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Not helped by weakness in China trade data, questions over global growth and inflation expectations are growing. Oil-exporting nations (and growth-linked currencies) are getting monkey-hammered…

Just when traders thought the bottom was in…

As Reuters notes, with lower oil prices likely to add to global deflationary concern and Chinese data doing little to improve sentiment, risk appetite remained fragile.

The Canadian currency fell 0.4 percent against the U.S. dollar, to C$1.3555. That was the U.S. dollar’s strongest level since mid-2004.

Similarly the Norwegian crown fell a six-week low against the euro.

“If you are looking to play weak oil prices, you would want to sell the Canadian dollar and the Norwegian crown,” said Jeremy Stretch, head of currency strategy at CIBC World Markets. “With oil prices falling and some even talking about oil falling to $30 a barrel, revenues for these countries will take a beating and hence their currencies will remain under pressure.”

The Australian dollar fell 0.6 percent to $0.7220 AUD=D4 as this week’s tumble in iron ore and the latest Chinese data weighted on the currency’s woes.

Citi recommended that investors sell the Aussie through options. “The weakness in the Chinese economy will spill over to Australia through commodities demand as well as reduced demand for the Australian dollar via reserves and other channels. This should leave it vulnerable to an eventual leg higher in the dollar,” they said.

Charts: Bloomberg

With the oil price collapse accelerating (Brent just dropped below $40 for the first time since Feb 2009), the currencies of major oil-exporting nations – such as the Canadian dollar and Norwegian crown – are plunging…

Canada Just Warned That Negative Interest Rates Are Coming

December 8, 2015

Canada Just Warned That Negative Interest Rates Are Coming

Moments ago, the Bank of Canada’s chief finally said what we had been patiently waiting for over the past several months: admission that Europe’s experiment with negative rates is about to cross the Atlantic. From Market News:

BOC POLOZ: NOW SEES EFFECTIVE LOWER BOUND FOR POLICY RATE AROUND -0.5%
BOC POLOZ: CANADN FIN MKTS COULD FUNCTION IN A NEG INT RATE ENVRIONMNT
BOC POLOZ: ‘SHOULD THE NEED ARISE’ FOR UNCONVENTIONAL MONETARY POLICY, ‘WE’LL BE READY’

That, as they say, is “forward guidance” of what is coming.

And what is coming, is also precisely what Keith Dicker from IceCap Asset Management said in his latest monthly letter, would happen in Canada in the very near future. To wit:

Canada

Now that the election is over, the new government can quickly get down to work to missing all of their economic forecasts and budgets.

IceCap is apolitical – we support neither the left, the center or the right. Instead, we see the world with our global goggles and can confirm that despite any and all economic policies from the new (or old) government – the Canadian economy will continue it’s downward trend.

This negative outlook for Canada isn’t driven by an insular view or perspective. Rather, the global trend is downward. The economic and monetary foundation for the global economy has shifted and this is the reason for our downward view for the Great White North.
During the election campaign, we shared this view with the eventual winning party. The response was a slow yawn and disapproving look which suggested either we didn’t know what we were talking about or they were not really interested in our answer to their question.

…click on the above link to read the rest of the article…

Looney Plunges As Canadian GDP Collapses Most Since 2009

December 1, 2015

Looney Plunges As Canadian GDP Collapses Most Since 2009

Who could have seen that coming? It appears, for America’s northern brethren, low oil proces are unequivocally terrible. Against expectations of a flat 0.0% unchanged September, Canadian GDP plunged 0.5% – its largest MoM drop since March 2009 and the biggest miss since Dec 2008. With Canada’s housing bubble bursting, it’s time for the central planners to get back to work and re-invigorate the massive mal-invesment boom (and ban pawning of luxury goods).

In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry as a result of the plunge in the price of oil, in posts such as the following:

Since then it has gotten far, far worse for Canada… GDP is down 0.5% MoM (and unchanged YoY – the worst since Nov 09)

The initial reaction is a tumbling looney…

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

November 2, 2015

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

While understandably all eyes have been fixed on every monthly capital outflow update from China (even the ones that the Politburo is clearly massaging), few have noticed that one of the biggest total outflows currently in the global developed economy is taking place right in America’s own back yard.

According to BofA’s Kamal Sharma, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.

Citing Sharma’s data Bloomberg writes that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.

“This is Canadian investors that are pushing money abroad,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.”

The reasons for the accelerating otflows are familiar, or mostly one reason: the collapse in crude oil, among the nation’s biggest exports, has dropped to half of its 2014 peak. “The slump has derailed projects this year in Canada’s oil sands – one of the world’s most expensive crude-producing regions. Royal Dutch Shell Plc’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial Corp.”

Worse, there does not appear to be any improvement, despite the recent stabilization in Brent prices:

…click on the above link to read the rest of the article…

Canada’s Retail Prices Jump the Most in “Over a Decade”

September 24, 2015

Canada’s Retail Prices Jump the Most in “Over a Decade”

When Statistics Canada released its July retail sales report today, it dished out a few unwelcome surprises – and a bombshell.

Among the surprises, based on what economists – though perhaps not average Canadians – had expected: Growth in retail sales was a measly 0.5% in July; and growth in June was revised lower to 0.4%, from the originally reported 0.6%. Year-over-year, retail sales rose just 1.8% adjusted for inflation.

The saving grace, sales of auto and parts dealers rose 2% month over month. Without them, retail sales were flat – also worse than economists had expected.

And by province, there were some ugly differences: on a year-over-year basis, not adjusted for inflation – more on that in a moment – nominal retails sales jumped 5.7% in British Columbia and 4.6% in Ontario. But at the other extreme, nominal retails sales edged down 0.7% in Newfoundland & Labrador, and slumped 3.6% in Saskatchewan and 3.7% in Alberta.

These two provinces are the epicenter of the Canadian oil bust, where a deep recession has set in. Home sales are plunging. Layoffs are cascading through the local economies. Uncertainly reigns. And consumers are reacting the best they can.

And here’s the bombshell: over the last six months, retail prices have jumped at the fastest rate in over a decade.

Inflation has obviously been too low in Canada, the US, Europe, Japan, etc. Heaven and earth must be moved by central banks to raise inflation. The Damocles sword of deflation – when money gains in value rather than loses in value – is hanging over our entire civilization.

But OK, when you go shopping, this sort of scenario isn’t quite that visible. What you see are price increases, and some of them are very painful.

…click on the above link to read the rest of the article…

For Canadian Oil Sands It’s Adapt Or Die

September 16, 2015

For Canadian Oil Sands It’s Adapt Or Die

That low oil prices are squeezing out oil sands producers is not breaking news. But in spite of a grim oil price outlook, production out of Calgary has continued to grow, defying both expectations and logic. The implications are serious, not just for the future of Canada’s energy industry and economy, but also North American energy relations.

In June 2015, the Canadian Association of Petroleum Producers (CAPP) revised down its 2030 production forecast to 5.3 million barrels per day (mbd). A year earlier the group predicted Canada would be able to produce 6.4 mbd by 2030. This is compared to the 3.7 mbd produced in 2014. Most experts agree that capital intensive oil sands projects are marginal – if not loss-making – in the $45 – $60 range. Yet production continues apace.

Of course, the nature of capital intensive operations such as the oil sands is that they are also prohibitively expensive to shut down. Producers are left in limbo, praying that prices will rise.

The implications for Canada should not be understated. Of the nation’s estimated 339 billion barrels of potential oil resources, oil sands account for around 90 percent. The Canadian dollar is at a decade low, which softens the blow for exporters in the short term but the long-term economic consequences are less rosy.

Projects are being delayed, and many experts wonder if the current oil sands model has a future. Peter Tertzakian of ARC Financial told Alberta Oil Magazine that the era of oil sands mega projects was over.

In Alberta, an estimated one in 16 jobs is tied to the energy sector. According to the National Energy Board, crude oil and bitumen brought in $70 billion for Canada in 2014. Perhaps, as Tertzakian noted, new projects will simply adapt, becoming more nimble, flexible, and focused on value rather than quantity.

…click on the above link to read the rest of the article…

Mede-Jean, Not Medellin

September 7, 2015

Mede-Jean, Not Medellin

Driving the back streets of Medellin a few weeks ago I found it interesting to see the various little pockets to the city. In the poor parts of town I noticed on a couple of occasions taxi drives running their vehicles on empty. I’ve seen this before in countries where there is a lack of sufficient working capital to be able to keep the tank full. Disposable income is low or non-existent…

There are, however, pockets where we found the burgeoning middle class which give credence to the statistical numbers. Here there are delightful tree lined neighborhoods, boutique art stores, restaurants, coffee shops and Land Cruisers beginning to cramp up the streets of Medellin. Colombia has indeed a rising and growing middle class, though there still exists a large disparity in wealth.

View over Poblado, Medellin

One measure used by economists to determine this ratio of rich to poor is the Gini coefficient. A Gini score of 0 would mean a perfect distribution of income and expenditure in a society and a number of 100 represents absolute inequality. This has important ramifications as often there exists a higher propensity for civil unrest as the number gets higher. Conversely the lower this number, the more equal and oftentimes stable a country. Colombia, according to the World Bank, sport a score of 53.5, though this is taken from 2012. I suspect this figure is actually lower today – it’s been falling each year since early 2000s.

The trend appears to be going in the right direction…

We’ve had our eye on Colombia for some time. One reason we haven’t jumped in earlier is that we’ve been cognizant that it’s a resource economy and when we first began taking notes we were already a decade into the resource bull market. Not optimum!

…click on the above link to read the rest of the article…

GDP figures from Statistics Canada expected to show second-quarter contraction

September 1, 2015

GDP figures from Statistics Canada expected to show second-quarter contraction

Lower loonie expected to boost economy in third quarter

Economists say data out this week is likely to show that Canada slipped into a technical recession in the second quarter, but the contraction should be short-lived.

“A number of positive elements are coming through,” said TD Bank chief economist Beata Caranci. “Even if, like we’re expecting, we get a contraction in the second quarter, the consumption numbers are likely to be fairly healthy.”

According to Thomson Reuters, economists expect Statistics Canada to report that the economy contracted at an annualized rate of 1.0 per cent in the second quarter.

Among other data expected from Statistics Canada this week are July trade figures on Thursday and the jobs report for August on Friday.

The Bank of Canada cut its key interest rate by a quarter of a percentage point to 0.5 per cent in July amid concerns about the impact falling oil prices and weak exports on the economy.

In its July monetary policy report, the central bank estimated the Canadian economy contracted at an annual pace of 0.5 per cent in the second quarter, but predicted things would pick up in the second half of the year.

Caranci says the benefit of the lower loonie to Canada’s export sector should boost growth in the third quarter.

Although exports were supposed to see a boost sooner, Caranci says the sector’s sensitivity to the loonie has diminished over the past decade as the U.S. — Canada’s biggest trading partner — has been importing more from China and Mexico.

“For every percentage point of deprecation you get to the Canadian dollar you’re getting less of a lift to exporters,” Caranci said. “You’re getting not only less sensitivity but also a more delayed response, so it’s coming in much later than we had been forecasting.”

…click on the above link to read the rest of the article…

Enjoy Canada’s low dollar while you can: Don Pittis

August 26, 2015

Enjoy Canada’s low dollar while you can: Don Pittis

There’s not much you can do about the low loonie, so just look on the bright side

The low Canadian dollar is hurting John Stiles at Calgary-based Planet Foods. His company distributes natural foods and healthy snacks across Canada.

The cost of his U.S. imports is going up, but he can’t even raise his prices. The large well-known chains he sells to, such as Mountain Equipment Co-op and SportChek, only allow price changes every four or six months.

Dollar dips below 75 cents for first time since 2004
China’s market problems could be Canada’s chance to ‘reset’ its economy
“Like with the dollar right now, we typically can’t do a price increase till January,” says Stiles, who is in charge of operations.

Waiting it out

According to Stiles, the only real answer is to wait it out. In the roughly 15 years Planet Foods has been operating he has seen three wild swings in the Canadian dollar.

“It’s going to take six months to a year to get that back to 90 cents,” he says.

Of course there are no guarantees that the loonie will bounce back so quickly. But Stiles offers us a useful reminder. The lower the loonie gets, the more likely it will climb back out of those lows.

While a rebound in Canada’s traditional industries may take years, the impact on tourism has been immediate with Banff “thriving.” (CBC)

The classic example of why the lower loonie helps the Canadian economy is that it is an advantage for Canadian exporters. But while we’re waiting, I thought it might be a good idea to imagine some other advantages, if just to make us feel better.

Unfortunately, there are signs a promised industrial rebound may be slow in coming. New export industries don’t grow overnight. There are some estimates that, like the effect of interest rate cuts, the wait for a currency-led change in the industrial economy must be measured in years.

Not so the tourism industry, where the rebound has been almost immediate.

…click on the above link to read the rest of the article…

Canada “Getting Clocked” by Something Far Bigger than Oil

August 19, 2015

Canada “Getting Clocked” by Something Far Bigger than Oil

Canada is likely in a technical recession, after the economy shrank for the first five months of the year. It’s heavily dependent on commodities. The oil bust and the broader commodity rout have been blamed liberally. The theory goes that the problem is contained. The oil patch may be wallowing in the mire. But no problem, the rest of Canada is fine.

The swoon of the Canadian dollar against the US dollar has caused a bout of false hope that this would make Canadian exports of manufactured goods more attractive to buyers in the US and elsewhere, and that the economy could thus export its way out of trouble. This theory has now run aground.

Because the threat to manufacturing in Canada comes from Mexico.

“I think Mexico’s just a cheaper place to produce, and you have enough human capital and engineering skills to produce almost everything you can produce in Canada and do it a lot cheaper,” Steven Englander, Citibank’s global head of G-10 currency strategy, told Bloomberg.

And the multi-year swoon of the Canadian dollar against the US dollar isn’t going to help. Over the last three years, the loonie has lost 25% against the US dollar, the peso 21%. Over the past 12 months, the loonie lost 16% against the dollar, but practically in lockstep with the peso.

This chart shows the move of the two currencies against the dollar as a percentage change from three years ago. It’s like a downhill tango:

So devaluing the loonie sounds like a good old central bank solution. But it hasn’t boosted exports of manufactured goods:

The US dollar value of non-oil exports from Canada to the US reached $32 billion during the peak month in 2008, crashed during the Financial Crisis, and recovered, but by 2012 started petering out at $30 billion a month, has since lost ground, and remains below where it had been before the financial crisis.

…click on the above link to read the rest of the article…

The Crisis Is Spreading: China, Australia, Brazil, Canada, Sweden…

August 16, 2015

The Crisis Is Spreading: China, Australia, Brazil, Canada, Sweden…

Earlier today, we posted an excerpt from IceCap Asset Management’s latest letter to investors focusing on the farce that is the Greek bailout #3, which can be summarized simply by the following table…

… and Keith Dicker’s assessment which was that “for Greece, it’s mathematically impossible to repay its debt” and that the Greek “economy continues to plummet to deeper depths and is now -33% less than where it was in 2008.”

But the truth is that for all the endless drama, Dicker continues, “the Greek debt crisis isn’t THE crisis. Rather it is simply a symptom of a much larger global debt crisis.”

The problem is that the “larger global debt crisis” is finally metastasizing and spreading to more places, all of which are large enough that they cannot be simply swept under the rug, like Greece.

* * *

IceCap’s Keith Dicker continues:

We’ve written before that governments all around the world have borrowed too much money and the weight of these debts are choking economic growth.

And to make matters worse – these very same governments and their central banks have implemented various plans that have only made matters worse.

Our view has not changed – the global debt crisis has escalated to a point where the government bond bubble has inflated itself to become the mother of all bubbles. It’s going to burst, and when it does it wont be pretty.

Further evidence to support our view is as follows:

Canada – the collapse in oil and commodity markets has pushed the country into recession and the Canadian Dollar to decline to levels lower than that reached during the 2008 crisis.

Oil dependent provinces Alberta and Newfoundland remain in deep denial. Since everyone in these provinces have only ever experienced a booming oil market, many naively believe things will bounce back – and quickly.

Meanwhile, both Toronto and Vancouver housing markets also remain in denial as they continue to go gangbusters. Buyers today are likely buying at all-time highs.

…click on the above link to read the rest of the article…

Canadian dollar dips below 77 cents with more pain to come

August 1, 2015

Canadian dollar dips below 77 cents with more pain to come

TD Bank predicts 73-cent loonie as effects of low oil linger

The Canadian dollar is nearing its low for the year Friday, after news that the economy contracted for a fifth straight month in May.

The loonie closed at 76.45 US cents, down half a cent from Thursday, after Statistics Canada said the economy shrank 0.2 per cent in May. The lowest close this year is 76.40 US cents.

TD Bank economist Leslie Preston says the dollar is likely to go to 73 cents this year, and will stay in the mid-70s for at least another year.

“Lower oil prices and more stimulative monetary policy also led us to downgrade our forecast for the loonie. We now expect the Canadian dollar to depreciate versus the U.S. dollar, reaching 73 cents by the second quarter of next year, before rising gradually back up to 76 cents by the end of 2016,” she said in a report to investors.

Canada’s economic performance is a sharp contrast from the U.S. economy, which grew 2.3 per cent in the second quarter of the year according to the latest assessment from the Commerce Department.

Low oil prices, which have stayed below $50 per barrel for the past month, are hurting capital investment by the oil sector and have resulted in elimination of hundreds of jobs.

The low loonie was supposed to help Canada boost exports and stimulate the manufacturing sector, especially with the U.S. in growth mode.

But despite a Bank of Canada rate cut earlier this month, the business outlook is still lacklustre.

…click on the above link to read the rest of the article…

Plunging loonie means inflation in store: Don Pittis

July 23, 2015

Plunging loonie means inflation in store: Don Pittis

Falling Canadian dollar means there are bargains to be had, but not for long

Taking a shortcut through an underground mall yesterday, I saw a couple who looked like Pan Am visitors ogling the low price of jewelry outside a little downtown Toronto shop.

Normally, we think of U.S. prices being cheaper than anything you get north of the border. But something special is going on with some Canadian goods right now.

As the Canadian dollar trades at lows not seen since 2004, it means that this year’s July sales may offer the best bargains you will see in a while. But it will come at a cost.

Statistical quirk?

The latest plunge is in some ways a statistical quirk, as you can see in the graph below. By falling under 77.85 cents US — the low hit on March 9, 2009 — suddenly the loonie was worth less that it had been through all the oil-boom years of the 2000s.

The Canadian dollar is trading at lows not seen since 2004. (CBC)

While it may be just statistics, there is also a reason why that quirk may be significant to long-term pricing, ushering in a new round of sharply higher inflation.

Some goods, like fresh food and energy, can change on a day-by-day or a week-to-week basis. If there is frost in Florida, a shortage of oranges shows up in grocery store prices within days.

But for many other goods like clothes, jewelry, books, appliances and cars, prices are far less volatile, says Victoria-based retail consultant Richard Talbot.

Last year’s prices

In some cases, wholesale prices for goods already in the supply chain were set months ago. Mom-and-pop retailers especially will often set their markup on the wholesale prices they paid so that profit on current inventories will be calculated based on what they paid their wholesalers.

“Generally retailers order at least a year ahead of time,” says Talbot. “Until that stock is expended, the prices would remain much the same.”

…click on the above link to read the rest of the article…

Canadian dollar dips below 77 cents for first time since 2009

July 18, 2015

Canadian dollar dips below 77 cents for first time since 2009

As strong U.S. dollar helps push loonie to 6-year low, analyst sees possible drop to 73 cents

MARKETS-CANADA/CURRENCY

The Canadian dollar fell below 77 cents against the U.S. dollar on July 17, 2015. (Mark Blinch/Reuters)

The Canadian dollar dropped to below 77 cents against the U.S. dollar on Friday for the first time since March 2009.

The Canadian dollar seesawed above and below the 77-cent level all day before closing at 77 cents US when stock markets closed.

The loonie started falling on Wednesday after the Bank of Canada cut its key interest rate to 0.5 per cent. The loonie lost more than a penny against the U.S. dollar that day, its worst one-day performance this year.

“It’s a perfect storm of events that’s sinking the Canadian dollar,” Adam Button, a currency analyst with ForexLive.com, told CBC News in an interview. He cited the collapse in oil prices that began last summer and the soaring value of the U.S. dollar.

“Almost at the exact same time as the Bank of Canada cut [rates], the Federal Reserve was talking about hiking rates,” added Button. “The U.S. and Canadian economies are wildly diverging at the moment.”

The Canadian dollar could plunge even lower, Button warned. He sees the loonie “on the brink of an 11-year low,” falling as low as 73 cents against the U.S. dollar in the next month.

U.S. economic momentum

Rising inflation in the U.S. helped boost the U.S. dollar at the loonie’s expense today, Karl Schamotta, director of foreign exchange research and strategy with Cambridge Global Payments, told CBC News.

“We see increasing signs of momentum in the American economy, and that’s likely to push the Federal Open Markets Committee toward [an interest rate hike] in the early part of the fall,” said Schamotta.

…click on the above link to read the rest of the article…

World Powers Reach Landmark Nuclear Deal With Iran, Oil Slides – Full Deal Text

July 14, 2015

World Powers Reach Landmark Nuclear Deal With Iran, Oil Slides – Full Deal Text

It is only fitting that almost exactly 24 hours after the Greek “pre-deal”, which may and will end up crashing and burning in very short notice, another long expected “deal”, one which has been about a decade in the making, was reached, when Iran reached a landmark nuclear agreement with the U.S. and five other world powers, a long-sought foreign policy goal of the Obama administration. However, just like with the Greek deal celebrations, these too will likely be short lived as the outcome sets the White House on course for months of political strife with dissenters in Congress and in allied Middle Eastern nations.

In the end, however, the reality is that with little oversight both Iran and the West will maintain the status quo, even if the chances of a middle-east “preemptive” war involving Israel and/or Saudi Arabia increase substantially.

Here are some of the deal highlight bullets from Reuters and Bloomberg:

Iran ballistic missile embargo seen in place for 8 years
Conventional weapon embargo seen in place for 5 years
Iran to cut 98% of enriched uranium stockpile under deal
Iran will eliminate two-thirds of centrifuges under deal
EU to lift sanctions on Iran as it meets nuclear obligations
Iran deal implementation will take months, officials say
Iran won’t receive sanctions relief until it complies with terms of agreement

In terms of the next steps timeline, Bloomberg adds that oil sanctions on Iran unlikely to be lifted before December 2015, according to most optimistic assessment of steps involved in draft of nuclear agreement obtained by Bloomberg. Most analysts expect this to happen sometime in 2016.

Key steps as follows: the Joint Comprehensive Plan of Action, or JCPOA, will be adopted 90 days after endorsement by UN Security Council resolution, or sooner by unanimous consent of all parties.

…click on the above link to read the rest of the article…

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