The Morning Brief – 01.21.21

By Bruce Carson


Two major matters dominated yesterday

First, President Biden and Vice President Harris took the oath of office; Biden delivered his inaugural address—later in the Oval Office Biden singed an Executive Order cancelling the permit for the Keystone XL pipeline. Alberta’s Premier Kenney now caught in an untenable squeeze between Trudeau and Biden; no pipeline, no vaccines and no investments.

Second, Bank of Canada announced there would be no change in interest rates or in quantitative easing bond purchases. However, the Bank in its rate announcement and in its Monetary Policy Report made it clear that Q1, 2021 was going to show negative growth, at perhaps 2.5% shrinkage with recovery in Q2 and the rest of the year. Economic recovery is dependant on the availability of vaccines.

President Biden and Vice President Harris

President Biden’s inaugural address was very much a call for unity, for Americans to stop quarrelling amongst one other and come together in common cause to move the country forward.

Biden spoke of the fragility of democracy, but it has prevailed. Having said that, he noted that much needed to be done. He spoke of his priorities of tackling COVID-19, economic recovery, racial injustice, climate change, eradication of political extremism and repairing and rebuilding international relationships.

However, the greatest goal which leads to addressing all the priorities is solving the national unity crisis. One of his statements on this was that “we must end this uncivil war” which pits blue and red supporters against one another. He spoke of civility and respect, treating each other as friends, not enemies.

He committed his “whole soul” in the effort to unite the country as with that, we can overcome anything.

He went back to the unity theme time and again as in “we will not fail when we act together—talk to one another, respect one another.” He went back to words he used when he won the presidency, promising to work for those who do not support us, asking them “to take the measure of my heart.” Disagreements should not lead to division. He will be the president for all Americans.

The question posed yesterday and again today is “is anyone who disagrees or didn’t support Biden listening? Preaching unity is good as far as it goes, but both sides must be part of the discussion, part of the solution. Biden accepts the fact that he inherited a country divided, but can he and Vice President Harris do enough to break through the barriers that have been in place for some time. The divisions didn’t start with Trump, but they were exacerbated by him.

Perhaps the best way to get positive reaction from those who have disagreed with Biden is for him to get down to work and demonstrate action which benefits all Americans. In doing this President Biden will have the knowledge, experience and support of Vice President Harris. Achieving the office of vice president shows her ability to break down barriers of race and gender. She is ideally suited to bring her abilities to breaking down barriers in America.

It was not expected that President Biden would sign an Executive Order on his first day in office cancelling the Keystone XL’s presidential permit. While this action may have been anticipated it was not expected to happen without providing Canada and Alberta an opportunity to present the Keystone case to the new administration.

Premier Kenney in a media availability last evening listed all of the benefits Keystone XL brings from jobs to lowering emissions. His main point was that the Biden administration did not give Canada an opportunity to make its case. He called this “acting in bad faith.”

He argued that if the U.S. does not give Canada a chance to make its case, Canada should impose sanctions on the U.S.

In all of the arguments dealing with Keystone XL, Kenney advanced the point that with cancellation of the Keystone XL permit, other cross boundary pipeline permits could be arbitrarily cancelled. This could affect both Enbridge’s Line 3 and Line 5.

When all is said and done, the Trudeau government will not see Keystone XL as a “hill to die on.” It wants to pursue trade issues such as Buy America, climate change and re-establishing international relationships alongside the new administration.

Also the Trudeau government believes that the Biden administration could be helpful dealing with Michael Spavor and Michael Kovrig. In fact, Canada’s Ambassador to the United States Kirsten Hillman said in an interview yesterday that she has been given every indication that the Biden administration will work with Canada in an attempt to free them from unlawful detention and custody.

President Biden will be calling Prime Minister Trudeau tomorrow. This will probably be the last opportunity to press the new president to reverse course on Keystone XL. Premier Kenney should be speaking with the prime minister prior to that call. While it is doubtful the U.S. would change course, this is that opportunity to make the case. Kenney should take advantage of it.

More on this matter next week.

Bank of Canada

As stated earlier the Bank’s Governing Council decided to keep interest rates as they are now until its inflation objective of 2% is realized and at the same time the Bank will continue with quantitative easing.

The Monetary Policy Report forecasts growth in Q1 as negative because of reintroduction of lock down measures. If restrictions are lifted the Bank expects a strong second quarter. With the advent of vaccines, the Bank predicts the economy will grow by 4% in 2021, almost 5% in 2022 and then dipping to 2.5 % in 2023.

Inflation is expected to rise temporarily in the first half of 2021, but the drop, and not expected to be back at 2% until 2023.

Governing Council sees the Canadian economy continuing to require extraordinary monetary policy support. “We remain committed to providing the appropriate degree of monetary policy stimulus to support recovery and achieve inflation objectives.” The recuperative phase was described as “choppy.”

Prior to the Q and A session, Governor Macklem said that the current surge of COVID provides a serious setback for the economy. He is counting on vaccine availability to spur on a strong recovery in the second half of this year.

Q1 will see the economy shrink by 2.5% or worse.

He also committed to adding more stimulus, if necessary. In response to questions he did not rule out a microcut in interest rates. But he believes the stimulus plan in place now is appropriate.

Somewhat surprisingly Macklem indicated that the increase in savings experienced by some during the COVID period, may not be spent on material goods, but used to pay down debt. This seems at odds with statements from Finance Minister Freeland.

The Bank will deal with interest rates again on March 10, with the new Monetary Policy Report coming on April 21.

To Come

January 22
  • Call between President Biden and Prime Minister Trudeau
  • Retail trade numbers for November to be released
January 25
  • House of Commons resumes sitting
January 26-27
  • U.S. Fed meets
January 29
  • GDP numbers for November to be released

The Morning Brief will return on Wednesday, January 27

– BC