key policy interest rate already as low as it could go in 2020, deputy governor Sharon Kozicki says the central bank decided to start buying more government bonds than usual in a bid to keep interest rates low — a practice known as quantitative easing.

Combined with extraordinary forward guidance from the central bank, the move helped keep interest rates low, boosting the economy.

It was the first time the central bank had ever used quantitative easing and only the second time that it used forward guidance to help the economy (the first was during the financial crisis).

But Kozicki said the bank faced an unprecedented economic shock when it decided to use quantitative easing, emphasizing the unusual nature of the move.

"The bar for us to use QE again is very high," she said.

Kozicki says the bank is putting together an in-depth review of the decisions taken during the pandemic so that it can learn from its own actions.

"While this review is a significant step, it is not the final word," she said.

"Questions will continue to be asked that may shape if and how we use our exceptional tools in the future. These questions are particularly valuable in a world where the next crisis may look different from those in the past."

Bank of Canada governor Tiff Macklem says businesses should be inspired by the “enormous amount of ingenuity” they showed during the pandemic to boost the country’s declining productivity levels, but a failure to keep doing so could make “everything more difficult going forward.”

“Even as the economies being shut down (during the pandemic), GDP declining rapidly, you were investing in new digital technology to figure out how to serve your customers digitally … the manufacturing sector rapidly pivoted to create personal protective equipment,” he said at a Montreal conference on Wednesday, a week after the Bank of Canada cut interest rates for the first time in four years. “How do we harness some of that ingenuity, that innovation, without having a crisis?”

Labour productivity in Canada has fallen in 12 out of the past 15 quarters, according to government data. Bank of Canada senior deputy governor Carolyn Rogers described the situation as an emergency in a speech in March.

At the conference, Macklem said the central bank expected productivity growth to pick up coming out of the pandemic as companies found the workers they wanted to hire and the supply chain started to normalize.

“It hasn’t happened,” he said. “That’s why we made such a stark statement.”

The solutions are apparent — more investment in machinery, equipment, information technology, etc. — but Macklem said the tougher question is why that isn’t happening.

“There are some puzzles there,” he said. “We have all the ingredients; we have got to cut through obstacles.”

Crude oil prices fell as markets weighed the impact of high U.S. interest rates for longer than expected, which could be a drag on the economy and consequently be a limiting factor on oil demand.

Brent crude lost 0.6% to US$82.27 per barrel and West Texas Intermediate crude was down 0.7% to US$78.04/b at last look early Friday. However, crude benchmarks are headed for their best week in more than two months due to solid projections for crude and fuel demand, Reuters said in a Friday report.

The Organization of the Petroleum Exporting Countries maintained its forecast for strong global oil demand growth in 2024, while Goldman Sachs expects solid U.S. fuel demand this summer, the report said.

"I wouldn't be surprised to see oil prices head higher from here whilst the demand outlook continues to look rosier," Reuters quoted Tim Waterer, chief market analyst at KCM Trade, as saying. "Much may depend on how the northern hemisphere summer demand picture plays out."

The CEOs of Canada's five biggest banks stuck to the message that they're committed to help in the energy transition as they were questioned by a parliamentary committee Thursday about their impacts on climate change.

The leaders of Royal Bank of Canada, TD Bank Group, BMO Financial Group, Scotiabank and CIBC pushed back against MPs who said they were making the problem worse by funding the oil and gas industry to the tune of more than a hundred billion a year, and challenged them to cut back.

"Just stop is just not an option for us," said RBC chief executive Dave McKay, appearing by video conference along with the other CEOs before the House of Commons standing committee on environment and sustainable development.

"It's important that we do this in an orderly fashion, or we risk the entire journey. We have to protect jobs along the way," he said.

The banks all talked about their commitments to working with clients through the transition, rather than pull back on funding, along with their net zero and sustainable finance targets.

Pushed to at least stop funding fossil fuel expansion, executives maintained that it's not that straightforward.

"This is a complex transition. We are not getting off fossil-based fuels immediately," said McKay, who, as head of Canada's largest bank and largest oil and gas funder, was asked the most questions.

Executives said they have to keep funding fossil fuels, as well as cleaner energy sources.