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

Schwaben small S    Schwaben Blog

 

July 10, 2015

 

Weekly Statistics:

 

 

Today

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

10-July-14

       
S&P TSX

14,385

14,593

15,114

S&P 500

2,076

2,069

 1,964

DJIA

17,752

17,683

16,915

OIL

$52.13

$52.78

 $95.77

USD vs CAD

0.7888

0.7905

0.9315

Gold

$1,160

$1,169

 $1,342

 

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:

 

Today

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

05-June-14

S&P TSX

14,957

15,036

14,604

S&P 500

2,092

2,114

 1,951

DJIA

17,849

18,052

16,943

OIL

$58.42

$59.93

 $93.92

USD vs CAD

0.8017

0.7995

0.9051

Gold

$1,172

$1,189

 $1,256

 

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

Deception in economic data – we need to consider more

Schwaben small S                       Schwaben Blog

 

May 29, 2015

 

Weekly Statistics:

 

Today Week Ago Year Ago
29-May-15 22-May-15 29-May-14
(Midday)
S&P TSX 15,036 15,200 14,604
S&P 500 2,114 2,126  1,920
DJIA 18,052 18,232 16,698
OIL $59.93 $59.93  $93.23
USD vs CAD 0.7995 0.8165 0.9051
Gold $1,189 $1,205  $1,260

 

The Gross Domestic Product (GDP) of the United States contracted at a seasonally adjusted annual rate of 0.7 percent in the first quarter of 2015 instead of 0.2 percent growth, which the government estimated last month. Harsh weather, a stronger dollar and a strike at the western ports of the US could be the possible reasons for this contraction. A rising dollar has curbed US exports by making American goods more expensive for importers and which in-turn has created a trade deficit.  We believe that this contraction is a temporary setback in the growth story of the US and the economy will rebound and grow at a decent pace as it did in 2014, after the US GDP contracted by 2.1 percent in the first quarter of 2014. One of the major economic indicators that we believe is imperative for US growth is the unemployment rate. More than 3 million jobs were created last year, the most since the late 1990s. Also, the real median incomes are up 3% in the past year to about $54,578 in current dollars, the fastest growth since 2007. According to MarketWatch, consumer spending accounts for up to 70% of the US economic activity. With a significant correction in oil prices, and rising incomes, consumers are expected to spend more than they did last year and which can give a boost to the US economic growth. Though the economy is not growing at a significant pace but it is certainly not shrinking over the longer term. The Federal Reserve is debating about raising interest rates (no specified timeline yet) and major economic indicators like housing starts, median income, unemployment numbers etc are all pointing towards a growing and a solid US economy. This will definitely increase the Fed’s confidence in the US economy before they decide to finally raise the interest rates, after 9 years. Considering the current market conditions we believe that a rate hike can be expected in late Q3 or early Q4.

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

Canada’s changing fortunes – West to East

February 27, 2015

 

Weekly Statistics:

Today

Week Ago

Year Ago

27-Feb-15

20-Feb-15

28-Feb-14

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

2,105

2,110

 1,859.45

DJIA

18,133

18,140

 16,321.71

OIL

$49.52

$50.75

 $91.56

USD vs CAD

0.7991

0.7978

0.9039

Gold

$1,214

$1,203

 $1,324.80

 

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%.

 

Canada’s changing economic picture with changing oil prices !

 

February 13, 2015

 

Weekly Statistics:

Today

Week Ago

Year Ago

13-Feb-15

06-Feb-15

14-Feb-14

S&P TSX

15,264

15,084

14,055

S&P 500

2,097

2,055

 1,839

DJIA

18,019

17,824

 16,154

OIL

$52.65

$52.00

 $91.48

USD vs CAD

0.8001

0.79837

0.9102

Gold

$1,227.90

$1,235.00

 $1,322.40

 

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