Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading today on the Web
HSBC economist David Watt assessed the risks and policy dilemmas surrounding the domestic housing boom in a recent report,
"Improved fundamentals cannot explain the rise in home prices. Concurrently, household borrowing continues to outpace economic growth and disposable income despite several rounds of macroprudential tightening of mortgage lending. The increase in debt in the past few years has left the economy accident prone in our opinion. As well, the IMF, the OECD, and the BIS have expressed concern about rising vulnerabilities in the housing sector, and the risks to the financial system."
Mr. Watt goes on to estimate that based on current levels of economic growth, the Bank of Canada rate should be about 3 per cent, instead of the current 0.75 per cent. Ok, that's based on current growth levels and a lot of this economic expansion would evaporate with higher rates, along with the value of most dividend-paying equity sectors.
"@SBarlow_ROB HSBC on Canadian housing bubble" – (research excerpt) Twitter
"GDP report to show Canadians 'living the high life' (for now)" – Babad, Report on Business
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Hurricane Harvey has caused mass refiner shutdowns and the subsequent lack of immediate crude demand continues to pressure oil prices while gasoline surges,
"U.S. crude oil prices are on track to post the steepest monthly losses in more than a year on Thursday... But prices rallied in the oil products markets, with U.S. gasoline futures RBc1 hitting a two-year high above $2 a gallon, buoyed by fears of a fuel shortage just days ahead of the Labor Day weekend that typically sees a surge in driving. 'While no two natural disasters are similar, the precedent of Rita-Katrina would suggest that 10 percent of the ... currently offline capacity could remain unavailable for several months,' [Goldman Sachs] said."
"U.S. oil prices set for worst month in over a year as floods hit demand" – Reuters
"Chemical Plant in Texas Explodes After Hurricane Damage" – Bloomberg
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In the domestic energy sector, Bloomberg reports that expansion in Canadian shale oil production has stalled,
"'I'm sensing that there is a slowdown in capital spending for this year,' Painted Pony Chief Executive Officer Patrick Ward said in an interview. 'I can see there's a downturn in budgets rather than an expansion right now.' The restraint echoes spending cuts by American shale explorers like Marathon Oil Corp. and Hess Corp., who still expect to meet or exceed production goals thanks to advances in drilling technology that make wells more productive. The more thrifty approach may be good news for investors who so far have punished Canadian producers with an 17 percent decline in the S&P/TSX energy index this year."
This might be good news for existing oil producers, supporting higher prices, but investment bankers won't like it much.
"Fracking Frenzy Shifts to Thrift in Canada Race to Tap Shale" – Bloomberg
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The loonie endured a considerable beating during Wednesday's trading session,
"'I kind of expected a clean-out trade at some point before next Wednesday (when the Bank of Canada announces its rate decision),' said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets. 'We got it a bit early.'"
Falling crude prices and profit taking in futures markets are listed as the primary culprits.
"Canadian dollar falls most in a month as greenback climbs, oil drops" – Report on Business
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Tweet of the day: " @vsualst In short, as a small, open economy, Canada is a price-taker, not a price-maker. Our monetary policy path can't be an outlier for long" – Twitter
Diversion: The food industry is fascinating to me as a microcosm of the modern economy. Government policy missteps, legislative capture by lobbyists, political nostalgia, it's all there,
"More Evidence That Everything the Government Teaches Us About Eating Is Wrong" – Reason
See also: This older New York Times feature details secret meetings of food industry CEOs, with chocking results,
"The Extraordinary Science of Addictive Junk Food" – New York Times (February, 2013 )