Everything You Need to Know on Thursday: Bank of Canada Needs to Rebuild Public Trust After Inflation, Said Tiff Macklem

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

● S&P/TSX 60 Index Standard Futures are trading at 1,308.80, down 0.25%

● Bank of Canada needs to rebuild public trust after inflation: governor Tiff Macklem

● National Bank's bid to buy Canadian Western signals more consolidations in banking sector

● OECD natural gas production edges lower in March, driven by decreases in U.K and U.S., IEA reports

● Pembina nears investment decision for US$4 billion LNG project

Today, the Canadian dollar is trading at 72.73 cents US, a slight decrease from Wednesday.

S&P/TSX 60 Index Standard Futures are trading at 1,308.80, down 0.25% from previous close.

Public trust in the Bank of Canada has been dented by post-pandemic inflation and it needs to be rebuilt, governor Tiff Macklem said on Wednesday.

"For many of our citizens, this has been their first experience with high inflation, and it has been painful," Macklem said during a panel discussion at the 2024 Conference of Montreal, alongside Deutsche Bundesbank president Joachim Nagel and BNP Paribas Canada CEO Sonja Volpe.

"Inflation harms people and the economy, and it corrodes trust in our market-based system."

Macklem said the Bank of Canada needs to find ways to explain its policies to a wide range of audiences, including families trying to navigate uncertain times.

"We need to meet people where they are and ensure they understand what we’re doing and why we’re doing it," he said.

He said the recent bout of inflation has made people feel cheated and angry as their paycheques don’t stretch as far as they did before.

"Recent history has been a stark reminder that inflation is our common enemy," he said.

Last week, the central bank announced a quarter-point cut to its key interest rate, the first since a steep hiking cycle that began in March 2022 in an effort to curb inflation.

Since then, the economy has cooled and so has inflation, giving the central bank enough confidence to start lowering interest rates.

Macklem said it's reasonable to expect more cuts on the horizon, but that the central bank is taking it "one meeting at a time."

Total OECD natural gas production edged 0.3% lower in March, the International Energy Agency said in its Monthly Gas Statistics report released on Wednesday.

Among the main OECD producers, increased production levels were seen in Australia, Norway and Canada, while lower output was recorded in the U.K. and in the U.S, according to the IEA.

Natural gas imports in the OECD also fell 9.8%, with overall decrease mainly resulting from lower liquefied natural gas entries. Total OECD exports decreased by 3.8%, primarily due to significant declines in OECD Europe.

Gross natural gas consumption declined 5% in March. The most significant drop in consumption was in the OECD Americas, led by the U.S. and Canada, the IEA reported.

National Bank of Canada’s bid to buy Canadian Western Bank is yet another sign that Canada’s banking sector is going to further consolidate as the larger banks try to gain more control and tackle any headwinds they might face in the near term, some analysts say.

The $5-billion, all-stock deal will expand the Quebec-focused bank’s reach to Alberta and British Columbia, and comes just a few months after Royal Bank of Canada completed its acquisition of HSBC Bank Canada.

“Our view has always been that there will be consolidation in the Canadian banking space because the large banks have structural competitive advantages that the smaller banks can’t overcome,” Nigel D’Souza, a senior investment analyst at equity research firm Veritas Investment Research Corp., said.

“They own most of the market, they have extensive national branch networks, they have lower funding costs … when you put all that together, these are advantages that the other, smaller banks cannot overcome. Ultimately, those banks will have to be consolidated.”

National Bank, the sixth largest in Canada, said the deal, which will require the approval of two-thirds of Canadian Western shareholders at a special meeting in September, would increase the bank’s presence and branch network and provide it with the opportunity to grow its retail segment.

The US$4 billion project is expected to be financed 60 per cent from debt and 40 per cent from equity, with partners Haisla Nation and Pembina each contributing 20 per cent of equity, Cedar LNG said in an emailed statement to Bloomberg News.

The financing will also include a $1.5 billion (US$1.09 billion) five-year term loan for a pipeline connecting the Cedar terminal with the nearby Shell-led Kitimat project, according to the people.

Cedar LNG would be the second Canadian fuel-export project to be financially sanctioned after the Shell-led backers of the $40 billion LNG Canada made their investment decision in 2018.

At least 15 banks will likely participate in financing the project, the people said. Cedar LNG did not comment on the number of banks involved or the timing of a final investment in response to questions from Bloomberg News.

The developers of the project, which also includes the Haisla First Nation, had previously said they were aiming for a final investment decision by mid-2024. Future liquefied natural gas offtake from the proposed 3-million-metric-ton-a-year facility is split between Pembina and Canadian exploration firm ARC Resources Ltd.

The most recent LNG export facility to reach a final investment decision was Abu Dhabi National Oil Co.’s Ruwais LNG project, announced Wednesday.