Is North American growth slowing or is it just a temporary dip ?

Schwaben small S    Schwaben Blog


July 10, 2015


Weekly Statistics:




Week Ago Year Ago
  10-July-15 03-July-15






S&P 500





















The International Monetary Fund (IMF) has cut its growth projection for the Canadian Economy. According to the IMF’s forecast, Canada’s real GDP will grow at 1.5 percent this year, down sharply from their previous forecast of 2.2 percent in April. In addition to Canada, it also slashed its forecast for the growth of the US economy for 2015 to 2.5 percent from 3.1 percent.  It is no surprise that the collapse in the oil prices is one of the main reasons for this setback but the IMF also pointed to some one-time factors like harsh winter and US port closures for the poor growth in North America. Due to the slump in oil prices, Canada’s international trade numbers for May showed a near-record trade deficit of $3.3 Billion. Exports of energy products are down 35 percent for the year to date compared with the same period a year ago. Although poor economic indicators have led economists to conclude that Canada’s GDP will likely contract again in second quarter, which means technically the Country is in recession, other economic indicators, specifically unemployment rate and housing starts are showing signs of strength. In the recently released unemployment report, Canada shed 6400 jobs but unemployment rate has been steady at 6.8 percent for the last five months. Although a rising trade deficit, because of energy exports and collapse in oil prices, Canada is still able to maintain its unemployment rate, which means that non-energy related industries are creating  jobs and are growing sufficiently to offset other job losses. A rate cut from Stephen Poloz, Governor of Bank of Canada, during his next announcement on July 15 could bring the interest rates down to 0.5 percent from 0.75 percent. This will be the second rate cut after a surprise rate cut in January. At a time when the housing market is already overpriced, a rate cut could cause house prices climb further out of reach for many Canadians.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch, Trading Economics


The Canadian economy in flux – employment and economic activity moving to manufacturing again

Schwaben small S              Schwaben Blog


June 05, 2015


Weekly Statistics:



Week Ago Year Ago
05June-15 29-May-15






S&P 500





















Ontario and British Columbia were the largest contributors in job creations in Canada last month, creating 43,900 and 30,600 jobs respectively. The entire Canadian economy added 59,000 jobs in the month of May compared with a loss of 19,700 jobs in April.  In the wake of the oil-price collapse, Alberta saw the biggest decline in employment, losing 6,400 positions, making it the first month of negative job creation since then.. Other oil producing provinces like New Brunswick, Newfoundland and Labrador lost about 9,000 jobs in total. As we have mentioned in our previous Blogs we expected a reversal of fortunes and as such also employment levels of oil producing versus manufacturing provinces with the collapse of oil prices and the concurrent decline in the Canadian dollar. Jeremy Lawson, chief economist at Edinburgh-based Standard Life Investments said “I think it’s pretty clear that the Canadian economy is going to rebalance over the next two to three years.” The unemployment rate has remained unchanged at 6.8 percent from the last four months. The unemployment rate in Canada averaged 7.73 percent from 1966 until 2015. Last month’s gain in employment numbers is the largest since October 2014 when 62,200 jobs were created. A poor first quarter and a drop in interest rates by Bank of Canada led investors to believe that the Canadian economy is headed for more troubles and economists were expecting another interest rate cut from Stephen Poloz, Governor of Bank of Canada. Friday’s data however  will likely cause the Bank of Canada to reevaluate and  declines in interest rates likely have come to an end. This jobs report is a positive signal for Canadian economy and offers a positive outlook for the remainder of 2015.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch, Trading Economics

Are the industrial provinces gaining the loss of the West ?

Schwaben small S                Schwaben Blog


May 22, 2015


Weekly Statistics:


Week Ago Year Ago
22-May-15 15-May-15 22-May-14




S&P 500





















According to Statistics Canada, the number of people receiving employment insurance (EI) benefits rose to 517,900 in March 2015 compared with 515,300 in March 2014. This is the first year-over-year increase since 2010. In March EI benefits rose by 8.9 percent to 38,800 while in February, the second straight month of more than 20 percent increase and the biggest rise since recession, surging to 29.4 percent. This was the fifth consecutive monthly increase for Alberta. Saskatchewan, Nova Scotia, Newfoundland and Labrador, which benefitted from the surge in crude oil prices, also saw larger increases in EI beneficiaries while British Columbia, Ontario and Prince Edward Island had smaller increases and benefits declined in Quebec by 1.5 percent from February. Alberta and Saskatchewan were major job creators during the last few years primarily because of the surge in crude oil prices however during the last year the crude prices have fallen by about 40% from their peak in June 2014 and therefore the rising fortunes of Alberta and Saskatchewan were expected to have a correction. The newly elected NDP government has promised to work with employers in the province but economists and financial commentators are still not confident of the government and are forecasting more troubles for the province in the near future.

Across the border, in the US, the number of EI beneficiaries fell in March and is pointing towards a strengthening labor market. While the US labor market is strengthening, Canadians are still feeling the pain because of last year’s collapse in oil prices.  Last year’s drop in the loonie should have strengthened manufacturing in Ontario and Quebec but no substantial gains in labor market have been recorded yet. Yesterday S&P 500 closed at a record high of 2,130.82 beating its previous high of 2,129.2 from Monday. This shows the increased confidence and optimism of investors but the low volumes in US indices paint a different picture. The low volumes could mean that people are being cautious and skeptical of further growth in equity markets. It could also mean that investors are waiting for the quarterly earnings season to see if the companies are really growing or it was the growth fueled by the availability of cheap money.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch, Trading Economics

Interest rates and oil price volatility are still a big concern !

March 27, 2015



Weekly Statistics:


Week Ago

Year Ago








S&P 500




















Federal Reserve Chair Janet Yellen said that interest rates could possibly increase in 2015 and made the case that the Fed would be cautious and subsequent rate hikes would be gradual. In a speech in San Francisco on Friday, she emphasized that the coming tightening cycle will be unlike any other in recent times, as the U.S. economy continues to heal from the worst recession since the Great Depression. She emphasized that it’s the expected path of short-term interest rates that matters and not the precise timing, when asked about when the Fed will finally raise interest rates for the first time in nine years. Meanwhile investors are selling US equities at a record pace and making investments in European assets while speculating that the interest rates in US will increase by this year, sooner rather than later. The US stock funds have seen an outflow of $44 Billion in the year-to-date period for their worst start to the year since 2009.  On he other hand, European equity funds have enjoyed an inflow of $46.6 Billion so far in 2015. A stronger Dollar and increasing probability of interest rate hike in US are probably the main reason for this movement of funds. Ahead of the start of the earnings season, about 84% of the companies that have provided first quarter outlook gave negative outlooks. Many companies blamed strengthening dollar or weak commodities or both for poor outlooks. This outlook is more than 81% of the companies that warned in Q1 2014 and the five-year average of 68%.

Last week was very volatile for crude oil. Oil prices gained around 15% in the first four trading sessions of the week but lost 6% on Friday. Recently there have been news of disturbances in Yemen and that drove the prices up. Yemen is the 39th biggest oil producer in the world and produces roughly 130,000 barrels of crude oil a day. But its not the amount of oil produced by Yemen which has shot up the prices, rather its the geographic importance of Yemen in the transportation of crude oil across different nations. Its sits at Bab-el-Mandab Strait, a key choke point in international shipping. About 3.8 million barrels of oil a day passed through this strait in 2013 and a closure would keep tankers away from reaching Suez canal and SUMED pipeline.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch

Canada’s changing fortunes – West to East

February 27, 2015


Weekly Statistics:


Week Ago

Year Ago




S&P TSX 15,234.34 15,172.24 14,209.59
S&P 500





















In a major setback to TransCanada Pipeline’s Keystone XL project, President Obama has vetoed a bill from Congress that approved construction of pipeline. Earlier this month when Congress passed this bill, Obama promised to Veto the bill and he made good on his promise. It was only the third veto of Obama’s presidency,  fewer than any US president since the 19th century. Senate majority leader Mitch McConnell said that his chamber will consider overriding the veto but according to major DC commentators, they will not be able to secure enough votes required for two-thirds majority. Obama believes that through this bill, the Congress attempts to circumvent longstanding and proven processes for determining whether or not building and operating a cross-border pipeline serves the national interest. The White House had regularly insisted that the veto does not represent an opinion on the merits and demerits of the pipeline, but rather an insistence that the state department evaluation not be circumvented. First proposed in 2008, the Keystone pipeline would connect Canada’s oil sands to US refineries. When approved, the pipeline could be operational in next two years.


According to a new research by Bank of Nova Scotia, Canada’s economic growth will lag the US, Britain and Mexico, due to a slump in crude oil prices. Canada is projected to grow by 1.9% and 2% in 2015 and 2016 respectively. The research showed a widening gap between economic growth of Canada and the United States. The slump in crude prices has changed the fortunes for Canadian provinces. Alberta, which used to be Canada’s economic leader, is projected to grow by just 0.6% and 1.6% in 2015 and 2016 respectively. Alberta’s jobless rate will also spike to 5% this year as the province is  already trying to cover a $7 Billion hole in its budget by cutting salaries and reducing workforces. Ontario, a laggard over the past decade, will lead the nation, with economic growth of 2.7% and 2.4%.  Companies like GM, Linamar and Ford have already promised to make large investments in the province and this will create jobs in the foreseeable future. Overall, the next two years could be difficult for the Canadian economy and unemployment will remain at 6.7% for 2015 and 2016, though down from 2014’s 6.9%.


US Equities making record highs, Greece on the last straw and Oil stockpiles at an 80 year high – what is next ?

February 20, 2015


Weekly Statistics:

Today Week Ago Year Ago
20-Feb-15 13-Feb-15 21-Feb-14
S&P TSX 15,264.61 15,264.61 14,054.76
S&P 500 2,097 2,097  1,838.63
DJIA 18,019 18,019  16,154.39
OIL $52.65 $52.65  $91.48
USD vs CAD 0.8001 0.8001 0.9102
Gold $1,227.90 $1,227.90  $1,322.40

US equities finished the week at record highs for 2015 as news was released that Greece would receive a 4-month bailout extension from its creditors. THE DJIA and S&P 500 closed at 18,140 and 2,110 respectively. The extension removes Greece’s immediate worry of running out of money next month and a possible eviction from the Eurozone. The Greek authorities will present a base plan of a list of reforms by the end of Monday, February 23 and then the lending institutions will review it. The news came as a surprise after Germany rejected the Greek request for a six month extension to its bailout programme just yesterday. The German Finance Minister also mentioned today that Greece would not receive any new funds before it completed its bailout programme.

Crude Stockpiles Feb 2015

The US Energy Information Administration (EIA) released its inventory data early Thursday with a jump of 7.7 million barrels in the crude supply for the week ended February 13. It was more than double the 3.1 million barrel increase estimate by analysts. Even though there has been a continuous decline in the number of new oil rigs in the US, this has not reduced the production of oil in any way. There has been a 33 percent reduction in oil rigs in the past 10 weeks but US crude production is still rising because of improvements in technology that are offsetting companies’ spending cuts., According to the EIA, the US stockpiles of crude continued to grow to a total of 425.6 million- barrel, the highest level for this time of the year in at least last 80 years. The EIA has also forecasted that US oil production will increase 7.8% to 9.3 million barrels a day by the end of this year, the most since 1972.  The 80 year record stockpile and the increasing production will certainly put a cap on oil prices for some time and may drive prices lower. Although Gary Schilling, a Bloomberg columnist, speculated that oil may reach $10 or $20, the likelihood of oil reaching $10 is almost non-existent and $20 may be a short lived bottom in our opinion. Lower oil prices will mean more cash in the consumers’ pocket. As the Fed has already hinted that an interest rate hike maybe around the corner. Further declines in crude prices will likely accelerate rather than decelerate inflation and the chances for an interest rate hike.

Canada’s changing economic picture with changing oil prices !


February 13, 2015


Weekly Statistics:


Week Ago

Year Ago








S&P 500





















Last week both, US and Canadian, indices showed modest gains as the S&P 500 closed at an all time high of 2,097. A rally in oil prices, better-than-forecast economic growth in Europe, and better Canadian manufacturing sales for December attributed to this confidence and optimism. Canadian manufacturing sales rose at 1.7 percent, much better than 0.5 percent expected by economists. Lower oil prices and lower Canadian dollar will help Ontario and Quebec to strengthen their position in the national economy, as companies such as Linamar and General Motors make further investments (around $500 million each) in Ontario. Companies are becoming confident again about Ontario’s manufacturing economy and could create more jobs in the foreseeable future for the province. While recent jobs report showed Alberta still leading, we believe that this trend could change with Ontario and Quebec likely to lead job growth in Canada. Western Canada’s loss could be eastern Canada’s gain. Major oil companies like Husky, Suncor, and Canadian Oil Sands etc. have already cut their expenditures for 2015 and large job losses are expected along the way. The Canadian Association of Petroleum Producers has already forecasted a drop of 33 percent in spending by Oil and Gas companies. Though the prices of crude have tumbled by more than 50 percent from their recent highs in June 2014, the production has followed a reverse trend and has increased since. A US government report last week showed oil inventories at record levels which is creating a global oil supply glut. According to Citigroup, this oversupply could push the prices of oil to as low as $20 a barrel. However, a BMO research report shows that corporate budgets still reflect Crude at $61 a barrel. We believe that $61 is a very optimistic price, taking into account the global flooding of oil. Oil companies should brace themselves for a lower oil prices and more pain.



Source- Bloomberg, Zerohedge, Globe Investor Gold, CBC, Financial Post